Indexed investing has been great for the broad markets for years. Investors buying ETFs have driven one of the longest bull markets in history and the rising tide has tended to lift all boats…until it didn’t. Lingering unsettling news on the biggest names has led to selling that is driving the indexes down as fast as they rose, with the tech-heavy NASDAQ down over 200 points just today and now negative for the year.
Stock Picker’s Market
The big headline FANG stocks, Alphabet , Facebook (FB - Free Report) , Amazon (AMZN - Free Report) , and Netflix (NFLX - Free Report) all down between 3% and 6% just today, does that mean they’re a bargain now?
Maybe. But it’s going to be a little more difficult than simple buy and hold in the ETFs. We’re going to have to work a little harder…
All of the FANGs are down more than 10% from their respective 52-week highs (Facebook is down almost 20% in just 2 months) and it’s certainly tempting to consider adding some or all of them to the portfolio while they’re being battered. The problem is that these famous and widely held mega caps are so sensitive to the news cycle that that they get sold off together and drag the indexes down with them.
The selloff can be painful to watch, but in the long run, the sun will come up tomorrow and well managed companies will continue selling goods and services and making money. We just have to identify them so we can get on board.
Hidden Value under the Radar.
Wise investors can benefit from finding lesser known tech names that have been beaten up through no fault of their own and now represent solid value, as if they’re “on sale.” Let’s take a look at a couple of strong companies with accelerating earnings outlooks that have been sold off with the rest of the market in recent weeks. This is how we can make the recent downturn actually work for us.
Down 20% from recent highs in February - despite a surprise earning beat two weeks ago - Micron Technologies (MU - Free Report) is starting to look like a great opportunity. With a Zacks Rank of #1 (Strong Buy), the maker of DRAM, memory chips and other semiconductor supplies has a great profit outlook for 2018.
Revenues are expected to be up nearly 50% from 2017 (the Zacks Consensus average for 2018 is $29.2B vs $20.3B last year) and net earnings are forecast to more than double year over year at $10.99/share vs just $4.96/share in 2017. That Consensus earnings estimate is up from $9.83/share just 60 days ago, the result of 9 straight upward revisions during the exact same period that the markets were punishing tech.
At its current price of $50.12, Micron is trading at a rock bottom forward P/E ratio of just 4.8.
It’s much the same story at Applied Materials (AMAT - Free Report) . The industry leader in semiconductor wafer technology is down 15% from 52-week highs also earns a Zacks Rank #1 (Strong Buy.) Seven out of the nine analysts making up the Zacks Consensus estimate have raised their outlook in the past 2 months, bringing the average from $4.08/share up to $4.41, a big increase over the $3.25/share the company reported for 2017.
With a forward P/E ratio of 12.6 (versus the industry average of 16.4) AMAT is a growth stock that’s priced like Value. Today’s nearly 5% selloff make it an extremely attractive addition to the portfolio.