Facebook, Dell: Should You Look At Value Tech Stocks As Rates Rise?

DELL: Dell logo

Our theme of Value Tech Stocks – which is comprised of tech stocks with a market cap of over $5 billion and a price to earnings multiple of under 20x – has declined by almost 19% year-to-date, although it has outperformed the broader Nasdaq-100 index, which remains down 28% over the same period. The theme is being impacted by a host of factors. While macro headwinds including surging inflation and rising interest rates have hurt the broader markets, technology names are also seeing an easing of the Covid-19 related demand tailwinds such as remote working. However, it is holding up better compared to high-growth high multiple names, which are being hurt as investors seek a better margin of safety in terms of higher cash flows and earnings yields, in an uncertain environment.

So what’s the outlook like for the theme? There have been concerns that the U.S. could be headed for a recession, with Q1 GDP already shrinking year-over-year. Moreover, the Federal Reserve is also eyeing interest rate hikes of about half a percentage point over June and July. This could prove a headwind for the broader markets. That said, the value tech theme remains a good play on secular trends such as increasing digitization of the economy following Covid-19, and higher corporate IT spending, and we think it should continue to hold up better than the broader tech index. Moreover, many of the names in the theme are mature tech companies that are incumbents in their respective segments and this could provide some safety in the current environment.

Facebook is the most valuable company in our theme, with a market cap of over $550 billion. The stock has declined by around 44% year-to-date. Skyworks Solutions is one of the fastest-growing players in our theme, with revenue rising by around 50% over the last year. Dell is one of the most reasonably valued stocks in our theme, with a price-to-earnings ratio of under 7x. See our theme on Value Tech Stocks  for a complete list of 27 value technology picks.

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What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns May 2022
MTD [1]
YTD [1]
Total [2]
 DELL Return -13% -27% -16%
 S&P 500 Return -6% -18% 74%
 Trefis Multi-Strategy Portfolio -6% -22% 211%

[1] Month-to-date and year-to-date as of 5/20/2022
[2] Cumulative total returns since the end of 2016

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