Daniel Ives: A Generational Buying Opportunity in Tech?

Can we be wrong? Of course!

From a note to Wedbush clients that landed on my desktop Friday:

Let’s call it like it is: it’s probably the most complex macro backdrop in a 100 years. The world economy and consumers coming out of a once in a century pandemic, once in a fifty year supply chain disaster, raging war in Ukraine, sky high inflation, Fed chasing from behind, black box/machine algorithmic trading, and the cherry on top of the sundae is a social media world where all data points are microanalyzed by millions and can influence markets quickly in seconds…

In a nutshell, this is not a Dot-com Bubble 2.0 in our opinion, it’s a massive over correction in a higher rate environment that will cause a bifurcated tech tape with clear HAVES and HAVE NOTS of tech. Will there be the Pets.com, Webvan, Worldcom, and Global Crossings of 2022? Sure there will be many tech and EV players that go away or consolidate, but we pick the winners from our vantage point. All risk assets are selling off in tandem, which is why in this note we put together our Wedbush Tech Playbook to use this deleveraging and degrossing historic sell off to pick up the best disruptive tech names and what we view as near trough multiples.

Stress test models. Can 2022 and 2023 numbers come down for many of these enterprise players including stalwarts like Microsoft? Of course they can; the market is factoring in Street numbers coming down significantly from current estimates which we believe is way overdone. We have stress tested our tech models and believe in a worst case scenario Street numbers for 2023 come down by less than 10%, while in a base case scenario they are unchanged from today and in a soft landing scenario actually go up from current numbers. We believe these stocks are pricing in a “hard landing” with fears abound.

    • Wedbush Tech Playbook-Large Cap Top Picks: Apple, Microsoft, Tesla
    • Cyber Security Basket: Palo Alto Networks, Checkpoint, Zscaler, Fortinet, Tenable, CyberArk
    • Value Tech with Strong End Markets: NICE Systems, Verint, Progress Software, Ziff Davis,
    • Consensus EV Names to Navigate Storm: Tesla, Li-Cycle, XOS Trucks, Hyzon.

“You sound like a broken record the last 4 months! Why you writing this piece?” A good question many reading this will be asking so let’s address it head on. Our tech playbook list is combination of tech stalwarts, healthy exposed end market tech names, and value tech stocks to navigate this dark storm. Can we be wrong? Of course! and we have been wrong many times like every other human over the years in the markets. HOWEVER, our strength over the decades has been handholding in the storms and picking the tech winners in times of panic-which is why we wrote this piece for our clients in this scary market backdrop.

My take: I count more than Ives’ usual quota of rhetorical questions. Might he be a tad defensive?

25 Comments

  1. Fred Stein said:
    It’s peach picking time in Georgia. It’s stock picking time for me.

    Great piece. I’ll send to friends.

    Boom and busts occur when followers extend fundamentals beyond reason. Followers are followers, not thinkers. They buy and sell based on what the thinkers did, when the data no longer supports the trend.That’s opty for pickers, right now.

    Even with interest rate unknowns, Apple remains one of the best option. They’re anti-fragile and anti-bear.

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    May 13, 2022
  2. Tommo_UK said:
    If you go back through my posts a few months and said I wasn’t buying any more over $150, you’ll find Robert asking me how much lower we’d have to fall before I’d buy (there was a strong bounce at the time)

    I’m sure PED could find the reply in a flash, but I believe it was in the low 140s due to geopolitical risk and instability, inflations, energy prices, and regulatory risk. I think we just took them all out.

    Anyone else still in lalaland the Putin will never invade Ukraine and that regulatory risk is an increasing decreasing threat? I’ve been in this for 22 years and I don’t think I’ve ever seen the world whistle past the graveyard the way it is now.

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    May 13, 2022
    • Robert Paul Leitao said:
      Tommo: Thank you for your consistency and your candor. I’d have to go back and reread the exact exchange, but you did caution about exuberance and clearly stated several of the risks ahead. Of course cautioning about Apple’s challenges while recalling what you believe have been some strategic mistakes isn’t always popular, candor is necessary for informed & productive discussion and debate.

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      May 13, 2022
      • Tommo_UK said:
        Robert

        Yes i take it as a sign of tolerance earned by candour and forthrightness that sometimes I’m not literally yelled off the the board for some of my cautionary tones..

        Contrarian thinking combined with pattern recognition has served me well over the years but I have to say sometime it pains me to go bearish, usually because it’s often more accurate and profitable than a swing trade going long. It goes against the grain to eat my own dog food when I go cautious on AAPL but since 2008 I’ve learned the hard way that after the run up through 2007, trading and investing changed forever and to stay ahead you had to fight your own cognitive bias. It took me a lot of time and a small fortune to understand that.

        I think we’re about to enter a new paradigm. I think energy process have peaked, inflation is going to fall, and new ways of living and working will change the consumer shopping dynamic forever, lending strength to it and increasing productivity and profitability.

        I’d be scaling back in on this, not on any US analysts call but especially because most of them can’t agree what to do. That means a lot of cash lying around and with AAPL waiting for some next big news (still no glasses car orbmars rover in sight), so finally a lot of downside seems factored it leaving a lot of room to run up to $200 on any stabilising European news.

        Place your bets!

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        May 13, 2022
  3. Jeff Galanti said:
    I read an interesting blurb from one of my brokers this morning. Dating back to 1948, the average drawdown of the market during corrections was 29%. Within 1 year of the end of those drawdowns, the average return was 40% and, within 2 years, the average return was 54%. That is for the entire basket of stocks that make up the market. Of course, Apple has a superior balance sheet and operations to the “average” stock in the basket by a comfortable margin. When you add in the fact that Apple has a sticky ecosystem and that its products are “addictive”, I think we can all sleep better. Our primary worry right now should be finding cash to buy more stock, effectively putting out the washtub while it rains gold.

