Tech Stocks Going On Sale

There is a sale going on right now in technology stocks: are you buying? Since hitting a high on March 6, the tech sector, as represented by the NASDAQ, has dropped 6.25%. More recently, the index has dropped 4.58% in just the past four trading days alone. Previous high-flyers like FireEye (FEYE – down 49%), Twitter (TWTR – down 43%), Rackspace (RAX – down 38%), Yelp (YELP – down 32%) and Netflix (NFLX – down 25%) are just a few of the examples of the recent carnage.

So what’s a growth investor to do? Do what I do: make a list of the stocks you’d like to own, along with an entry point at which you would start to buy. If a stock you want falls into the buy range, don’t buy a full position right away. This way you’re protected in case the price continues to fall. Consider buying in three equal tranches to build a full position.

Unless you’re a seasoned growth investor, be careful about which stocks you go after. You may want to pass on those trading at triple-digit multiples, or without earnings of any kind. These “story” stocks can be incredibly volatile and short-term losses can be severe. Just take a look at the chart for 3D Systems (DDD). If you can’t stomach the ups and downs of that rollercoaster ride then perhaps you may want to look at more seasoned at companies like Amazon (AMZN), Mastercard (MA) or even Facebook (FB).

Whatever you choose, go in with the understanding that you may have to be patient as you wait for the sector to recover. If you manage your expectations, and invest a reasonable amount of money (probably starting at 5-10%) then this could be a good time to dip your toes in the high growth arena.

 

*Disclosure: Werlinich Asset Management, LLC owns small positions in NFLX, AMZN and FB.

Market Achieves Record Levels

About an hour into trading today, the S&P 500 and the Dow Jones Industrial Average have both surpassed previous all time highs and achieved significant milestones. As I write this around 10:30am, the DJIA is at 15,003, marking the first time in history the venerable index has reached that level. Similarly, the S&P 500 is at 1,616, the first time that index has ever been over 1,600. And the Dow Jones Transportation Average is only 7 points below its high. Should the DJTA move to record levels concurrent with the DJIA then we’ll have a bullish confirmation according to Dow Theory. This is all great news.

Yet surprisingly, given these lofty levels, the overall enthusiasm seems relatively muted. There are no fireworks, no parties on the floor of the stock exchange and relatively muted commentary on CNBC. I think that’s a good thing. It suggests that this in not a period of “irrational exuberance”, like 1999. Corporate balance sheets and earnings are in much better shape than in 1999 or 2008 and the global economy continues to be propped up by central bankers. So as long as the money continues to flow unabated, the good times should continue.

That being said, it appears to me that market sentiment remains relatively bearish, or at best very overly cautious, despite the record levels. I think too many individual investors have remained on the sidelines since the crash in ’08, missing out on this stupendous rally. Also, the plethora of contradictory economic news, both in the US and around the world, has left market participants confused and scared. It seems as though every day one economic statistic reveals a slowing economy while another suggests that everything is more robust than expected. Earlier this week the PMI data indicated that the manufacturing sector was slowing. Comments by the Federal Reserve seemed to confirm that thesis. Yet today it’s all wine and roses after the BLS released a stronger than expected employment report. More jobs were added than expected in April, and February and March were revised higher. Additionally the unemployment rate dropped to 7.5%, the lowest level since the crisis began.

It’s possible that since the DJIA and S&P have now breached important psychological barriers that the rally will really take hold as cash begins to move from the sidelines and investors and money managers who have under-performed the market rush to add equity positions. If that is the case, the broad market could move markedly higher from here, dispelling the old adage to “sell in May and go away”.

Conversely, these lofty levels could spur some investors to take some profits and wait for the inevitable correction. We’ve already had a great year after only four months. I certainly would have signed up for a 12% return for the year. If this momentum continues, we could be looking at 20%+ returns for the year. Only time will tell as there is still a long way to go before the story of the market for the year is fully written. Personally, my clients and  I remain almost fully invested, but we’re selling weaker holdings into the rally to raise some cash for the next buying opportunity.

Is Social Media Dead as an Investment?

Investors are fleeing social media stocks in droves. Pandora (P), Groupon (GRPN), Zynga (ZNGA) and Facebook (FB) are all being crushed. Angie’s List (ANGI) and Yelp (YELP) aren’t doing much better. Only LinkedIn (LNKD) is trading around where it was on the day of its IPO. Does this mean the end of the game for this sector of the Internet 2.0, or is it just a bump in the road? While I don’t have a horse in the game, I’ve come out publicly against owning any of these stocks. What do you think?