By Barbara Kollmeyer
Enthusiasm over bullish jobs data appears to have faded a bit, and investors are investors hunting for the next catalyst to send this market higher.
The Bahnsen Group’s chief investment officer, David Bahnsen, believes markets are midway through a tech pullback, not headed for a “sudden and shocking 30%, 40%, 50% drop, but that we get to a point, empirically and demonstratively so, that requires repricing.”
In our call of the day , Bahnsen tells MarketWatch that investors could be blind to valuation risks for certain high-profile stocks, as price/earnings ratios haven’t corrected to anything “normal or reasonable.”
He pulls up a bit of history as guide to what can happen.
Microsoft /zigman2/quotes/207732364/composite MSFT -0.53% took 16 years to make new highs and Cisco /zigman2/quotes/209509471/composite CSCO +0.83% isn’t even close to its all-time high set in 1999. “Intel /zigman2/quotes/203649727/composite INTC -0.09% is basically right around where it was in 1999, and yet all three companies crushed it for the last 20 years, grew earnings double digit per year for 20 years,” he said. “If the stock prices didn’t move, that can only happen for one reason. The stocks were too damned high.”
The message for the stocks that investors love now — the popular FAANG (Facebook /zigman2/quotes/205064656/composite FB -1.05% , Apple /zigman2/quotes/202934861/composite AAPL +0.20% , Amazon /zigman2/quotes/210331248/composite AMZN -1.25% , Netflix /zigman2/quotes/202353025/composite NFLX -1.41% , Alphabet-owned Google /zigman2/quotes/202490156/composite GOOGL +0.34% ) names and companies like Tesla /zigman2/quotes/203558040/composite TSLA -0.39% — is that they can keep growing and succeeding and be profitable, yet valuations can be normalized and stock prices can “go nowhere for a long time,” Bahnsen warned.
One solution: Look at old tech stalwarts like IBM /zigman2/quotes/203856914/composite IBM -0.36% , Cisco /zigman2/quotes/209509471/composite CSCO +0.83% and Intel /zigman2/quotes/203649727/composite INTC -0.09% .
“They are literally stable cash flow generators that have call options on their future,” he said. “They have new and exciting technologies that are not in the Netflix /zigman2/quotes/202353025/composite NFLX -1.41% and Facebook /zigman2/quotes/205064656/composite FB -1.05% camp and certainly not the Tesla and Snowflake /zigman2/quotes/220991541/composite SNOW -2.11% camp of things, yet none of those companies can do any of what they do without the processors of Intel, the chips, the servers, the mainframe, the hardware.”
“The technology infrastructure that we require is still dependent on Cisco, Intel and IBM,” he said, adding that patient investors waiting for these stocks to slowly pay out are still getting decent dividends from them.
Bahnsen is also big on the pent-up COVID-19 demand theme, and believes consumer staples are the most undervalued of the market. He owns Procter & Gamble /zigman2/quotes/202894679/composite PG -0.80% , Kimberly-Clark /zigman2/quotes/201766540/composite KMB +0.63% and Pepsi /zigman2/quotes/208744353/composite PEP -0.05% , three names that haven’t made new highs yet continue to grow both top and bottom lines, he said.
Pushback on corporate taxes?
U.S. stocks are going nowhere, after the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.29% and S&P 500 /zigman2/quotes/210599714/realtime SPX +0.07% both logged record highs on Monday. European stocks /zigman2/quotes/210599654/delayed XX:SXXP +1.82% played catch up to Wall Street gains, while Asia was mixed, with China stocks slipping after the central bank reportedly asked lenders to curb loan growth this year .
Influential Democrat Sen. Joe Manchin warned that the proposed corporate tax rate in President Joe Biden’s infrastructure package is too high , and he would raise it to 25%, but not the 28% the bill is calling for.
The Senate’s nonpartisan parliamentarian on Monday ruled for a Democratic effort to pass more legislation through reconciliation , which means the party could get more measures approved in Senate this year.
Swiss banking giant Credit Suisse /zigman2/quotes/202835784/composite CS +0.29% /zigman2/quotes/205269278/delayed CH:CSGN +0.86% will take a $4.7 billion hit linked to the meltdown of Archegos Capital Management. It also cut its dividend and announced its investment banking and risk chiefs will leave.
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