By Barbara Kollmeyer, MarketWatch
China data, a Twitter hack, geopolitical tensions and virus concerns are scaring investors out of stocks on Thursday, with more earnings and weekly jobless claims ahead. Markets were cheering positive vaccine news just a day earlier.
The week has also seen the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.72% wobble, down 0.6% week-to-date, versus a 3% gain for the Dow industrials /zigman2/quotes/210598065/realtime DJIA +1.29% , but will that shake the technology faithful?
Our call of the day , from Richard Grasfeder, senior portfolio manager at Boston Private Wealth, makes the case for hanging onto three big tech names.
“The strength of technology will continue as long as the overhang of a resurgence of the virus and subsequent lockdowns remains. These companies are cash rich and have thrived in the low growth environment over the past few years,” Grasfeder told MarketWatch in a recent interview.
First up, Microsoft /zigman2/quotes/207732364/composite MSFT +1.69% , whose “Azure is well positioned to benefit from share gains in cloud computing. We believe Street estimates for Azure growth are still too low, providing opportunities for faster growth to drive faster EPS (earnings per share) growth, as well as potentially help margin expansion, which would also help EPS growth,” he said. And Microsoft should benefit from continued “electronification” of corporate workflows with its end-to-end computing systems.
Next up is Apple /zigman2/quotes/202934861/composite AAPL +1.79% , whose large installed base of iPhone users on one operating system is an “attractive target for app developers. This translates into large revenue opportunities for Apple in apps and services and potentially new hardware products,” he said. One risk: that big base of users needs new products and services to keep generating more revenue.
Grasfeder’s last tech pick is Accenture /zigman2/quotes/201711136/composite ACN +2.12% , which is reaping the benefits of companies shifting to the cloud. “Accenture is able to use its scale to drive operational benefits and gain share from companies such as IBM who have not been as forward thinking,” he said. Eventually, Accenture’s market and share gains may fade, but Grasfeder believes that is years away.
He has held all three for at least five years, and plans to keep holding, though he said now is a time to pay attention.
“We are watching MSFT and AAPL a little more closely now as valuations (e.g., P/E ratios) get stretched. If the stocks get too far ahead of our expectations for earnings growth, we may reduce or eliminate the stocks until valuations become more attractive and or upside estimates more materially exceed our S&P 500 return expectations,” he said.
Grasfeder believes we’ll see ”elevated volatility throughout the summer, and that the election and U.S.-China relations could combine with COVID-19 resurgence concerns to create swings in the market through August and September.”
The Dow /zigman2/quotes/210598065/realtime DJIA +1.29% , S&P /zigman2/quotes/210599714/realtime SPX +1.22% and Nasdaq /zigman2/quotes/210598365/realtime COMP +0.72% are down in early trade, with European stocks /zigman2/quotes/210599654/delayed XX:SXXP -0.14% also lower. Asia tumbled, with the Shanghai Composite /zigman2/quotes/210598127/delayed CN:SHCOMP -0.96% dropping 4.6% after Chinese data.
China earlier reported better-than-expected gross domestic product, but a worrying drop in retail sales.