The combination of market pricing with slowing economic growth and rising interest rates is holding back growth and technology stocks this month, but for savvy investors, the cut could be a buying opportunity.
It’s a matter of when, not if, technology stocks rebound, and for investors unwilling to stock pick in the midst of the current killing, the Goldman Sachs Innovate Equity ETF (GINN) is a prime example of an exchange traded fund that has great significance as a diversified means for investors who want to stand for a tech rally.
The $ 433.41 million GINN devotes nearly 34% of its weight to the technology sector, and most of its assets from that group are high-quality, mega-cap names, not the smaller, imaginary, unprofitable companies actually weighing in on technology by 2022.
“Growth and many technology stocks have been hit primarily because of the long duration of their earnings. An important part of the value of technology stocks is their profile on future earnings, and as investors lower their growth expectations and/or reducing future earnings at a higher rate, the current value for these stocks drops more and faster than in the broader market, ”said Morningstar analyst Dave Sekera.
Sekera recommends focusing on tech companies with strong revenue visibility, robust free cash flow-generating capabilities, and pricing power, which are important in an inflationary environment like the one faced by investors today.
“In addition, we are currently focusing on those with strong pricing power and are able to pass their own cost increases on customers to maintain their own margins. In this market environment, we prefer companies that with both stable cash flow and good close visibility into their earnings for this year, but still have good prospects for long -term growth and large tangible addressable markets, ”added the Morningstar analyst.
Among the stocks that show those characteristics and are now undervalued following the tech sell-off are Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC). Both top 10 holdings in GINN and combined for 3.2% of the fund’s weight.
Adobe Systems (NASDAQ: ADBE), cloud computing behemoth Salesforce.com (NYSE: CRM), and ServiceNow (NYSE: NOW) are other examples of stocks highlighted by Morningstar as having the aforementioned characteristics and undervalued today. All three are members of the GINN roster.
“Following the massive sell-off so far this year, we see some stocks within the technology sector being pushed very far during this market defeat and providing great opportunities for investors today,” he concluded. Sekera.
For more news, information, and strategy, visit the Future ETFs Channel.
The opinions and predictions expressed here are those of Tom Lydon only, and may not actually happen. The information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.