    1
    May 13, 2022
  4. Putin/OPEC+ seem to be winning the energy war, impacting nearly everyone on Earth. Apple vendors, customers and employees along with everyone else. Few don’t own a car in the US but even they have heating, public transportation and grocery bills, all impacted by diesel at $6.50/gallon. I see where the equivalent of a US gallon runs about $7.68 in your locale, Tommo. My New Jersey neighbors and I are bellowing over $4.50/gallon. All this reduces or eliminates discretionary purchases across the board, at least for the huddled masses.
    Apple customers, potential or existing, may pare Mac or iPad purchases in the short term but you gotta have a phone to exist. For many in my periphery Apple Watch is now de rigueur. Cancelling the Apple TV+ subscription hardly helps with the gas bill and there are a few shows we enjoy along with the kids on that service. The Netflix subscription or cable TV bill is more likely to see an axe.
    Other than real slowdowns in Japan and developing markets like India or the Philippines perhaps, I still see Apple chugging along fine, albeit in a lower gear. Delays in upgrading perhaps but no switching to Droid at this stage. Anticipating what will occur in greater China is impossible but like many of us, once in the Apple ecosystem they remain.
    Regulatory impacts are certain but also sure to be delayed or felt over a greater period of time. App Store fees will gradually be chipped away at for sure. Apple can and will seriously boost the bottom line with other products or services like hearing aids or glasses. Heck, given the needs of our aging masses an Apple wheelchair incorporating the Segway-like balancing act would sell a 100 million units. iChair anybody?

    4
    May 13, 2022
    • David Emery said:
      In the short run, OPEC+ will rule energy markets. But even my limited knowledge of economics shows that they are driving the price of fossil fuels to where alternatives provide a much bigger relative ROI. As I’ve said before, I have no sympathy for Germany’s situation given their actions to decommission their nukes. France on the other hand has been smarter by pausing their nuke decommissioning, to retain additional electric power generation.

      1
      May 13, 2022
  5. Jerry Doyle said:
    I remember as a kid many a late Sunday nights sitting on the front porch listening to the preacher, my dad and other grown-ups talk about the End Times coming. They said the signs were everywhere. On Sunday mornings the preacher always described clearly the events leading us to the Rapture. The family would go out to the rural counties to attend the revival meetings, have dinner on the ground and it was a similar message focused on how close we were to our “Exodus” from this sinful and wicked Earth. So many End Time signs were plainly visible and described by all who were aware and spiritually awake that I often remembered at night with anticipation of being seized suddenly, snatched from my bed, caught-up and carried away to the heavens before I could say good-bye to Sam, my pet dog. Today at 75 I sit in church and still hear the preachers talk of the omnipresent signs that the End is near. Long ago I decided that none of that talk would distract me in my religious belief, for no one on earth knows when the Exodus will happen.

    Apple is a solid investment. The fundamentals of the company are the same. The attraction, the desire, and need for its products and services are the same today as yesterday. Nothing with Apple or the folk who can benefit from Apple have change. The turbulence in the markets are little more than events of which the market analysts, media and everyone else talks about like my dad, the preacher, and others describing the End Times. Long ago I decided too, that none of that market turmoil talk would distract me in my market investment beliefs; for the markets always climb higher. We will once again see Apple back at its ATH and blowing through that sucker.

    4
    May 13, 2022
    • Kirk DeBernardi said:
      Jerry D. —

      Great tale of “talk is cheap”.

      Always has been.

      Geaux AAPL.

      0
      May 13, 2022
  6. Robert Paul Leitao said:
    The technology industries continue to deliver productivity gains for the economy in general and for employers in particular. Gains in productivity are a counter force to rising compensation rates and thus will be essential for economic growth and recovery from today’s inflation challenge. I don’t know if this is a once-a-generation buy opportunity in tech at today’s prices, but I believe technology-related products and services will continue to be a major force in our society, continue to enhance our quality of life and continue to drive the economy forward. It’s among the sectors in which continued growth is virtually guaranteed.

    1
    May 13, 2022
  7. Kirk DeBernardi said:
    “My take: I count more than Ives’ usual quota of rhetorical questions. Might he be a tad defensive?”

    To those of little faith: Mr. Ives sounds to me like the brave captain of a ship in a storm, charting the course confident he’ll reach the port and pick up even more goods for future trade.

    1
    May 13, 2022
  8. Jacob Feenstra said:
    I regularly agree with Daniel Ives, but putting Tesla in the same category as Apple and Microsoft seems a stretch to me. Tesla is a growth stock… that could crash. Meaning, there is much more risk attached to that stock than a value stock like Apple or Microsoft.

    Let me give an example of the risk Tesla and its shareholders are facing. The Netherlands was an early adopter of Tesla cars (to a degree because of incentives and having the EV mindshare). In 2019 Tesla 3 was the top selling car there and total Tesla sales accounted for close to 7% of the car market (EV and combustibles). But competition from other EV makers (and maybe losing some of the incentives) led to a very substantial drop in market share: to 2.5% in 2020, 1.3 % in 2021, and 0.6% YTD in 2022. Talking about falling off the cliff. What if that is a harbinger? What if that would happen globally? Tesla is still high-risk. I’m with Buffett on this, not with Ives.

    1
    May 13, 2022

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