It may be too early for a rotation out of technology stocks, but investors don't have to necessarily buy soaring names like Tesla and Peloton for a winning strategy, according to Credit Suisse's chief equity strategist.
Jonathan Golub told Bloomberg on Friday he is not rotating out of technology stocks yet because he believes it's going to take longer to deploy a vaccine for the coronavirus than many do.
“If you believe that a vaccine is around the corner, then in an odd way you probably want to start rotating away from the tech winners. If you believe – and this is my belief – that it's going to take longer for us to get a vaccine in everyone's hands, even though we're progressing forward, that's actually a positive story for these tech darlings,” Golub said.
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He added that the story for the next few months will be to stick with the “winning theme of growth,” but investors should look for companies with certain key characteristics: faster sales growth, better earnings per share, low debt, high margins, and a focus on reinvesting in business. Winning stocks with these traits might be stretched year-to-date, but they are “fundamentally superior,” he said.
“If you look at the companies with the characteristics for success … you can find many of these names reasonably valued,” Golub said. Some of those companies could even be larger technology names that other strategists are suggesting a rotation away from.
“There's clearly an issue with companies that year-to-date are up over 100%,” the strategist said. “But if you look at the big five tech names, that's Apple, Amazon, Google, Facebook, and Microsoft, none of them are up over 100%. They're up big, but they're not in the Tesla, Peloton camp where the numbers are off the charts,” the strategist said.
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