Chris Harvey, the head of equity strategy at Wells Fargo Securities, on FridaytoldCNBC he believes the software sector is a crowded place and that media and entertainment are set to see a record rally.
Bearish On Software: Harvey has downgraded the rating on software groups to underweight from neutral and lifted ratings for media and entertainment groups to overweight from neutral.
The analyst’s decision on software is based on technicals, earnings fundamentals and high valuations as the work-from-home scenario plays out during the pandemic, he told CNBC.
As per Harvey, investors are paying about a 75% premium to the market for software and “that’s too rich.”
“It is a work from home play. We just don’t think there’s a whole lot of opportunity in the short term,” Harvey said on CNBC’s “Trading Nation.”
The Dow Jones US Software Index is up 28% over the last five months.
Bullish On Entertainment: In contrast, Harvey believes the media and entertainment space is seeing better upward revisions and growth opportunities and investors are paying only a 15% premium and that it is “a much better opportunity to capitalize on that reopening play.”
The S&P 500 Media & Entertainment Index is up 4% over the last month and 34% so far this year.
Why It Matters: Harvey’s views on the work-from-home play are in contrast to recent comments from Salesforce.com Inc CEO Marc Benioff’s take that a majority of employees want to continue working from home.
Benioff recently said the “companies and our customers are successful” as employees worked-from-home.
Companies such as Slack Technologies Inc, Zoom Video Communications Inc, and Salesforce are among acluster of companiesthat benefited from remote work during the pandemic.
Walt Disney Co shares, which runs Disney parks have slipped about 0.6% so far this year. Those of theater operator AMC Entertainment HoldingsInc , a stock that has gained popularity in the retail trading space, have risen nineteen-folds since the beginning of the year. Analysts expect These companies to benefit with economies reopening further as more people get vaccinated.