Technology stocks like Apple and Microsoft have gotten pummeled this week as key inflation data came in hotter than expected. Despite the selloff, one top financial advisor remains positive on large-cap tech stocks.
The August inflation report was a shock to the market. The consumer price index rose more than expected, leaving investors more concerned than before over how aggressive the Federal Reserve will be in its fight to cool off still too high prices. That was reflected in the yield of the 2-year Treasury note, which climbed to 3.8% on Wednesday, up from 3.57% this past Friday.
Higher rates are rarely good for the stock market, and Tuesday was no exception, as all three major indexes suffered their worst losses since June 2020. The Dow Jones Industrial Average dropped 3.9% and the S&P 500 was down 4.3%, but the real damage was in the tech-heavy Nasdaq Composite, which declined 5.2% as Apple (ticker: AAPL) and Google parent Alphabet (GOOGL) shares slumped around 6%, while Microsoft (MSFT) fell 5.5%. Shares of Meta Platforms (META) sank 9.4% for the company’s worst day since Feb. 3.
That makes sense given that growth stocks are particularly sensitive to higher rates. Growth companies, like those in big tech, generate a lot of their cash flow in the future and higher interest rates mean future cash is less valuable than it was when rates were lower.
But Richard Saperstein, CIO for Treasury Partners and the number seven ranked financial advisor in 2022 according to Barron’s, says that he remains overweight on some of the world’s largest tech stocks.
“We want to have companies that are noncyclical, have high free cash flows, structural tailwinds, strong balance sheets, and can sustain a slowing economy,” Saperstein says.
Specifically, Saperstein said he is overweight Apple, Microsoft, and Alphabet, and sees days that stocks are down as much as they were on Tuesday as “an opportunity” for investors that are underweight the stocks to add them to their portfolios.
Saperstein calls Microsoft “one of the most critical and indispensable IT vendors.” He also likes that Microsoft has “low levels of regulatory risk,” especially compared with companies like Google and Meta, which are “using your data to generate sales of advertising.”
Saperstein is a fan of Apple’s “ecosystem,” and believes new products like the iPhone 14 and Apple Watch Series 8 could be potential catalysts for the stock, along with the continued improvement of its products.
“They’re adding value to new products, they’re not just regurgitating the same product with a larger screen, but they are adding value along the way,” Saperstein. “We’re seeing increased sales, an embedded base of phones that are going to be sold again to people who have older phones, service revenues are approaching 23% of sales…there’s a tremendous amount of buybacks and a very strong balance sheet.”
Even when it’s out of favor.
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