Traditional economy takes revenge and beats technology

After years of rising Nasdaq, sales and mistrust have settled among investors, who opt for value stocks

They were years of an unstoppable rise in the shares of the technology companiesBut that has changed now, as investors are turning to value stocks, such as food and beverage companies, as they are better able to weather tough economic times.

Likewise, there is an increase in investments in energy, due to the high prices of fossil fuels and a green revolution in full transition.

Analysts at the US bank Goldman Sachs rightly baptized it as the “revenge of the traditional economy”.

The Nasdaq index rose 26.6% in 2021 and in the year it has already lost 28% of its value. the analyst David Galandirector of General Bagbelieves it is necessary to make a distinction between technological values: “On one side are those large companies, such as the so-called FAANG (Facebook, amazon, Manzana, Netflix either Alphabet), with abundant and continuous profits, and on the other hand, small and medium-sized companies, many of them still without profits and where speculation has been fueled more in recent years”.

To win, it seems that it is time to invest in companies of the traditional economy

Remembering the 2000

This change is very reminiscent of the dotcom crisis of the year 2000 and the bubble age, which in this case, for example, could be seen in the shares of the electric vehicle company Rivian, whose price has fallen in these little more than four months 78% of its value. But he’s not the only one.

From the manager Carmignac, the celebration of these values ​​has come, for the time being, to an end. “We remain cautious on unprofitable technology companies, since in an environment of higher rates, investors are not willing to finance growth at the expense of profitability,” they say in the French firm.

Other cases are that of Meta Platformswhich has lost 43.5% in the year, PayPal (-62%), Amazon (-37%), and Netflix stands out, which has left 71% of its capitalization so far in 2022. The most moderate decreases correspond to Apple (-21.6%), microsoft (-23%) and Alphabet (-22.1%).

Olivier deBerangerchief investment officer of The Financière de l’Echiquiercomments that “The closure of activities in Russia has affected the accounts of Alphabet, Meta Platforms and Apple for the year as a whole, as well as lower advertising revenues in practically all markets”, which adds, “Apple published revenues for above forecasts, but revised its second-quarter targets on weaker demand in China due to its covid-zero plan.Amazon was weighed down by rising wages and higher transportation costs, which led it to losses in the first quarter. And Microsoft is the exception, as it continues to benefit from the digitization drive with its Azure cloud platform, revenue growth at LinkedIn and its Surface computing division.”

Other indicators

Amazon’s losses of 3,844 million dollars in the last quarter have been a blow to the sector. In addition to the problems inherent to a situation of economic slowdown and once the advantages that the confinement of covid-19 brought to many of these businesses, the rise in interest rates is the other big leg of their loss of attractiveness. As David Galán explains, these companies are valued taking into account the expected annual growth rate of their results for several years ahead and the free discount rate marked by the evolution of interest rates is applied in the denominator. The rise in the price of money experienced by the Western world, and especially the United States, causes a reduction in the valuation of these companies, which explains the falls on the stock market.

Goldman Sachs points out that, if long-term interest rates remain at current levels (3% for the 10-year bond) or rise more, “it is unlikely that buy recommendations will return to the technology sector: there is more risk that rate normalization will push the valuation down even further, especially if its earnings growth is not enough to offset these higher rates.

Many liken the current trend to what happened with the dotcom bubble in 2000

Many liken the current trend to what happened with the dotcom bubble in 2000

“We have long argued that many of these companies were already perfectly priced, and any challenge to that growth assumption would highlight the lack of anchoring in their prices. This appears to be the case now.” Daniel Whitemanager M&G.

What to do in this case?

This change in investment direction from growth values, with technology, to safe and reliable income will continue in the coming months. In addition, higher interest rates imply lower tech valuations and more rate hikes are expected for now.

David Galán, from Bolsa General, bets on cybersecurity and software companies at current levels. “In cybersecurity we expect strong growth and subscription payment models like Microsoft suppose a constant and secure flow of money. Also by companies like Alphabet that operate in a quasi-monopoly regime,” he explains. In Goldman Sachs They say they are overweight in technology and bet on automation software and companies dedicated to technology-enabled health care. That yes, believe that it is the moment of an active management and to select a lot of the values. For the fund manager fidelitycompanies like ericsson, Samsung,Alphabet, Intel, Infineon, ActivisionNetflix, IBM Y Analog Devices they are part of its technological portfolio due to the great growth that 5G, artificial intelligence, electric vehicles, video games or robotics will bring, El País indicated.

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