BNN: Is the dip in the FAANGs is likely going to be short-lived?
GVA Research: With economic growth prospects remaining subdued and broader inflation statistics relatively quiescent, investors are likely to remain interested in stocks where exposure to growth can be obtained at a reasonable price. In this regard, some but not all, of the FAANG stocks may prove to be of interest. Note that in past investment cycles, investors would pay up to 2x a company’s underlying growth rate. With the market trading near 52-week highs, investor should err on the side of caution and consider names that are priced more in line with their growth rate (i.e. 1.0x).
BNN: Do any of them have a major catalyst in the near future? Which major tech stocks are you most optimistic on?
GVA Research: Two catalysts to consider are: 1) upcoming product launches and 2) 2H17 economic prospects. In terms of product launches, investors should be laser-focused on the upcoming introduction next month of AAPL’s iPhone10 which offers the prospect for a substantial upgrade among existing iPhone owners as well as a boost to AAPL with iPhones as a year-end holiday gift. Relative to 2H17 economic prospects, important to note that the FAANG stocks tended to leveraged to the pick-up in economic activity tied to year-end holiday shopping whether it be from online advertising or online shopping, both of which serve to provide a tailwind as to the companies’ near-term prospects.
BNN: Is this a buying opportunity for those that want to get in?
GVA Research: As always, investors should be selective. To that end, it is important investors consider those names where profit margins are expanding (i.e. EPS growth greater than sales growth) over names where profit margins are under pressure or where EPS are seeing outright declines. When faced with uncertainty, selectivity is critical to preserving capital and, along with it, performance. With the iPhone10 launch, we consider AAPL a situation investors may consider. Also, FB is leveraged to benefit from increased advertising exposure during 2H17.
Separately, with increased online commerce fueling demand for payment services, PYPL is an attractive name with strong near-term financial performance and reasonable valuation (see G2 Crowd Payment Gateway Grid: https://www.g2crowd.com/categories/payment-gateway).
BNN: For investors that are a bit more tech savvy – what are your thoughts on bitcoin & the run-up?
GVA Research: To our view, the demand for bitcoin and other virtual currencies reflects in part flight capital activity from countries where government authorities are seeking to restrict capital outflows as well as investor interest in finding alternatives to traditional safe havens such the U.S. Dollar in times of geopolitical crisis. With both government capital restrictions and geopolitical instability on the rise, it is not surprising bitcoin has been bid up.
BNN: Would you invest in cryptocurrencies? What’s the best way to play them?
GVA Research: As opposed to owning bitcoin or other virtual currencies outright, we prefer to invest indirectly through companies that are active in the asset category and through their professional management seek to mitigate some of the risks associated with participation in a volatile asset class. Names that come to mind here are BTCS and MGTI.