Any investors who bought the best tech stocks in the depths of despair in 2009 made multiples of the return of the Nasdaq Composite Index in the 13 years since. Shares of one tech legend, Salesforce (ticker: CRM), have returned 1,928% since the Nasdaq bottomed on March 9, 2009. Such stellar returns are worth keeping in mind when clients ask you what to do in an absolutely brutal market.
When clients are looking at losses in their portfolio, and understandably are loath to consider buying anything, that is usually the time to make a shopping list.
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It’s especially promising for clients to pick through the rubble when the tech sector has taken it on the chin. While the Standard & Poor’s 500 Index is down 16% from its 52-week high, the Nasdaq is down 27%. On average, the largest stocks in tech, Apple (AAPL) and peers, have declined 38% from their highs.
So where should you direct clients? The guidance Barron’s Advisor offered in mid-February regarding megacap tech—to buy Apple and Alphabet (GOOGL) and leave aside the other giants—was a good strategy in a bad market. Apple shares are down only 17% this year and Alphabet, 20%. Along with Microsoft (MSFT), down 21%, those are the best-performing megatech names. The other giants of tech, Tesla (TSLA), Nvidia (NVDA), Meta Platforms (FB), Amazon (AMZN), and Alibaba (BABA), all fared much worse, averaging a 31% decline.
Advisors should suggest clients stick with Apple and Alphabet for the moment. The bigger question is where to look in the hundreds of names below a trillion dollars in market cap.
First step: make a list. When clients are looking at losses in their portfolio and understandably are loath to consider buying anything, that is usually the time to make a shopping list. The beauty of buying in a down market is that if you buy quality and can catch the rebound, you won’t have to wait years to see the payoff.
The most basic approach to picking beaten-down gems is to gather a list of the best tech names and then look at those that have fallen worse than the market this year. The Nasdaq Composite is down 24% through Friday. The gems to look for are those that are down a lot more.
When I screen for quality tech stocks that have fallen more than the Nasdaq’s 24% decline this year, 10 names pop up as excellent stocks to scoop up: Arista Networks (ANET), Qualcomm (QCOM), Applied Materials (AMAT), Nutanix (NTNX), Wolfspeed (WOLF), ASML Holding (ASML), Lam Research (LRCX), Advanced Micro Devices (AMD), Clearfield Communications (CLFD), and Twilio (TWLO).
The list is a fairly diverse assortment of hardware, software, and services names, some of which I’ve followed for over a decade and that I believe are the top competitors in their respective areas of tech.
My picks. Beginning with the most abstruse, Applied Materials, ASML, and Lam Research are the top names in semiconductor fabrication tools. With chips still in short supply, and with countries talking about onshoring production of chips to reduce dependence on Asia, there is a bright future for chip equipment sales, with less volatility in the notorious chip cycle than in past years. These stocks are down an average of 31% this year, and each is off more than a third from its 52-week high.
Likewise, some of the top chip makers are down more than Nasdaq, including Qualcomm and Wolfspeed. Qualcomm is the dominant supplier for wireless chips for phones. While that market is cooling this year, Qualcomm has diversified to other markets, such as the Internet of Things, reducing its dependence on smartphone sales. Wolfspeed looks set to dominate the key technology for electric vehicles, silicon carbide, with a new factory opening this year in upstate New York.
Advanced Micro Devices continues to thrive as archrival Intel struggles to stage a comeback. CEO Lisa Su has not missed a beat in guiding the company from one successful chip generation to the next. The company’s recent purchase of Xilinx, the programmable logic-chip maker, is an intriguing new direction for AMD. And AMD is a cheaper rival to Nvidia, its stock trading for eight times sales, less than half what Nvidia trades for.
Some of the best systems makers building data centers are way down. Arista is the No. 1 bet on the future of networking for AI and metaverses and everything else that Meta and others are building. With double-digit sales growth and a string of winning quarters, the company is entering a larger playing field as it brings cloud software to steal away Cisco Systems ’s (CSCO) market.
Less mature but still worth a bet, Nutanix is a play on the software future of data center infrastructure for a multicloud world.
Clearfield Communications is an outlier, a small-cap—$700 million market cap—name that has a boutique business making equipment to install fiber-optic lines. The company is a play on both 5G wireless buildouts, and fixed wireless deployments for increased last-mile transmission, which is poised to benefit from the bipartisan, multibillion-dollar Rural Digital Opportunity Fund initiative of Congress. CEO Cheri Beranek has guided the company through multiple years of revenue and earnings beats by being astute about deploying capital, and building a thrifty culture.
Lastly, Twilio is a company that loaded up on debt and equity raises while capital markets were wide open, and is now armed with a substantial balance sheet including five billion of cash and investments against $1.2 billion of long-term debt. The company is increasing revenue at 30% a year and has pledged to be profitable next year and thereafter.
With a hand in the technology of connecting companies programmatically to customers—the power behind the Uber app—Twilio is as interesting a stock pick now as Salesforce was 13 years ago. The stock, down 61% this year, trades for just under six times forward sales estimates, one of the cheapest multiples in cloud software.
There are second-place awards for names to keep on your list, should the pain resume. Micron Technology (MU), Pure Storage (PSTG), Analog Devices (ADI), Pager Duty (PD), Hubspot (HUBS), and Block Inc . (SQ) all merit consideration down the road.
Tiernan Ray is a New York-based tech writer and editor of The Technology Letter, a free daily newsletter that features interviews with tech company CEOs and CFOs as well as tech stock news and analysis.
