Last week’s market dip in technology stocks are a bit of a first for the sector in 2017. Bell-weather tech stocks in FAANG – Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), and even Alphabet (NASDAQ: GOOG) all fell by a meaningful but not a concerning amount. Those whose valuations were not in excess – Apple and Alphabet – fell by around 2% while Facebook fell 4%. Should investors worry for a broader drop?
Valuations will always matter but only to value investors. Microsoft (NASDAQ: MSFT), which at 28.5x (P/E) is dirt cheap compared to Salesforce.com (NYSE: CRM) or Autodesk (NASDAQ: ADSK), which fell 3% and 17%, respectively. Tech investors must keep an eye on market sentiment changing. Sure, the market will celebrate over the massive trillion dollar tax cut bill in the U.S. but investors must still watch for corporate profit growth.
Microsoft’s profits are mostly assured regardless of the macro changes. Its licensing software sales are growing at strong rates. Autodesk failed to keep pace with past growth and its outlook is weak. Avoid ADSK stock and those whose businesses are slowing and any tech selloff in the future will not matter to the ordinary investor.
Final Point
One more point: Apple’s weekly dips look like opportunities for investors who believe the iPhone 8/X refresh is under-way. At a 14x forward P/E, AAPL stock has room to get to the $1 trillion market capitalization.
