Why this strategist is bullish on tech despite sector woes

Thu, Jan 11, 2024, 8:54 AM

BRAD SMITH: Well, it's been a tough year for tech so far starting with downgrades on Apple stock as analysts become concerned with the tech giant's iPhone sales. Then we heard from their rival Samsung, who warned of a 35% plunge in profits in its fourth quarter. Now layoffs at Google and Amazon, should investors be worried about the sector?

We've got Brian Belski BMO Capital Markets Chief Investment Strategist. So, should investors be worried at this juncture? I mean, we're only 11 days in to the calendar year here.

BRIAN BELSKI: Yeah, let's just breathe a little bit. By the way, the Smiths were a great band in the '80s. I'm aging myself but, probably, have you heard that joke before or no?

SEANA SMITH: No, that hasn't-- not live on TV. But, yeah.

BRAD SMITH: Yeah.

SEANA SMITH: You know? And Brad plays the drums. So maybe--

BRIAN BELSKI: So there you go.

SEANA SMITH: --he could take after them in the future.

BRIAN BELSKI: No, there's a lot of different calls out there on tech. And our work shows that. Especially, after the type of unbelievable performance we saw in 2022 on the downside and then unbelievable performance on the upside, you have to take a look at two year periods.

And following two year periods like this that we've seen in technology since the Great tech bubble. OK? Typically and historically, 80% of the time, the next year, we see positive returns. That's number one. But I think the most important thing that you're going to talk about all the time on air is valuation, valuation, valuation.

And we have found through our work that valuation actually-- and technology especially is a terrible predictor of future results. And, in fact, we believe if you take a look at all parts of the financial statements, so balance sheets, cash flow, income statement, we've already seen a bit of a pullback in valuations. And tech is not stretched. And we're nowhere near any kind of bubble or froth.

SEANA SMITH: The valuation point that you just made, is that tech specific or do you also see that in other areas other sectors of the market? Just the point of it not being the best indicator.

BRIAN BELSKI: Yeah, well, traditionally, it is not a very good indicator at all, especially for the stock market. Now, over a 5 to 10 year frame, yes. But over a one to two year frame, I mean, come on, we're talking about 11 days right now in the market.

And we in this-- we have the attention spans of gnats in terms of investors right now. We have no holding period. So analysis is slow. When we take a look at a stock an industry a sector in a portfolio that we run, we have a great fortune of running 12 for BMO, is that we look for 12 or 18 months. And we look positionally.

So, Apple, everyone likes to beat up Apple. Guess what I've learned? You buy Apple when it goes down. You talked about Google and Amazon cutting costs. That's exactly when you want to buy stocks when they cut costs.

There's been financial companies in 2023 that caught a lot of people. Paid a lot of people down on Wall Street. Cutting costs. That's exactly when you want to buy the banks. So you want to buy companies when they get quote-unquote religion become tighter with respect to how they're running their businesses.

BRAD SMITH: And when we think of some of the S&P 500 targets that we've heard for year-end. How much of that will be driven by tech or is there another sector that you believe is going to emerge as that leader?

BRIAN BELSKI: Well, every year, I try to sneak something through compliance on my your head piece. And this year, when we talk about size and style, the heading is everybody love everybody. OK, Jackie Moon.

And if you know your semi pro pop culture.

BRAD SMITH: Will Ferrell.

BRIAN BELSKI: Yeah, exactly, so, that guy. Anyway, you want to own a little bit of everything.

BRAD SMITH: Yeah.

BRIAN BELSKI: OK. So what does that mean? From a sector perspective, you want to own tech and financials. Tech is growth. Financial is the contrarian value side of things, OK? Everybody hates the banks. They're believing they're going to zero. Now everybody thinks tech is over.

So I think you need to be in value, you need to be in growth, you need to be in dividend growth, you need to be in small cap-- small cap holders, and we've been bullish on small cap now for a long time now. Everybody's kind of coming around with us.

But, small caps, if you take a look at the entire small mid cap universe, it equates to the total market cap of Apple. Isn't that amazing?

BRAD SMITH: Yeah.

SEANA SMITH: It is amazing.

BRIAN BELSKI: Think about that. That's perspective.

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Why this strategist is bullish on tech despite sector woes

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