A few bruised tech stocks may finally be worth a penny thanks to appealing valuation pricing.
According to stock trading strategists, on the price-to-sales metric, non-profitable tech is closer to outright cheap territory, as are payments, after being at record highs a year ago.
The call is part of a “tactical,” view on beaten-up growth stocks.
Analysts believe that growth equities should now show better performance relative to the value pockets of the market.
Undoubtedly, the market’s more dynamic areas have been among the hardest hit by this year’s stock market meltdown.
This reflects bets made by investors that the Federal Reserve will raise interest rates, which has the opposite impact of lowering valuations and discounting future growth.
The gap between break evens and bond yields has now closed. Unless oil prices rise again, inflation forwards may level off.
The upward repricing of nominal bond yields, as well as the move in real rates from -100 basis points to +50 basis points, was a constraint for long-duration market valuations, but this may ease temporarily.
The Vanguard Growth Index Fund has lost 28% so far this year, despite investing in growth businesses like Microsoft (MSFT), Amazon (AMZN), and Meta (META) among its top 10 holdings. In contrast, the S&P 500 is down 19% for the year.
Performance darlings like Netflix (NFLX) and Roku (ROKU) have had year-over-year declines of 70% and 61%, respectively.
The ARK Innovation ETF (ARKK) of Cathie Wood has lost more than 50% of its value this year.
Investors have subsequently shifted their focus to perceived value opportunities, or businesses with more stable cash flows and fair market values.
The Vanguard Value Index Fund is only down 9% on the year despite the valuation obsession.
However, not everyone on Wall Street agrees with the strategy of buying cheap growth stocks.
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