Independent Wealth Solutions Management Portfolio Manager Paul Meeks joins the Live show to discuss Fed rate hikes, a recession, investor sentiment, Apple’s market cap sinking below $2 trillion, Salesforce’s cost-cutting plans, tech layoffs, and the outlook for tech stocks in 2023.

Video Transcript

JULIE HYMAN: Let's stick with tech now and take a look at what is going on stockwise as well following the brutal year for tech that we have been following. We are actually seeing stocks turn lower now after that economic data that we just got out a few moments ago.

And here to discuss what's going on with tech right now, Independent Wealth Solutions Management portfolio manager Paul Meeks. Paul, it's good to see you again. What I'm guessing we're seeing here in the markets is once again the outlook for rates perhaps feeding back to what we are seeing in stocks and in tech stocks in particular. We've talked to you before, and this is really going to be a tough slog for these companies. Does anything change going into 2023?

PAUL MEEKS: Well, as you know, I've been pretty bearish for some time. And people are always asking me because I'm well known to cover the sector for a long time, aren't there opportunities? Aren't there opportunities? And, of course, there's always going to be a couple of opportunities amongst the rubble, but I'm still bearish on tech.

I want to get at least through the next round of quarterly reports, and, of course, they're going to be coming fast and furious in about two weeks. And the news that you had out of Salesforce.com today firing 8,000 people, I'm expecting when we have these quarterly announcements-- because what will happen, since this is the fourth quarter's announcement, they'll probably guide for the next year. And I'm hoping that all of these companies rip off the Band-Aid, take the opportunity that's been given to them-- which is a rare opportunity-- and fully reflect the recession which is coming into their financial forecasts so we can get revenue and earnings-per-share estimates down low enough where even cheap stocks cannot really respond and consistently rebound until the bottom numbers are in.

We have to go through that process. I'm hoping it's a first-quarter phenomenon, but I'm not very confident about that.

BRIAN SOZZI: So Paul--

PAUL MEEKS: In the meantime, I wouldn't buy a share until we get through those quarterly reports, and so you really only have to wait two or three weeks for that to all play out.

BRIAN SOZZI: Paul, so do you think the Salesforce warning here, which is jarring-- I mean, not many investors have seen this type of announcement, if ever, from this company. Do you think that is a tip of the iceberg in terms of tech layoffs that we might hear about in the next-- as these companies report earnings, like you mentioned? Then which companies do you think still have to trim a lot of fat like a Salesforce?

PAUL MEEKS: So you're absolutely right. We've had, by my calculation, about 300,000 tech-sector layoffs in the last year, but as you know, the bulk of them have come in the last couple of weeks or months, including Salesforce.com this morning.

I think we'll see more. I actually expect companies-- because if they announce that they're going to be drastically cutting costs, including heads-- which is unfortunate for those employees but good for investors. Their stocks might see a little bit of a lift.

But I think all of the major players, those companies that have tens of thousands if not more employees, have probably gotten fat over the years, and so I expect continued trimming. Also companies within the tech sector that are beholden to consumer electronics, I expect that to continue to be in a funk, and so yes.

I don't know if it's necessarily the tip of the iceberg, but in this next reporting season and the next couple of weeks, I expect to see more tech layoffs to the tune of tens of thousands more.

BRAD SMITH: Paul, what's the indicator that you would look to if we finally got companies that were ripping the Band-Aid off? And at that point, we probably will have been talking about a recession for a year. So with all of that considered, at what point is it so bad within tech that it's actually a bullish indicator or something that you would look to to say, OK, now's the time that investors may be willing to take on some risk tolerance?

PAUL MEEKS: Excellent question because that's the crux of the matter. So I think we go through this round of quarterly reports. Hopefully companies guide very ugly because it's in their benefit to do so for next year. They announce they're bloodletting, whether it be operational costs, including trimming more heads.

And then we get to a situation where it can't go any lower for revenue and EPS estimates on the Street. Also, we get some clarity from the Fed. When is their last rate hike going to be? I actually think it's going to be in about the May time frame.

And if we see inflation under control, the last of the Fed rate hikes, the nastiest of all possible recession nasty numbers reflected with these tech companies' forecasts, I will feel pretty good because in the meantime, the valuations on some of these tech names will be right.

JULIE HYMAN: Hey, Paul, let's talk some other specific names, shall we? Because sort of the poster child for-- well, it's sort of had its own story in 2022, didn't it? I'm talking about Tesla. I won't be coy anymore. I'm talking about Tesla. What do you think here? Has it gotten low enough now that it is attractive to investors? We did see a little bit of a bump in it earlier today.

PAUL MEEKS: I think not because remember, this stock, which has come from $400 to $111 today, started 2020 at $29. So it had an enormous gap up in '20, some more good tidings in '21, but it's been a bloodbath since.

But unfortunately if you're a chartist, a technical analyst, there is no floor on this stock. Does it go all the way back down to $29? I actually, over the next couple of years, wouldn't be surprised.

But here's a company that unfortunately has never had a demand problem until now. So they've always had to struggle with supply, and you have to give them some credit for actually meeting their production goals in recent years.

And then you have the situation with Elon Musk. We all know that this stock is as much a cult as a company. And this fiasco with Twitter, which I think he can really drive to bankruptcy, will burn the private investors in Twitter, will frustrate a lot of people who are much more liberal that are buying Teslas than the conservative commentary coming out of Twitter, and it could be particularly nasty.

In the meantime, despite the fact that Twitter was down over 60% last year, it still has about 7x the market cap of both Ford and General Motors. And so I'm not making the prediction. If I was interested in going long, I would not buy Tesla even here. I would not buy Tesla even significantly lower from here. I think there's all kinds of tech turnarounds that would be better positioned. But yes, I would not be surprised if the stock goes much, much, much lower.

JULIE HYMAN: Wow. Provocative there, Paul. I want to ask about one more, and that is Meta, which we've talked to you about before. I'm just seeing the headline here that the European Union is now saying that Meta illegally forced users to accept personalized ads, and it's fining the company 390 million euros, which is about $414 million. And obviously Meta has sort of been buffeted by some of these various regulatory concerns. That's one of the reasons that it was down last year.

What's your current thesis on Meta? I know you were not positive on it before. I don't know if anything's changed.

PAUL MEEKS: The only reason that I might be warming up to Meta is it has a real business. And I don't know if the metaverse is going to work out. I think of that as kind of a free call option on the stock.

But in the meantime, the stock has come down a bit. It's reflecting a recessionary scenario. And even though it has lost some digital advertising share, once we get to the other side and the economy starts to firm, that business should do OK, and it generates nice cash flow, and the stock is now cheap enough to reflect that.

As far as their legal issues, I really think they need to have a change at the top. I don't think your buddy Mark Zuckerberg was born with the empathy gene, and that's the new CEO that you need. We'll see what happens, but they should have some spring back to life. I'm much more bullish on Meta than I am Tesla with a recovery in the US and global economies that will bring back some digital advertising revenues, which is a very profitable, high-cash-flow business, and then we'll worry about the regulatory stuff, Mark Zuckerberg, and even the metaverse later.

BRIAN SOZZI: Paul Meeks, Independent Wealth Solutions Management, thanks for bringing these hot takes. This is what our audience likes to hear and see. Thanks so much, Paul. Appreciate it.