To understand today’s market, it helps to look back in time -- and that’s exactly what Real Money’s Brad Ginesin is doing.
“I often reflect upon the 1999-2000 Nasdaq bubble to understand market dynamics and investor behavior,” Ginesin wrote in Real Money. “Years after the bubble burst, young traders I worked with would inquire, "What was the bubble like?" Today, traders no longer feel compelled to ask that question since the recent investor irrationality has mirrored the excesses of the past.”
That’s a big mistake, as the past really is prologue with volatile markets.
“From the rise and fall of pandemic beneficiary stocks like Zoom Video (ZM), Peloton (PTON), and Teladoc (TDOC), to the clamor for SPACs and meme stocks, the investor psychology rang a similar tone to 20-plus years ago when investors wanted to get aboard internet-related stocks at any price,” Ginesin noted.
“Similar to today's markets, when the bubble burst in 2000, unjustifiably high-priced stocks fell back to earth, trading lower than one would think possible just months earlier,” he added.
The current state of tech stocks appears similar to this bit of history.
“Where most stocks will struggle and never see new highs, long-term stocks Microsoft (MSFT) and Apple (AAPL) can be part of a group of winners that can move on to new highs, regardless of the tech wreckage that's transpired,” Ginesin said. “Back then, the earnings that both companies reported were outstanding and set them far apart from most of their tech brethren.”
Microsoft
According to Ginesin, the easiest decision for institutions is to buy Microsoft and Apple for tech and growth exposure.
“With the recent selloff, Microsoft's valuation has come down to more reasonable levels, around 29x forward earnings estimates,” he said. “The company's diversified businesses, copious cash flow, and broadening business lines give investors exposure to growing cloud, enterprise, and gaming areas. Its HoloLens and potential acquisition of Activision Blizzard ATVI broadens Microsoft's importance in developing the metaverse.”
Apple
The bull case on Apple forms just as easily.
“Apple's products are in great demand,” Ginesin said. “Massive cash flow is sent back to the shareholders through buybacks, services have offered significant diversification with high margins, plus it has an R&D pipeline of products yet to be unveiled.”
Right now, there's a possibility that the market rallies become narrower in the near future, leaving many tech stocks behind.
“Investors will look for durable winners after getting burned on high-flying stocks trading at many multiples to sales with little to no profit,” Ginesin said. “Although not unknown nor cheap, Microsoft and Apple stocks are proven winners, reporting solid earnings while expanding their reach into new fields.”
