2022 may be remembered as the year investors fell out of love with tech stocks.
While the Nasdaq Composite
is up about 5.3% this quarter, that’s after three dismal ones, and a 28% loss for the year so far is steering it towards the worst annual return since 2008.
But don’t turn your back completely on tech, says our call of the day from Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, which has around $1 billion under management and whose Equity Income and Dynamic U.S. Inflation strategies have earned five-star ratings at Morningstar.
“If the tech trade is over, then we’re all in trouble because the labor force is not growing…you’re seeing the participation rate shrink and productivity is terrible,” Tengler — who’s been a part of financial markets since the 1980s — told MarketWatch in aninterview. “We need technology to solve the labor shortage problems.”
That might sound odd as layoffs have trickled out from tech names, including Amazon.com
but Tengler wants investors to keep their eyes on what’s ahead when they think about tech.
“I think the theme is more about embracing digitization, the digital revolution of the economy and picking the best in breed of old economy companies that are doing this, and then the companies that are providing the digital solutions,” she said.
They also have to tick the quality, cheap and dividend-paying boxes for Tengler. In that target zone, she likes CVS Health
which now has 46 million and counting digital relationships. “I get a text, they send me whatever the prescription is, and I pick it up,” she said.
Public Storage PSA
gets a nod because it’s an old economy company benefiting from digitization. The company lifted guidance on its third-quarter earnings call, with operating margins now above 80%, and its portfolio is growing through acquisitions, she notes. “Customers are staying longer with their storage units due to the cost of housing,” and the interaction is all digital, said Tengler.
Tengler likes Honeywell
— an industrial conglomerate providing solutions for the digital revolution. A beat and higher guidance in the most recent quarter suggests Honeywell will be looking actively at acquisitions, and a weaker dollar will also be a benefit, she said.
From the Big Tech batch, Tengler says they’ve been picking up beaten-down shares of Microsoft
“If the company’s fundamentals are solid, if the management team is excellent, if they are an industry leader and good operators, which Microsoft is, then this has historically proven to be the kind of period where you want to add to names like that,” she said.
“This is a company that investors will return to because they have reliable earnings growth,” she said, touching on a key quality that she believes will shield investors as the overall economy slows.
Also mentioned is Goldman Sachs
her favorite financial group headed into a slowdown that has “embraced digital.” The stock is trading at 11 times forward earnings, with a price/book ratio of 1.2 times, well below that of JPMorgan
and should benefit from advisory, underwriting, trading and retail banking, and any increase in deal flow, she said.
As for Tengler’s 20,000 feet view, she’s worried about deficit spending and the Fed slowing the economy, but even amid 2023 earnings uncertainty, says she’s starting to add risk back to portfolios.
“I think maybe investors are not thinking enough about what can go right in 2023,” Tengler said, in a nod to extreme pessimism among investors and institutions this year. “Because when the Fed stops, or if earnings aren’t as bad as expected…we’re in a position for stocks to rally pretty hard and there are a lot of people who are going to be caught.”
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