With the stock market in full freak-out mode, most investors are ignoring analyst advice on individual issues—every stock now looks a lot cheaper than it was a month ago, or even a week ago. The news that matters is macro in nature—the focus is on the coronavirus outbreak, not incremental improvements in cash flow estimates.
That dynamic has spurred some Wall Street pundits to get philosophical—and to coach investors on sticking to their guns on companies with compelling investment stories.
Wedbush analyst Dan Ives, who covers a wide range of tech names, took the barbell approach in a research note this morning, trying to pull back to the 30,000-foot level, while also offering some practical suggestions on stocks to buy while everything is on sale.
“Across the tech space the red screens are front and center for investors as the panic, fear, and worries about a coronavirus-driven economic downturn continue to pressure stocks across the board,” he writes. “Our investing philosophy in times of crisis is to do a bottoms up analysis and stress test the models of our top tech names/themes vs. a sensitivity in valuations. If stocks stick out with a green light based on this exercise and framework, we hand hold investors to buy these dips through this volatility, own the names for the other side of this panic, and see the forest through the trees on the fundamental drivers for the next decade in tech.”
Ives thinks that a “surge of strategic and financial buyer driven M&A could be on the horizon over the coming months as valuations start to reach levels which can ignite a long-overdue deal frenzy that could start to put a floor on the software sector as well.” He thinks
(ticker: MSFT), Alphabet’s (GOOGL) Google,
(ORCL) could all look to take advantage of their strong balance sheets to beef up their cloud portfolios.
Ives writes that he remains bullish on cloud computing, 5G wireless handsets, and cybersecurity. “Does an economic slowdown impact these models and valuations? The answer is a clear yes,” he writes. “However, looking past the fear and panic (and a potential short-lived economic dent/softness), we believe these high-priority areas of spending and business models have attractive risk/rewards looking ahead and we would be buying these tech names at current levels.”
- Cloud computing: Microsoft,
(DOCU), NICE (NICE),
r (ZS), Varonis Systems (VRNS),
Write to Eric J. Savitz at email@example.com