Technology stocks can see more gains, even amid a market rotation toward value, says Principal Global Investors. This according to a recent article in Bloomberg.
A portfolio manager at the firm, Alan Wang, told Bloomberg that this is due to cheap borrowing costs and the growing importance of intangible assets, adding that the past year has illustrated the importance of accurately valuing tech companies: “We see a huge re-rating of new technology companies no matter if they are making electric cars, ventilators or vaccines.”
Wang cautioned investors, however, that they maybe be discounting the ability of innovation-linked firms to navigate any downturn in sentiment.
Concurrently, Wang notes that some of Wall Street’s biggest names are changing their investment models to evaluate if intangibles (i.e., brands and patents) can be treated as assets rather than expenses to gauge the value of a stock. Wang explained, “It’s a totally new valuation system. I can see a lot of investors getting their had burnt by shorting high P/E multiple stocks.”
Another of the firm’s portfolio managers, Binay Chandgothia, advises investors to discern between “value” companies with strong fundamentals and those rising purely on vaccine expectations: “Get back into value when you believe the assets can generate enough earnings,” he said, adding, “otherwise go back into the safety of technology assets that are benefiting from the way we live.”