Our theme of Value Tech Stocks – which is comprised of technology stocks with a market cap of over $5 billion and a price-to-earnings multiple of under 20x – has declined by almost 24% year-to-date, although it has outperformed the broader Nasdaq-100 index, which remains down 30% over the same period. With inflation surging, the Federal Reserve has started hiking interest rates at a more aggressive pace. It hiked its benchmark interest rates by 0.75% in June, its biggest hike since 1994, and more similar hikes are looking likely in the coming months. Separately, technology companies are seeing an easing of the Covid-19-related demand tailwinds such as remote working and remote learning. That being said, value technology stocks are holding up much better compared to unprofitable high-growth high multiple tech stocks, which are being hurt as investors seek a better margin of safety in terms of higher cash flows and earnings yields.
So what’s the outlook like for the theme? While the near-term outlook remains uncertain, given the tighter monetary environment and concerns about a recession in the U.S., we still think that the theme remains a good play on secular trends such as increasing digitization of the economy following Covid-19, and higher corporate IT spending. Moreover, many of the names in the theme are profitable, mature tech companies that are incumbents in their respective segments and this could provide some safety in the current environment. Facebook parent company Meta (NASDAQ:META) is the most valuable company in our theme, with a market cap of about $440 billion. However, the stock has declined by around 53% year-to-date. Skyworks Solutions (NASDAQ:SWKS) is one of the fastest-growing players in our theme, with revenue rising by around 52% over the last 12 months. Dell (NASDAQ: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 36 value technology picks.
|S&P 500 Return||-8%||-21%||69%|
|Trefis Multi-Strategy Portfolio||-8%||-26%||196%|
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 Month-to-date and year-to-date as of 6/30/2022
 Cumulative total returns since the end of 2016