Is the bottom in? That’s what everybody’s wondering. But that’s the wrong question.
I’ve seen too much comparison to the dotcom bubble lately. The consensus opinion is that we will see tech bleed out for another year or two. These tickers down 80%-90% already? They’ve got a one-way ticket to bankruptcy and the train has left the station.
That’s the thinking anyway, and it’s a solid argument. After all, Cathie Wood bought shares of General Motors last week - how’s that for disruptive innovation? And BlackRock’s $10B momentum ETF, which basically chases whatever has been outperforming lately and dumps the losers, is set to rebalance at the end of May. It’s going to dump tech and buy energy because it turns out inflation is here to stay and energy is what has been working. That’s a lot of money flooding into a tiny energy sector that makes up less than 5% of the S&P 500. Other momentum ETFs may have to do the same. The flywheel effect we saw in tech the past decade is headed for energy.
That’s the argument, and it’s a compelling one. However, the question I’m asking is, where’s the baby getting tossed out with the bath water? I’m trying to find it every day the market continues to plunge. Some people are staying away from tech completely. Look, I somewhat agree. I wouldn’t touch any company in an Ark ETF with a 10-foot pole.
Where I disagree is that not all tech is going to bleed out for years. The distaste for tech is beginning to remind me of what people were saying about energy stocks the past couple years. Or any value stock for that matter. I would like to emphasize *beginning* because it’s still not in the same stratosphere of hatred.
There are some great small cap “tech” companies that are getting tossed out with the bath water. Companies with solid cash flow and growth prospects that I’d love to own at 5x EV/EBITDA. It’s probably not time yet, but when the panic stops these names are going to resume their uptrend. And besides, a little diversification never hurt anybody.
Check out Alta Fox Capital’s write-up on IDT, which is ~61% off its ATH and down 41% YTD. Or my recent post on MIND, down 46% YTD. It’s time to pause, take a breathe, and evaluate our options. I tend to act too quickly in volatile markets and buy every possible dip.
Don’t mistake my sentiment for a resounding hall pass for all tech. There are some terrible companies that will never see their all-time highs again. I’m not allocating 100% to tech, or even 10% for that matter. I’m still ultra-long uranium and other commodity-related names. SPUT has regularly traded for a double-digit discount to NAV lately. Perhaps that’s the baby getting tossed out with the unprofitable tech companies. That’s what I’ll be pondering this weekend.
Not investment advice.