Technology stocks and ETFs have been star performers of this year. The coronavirus outbreak could not take the sheen out of this sector, rather added more to it. Social distancing norms enacted globally to mitigate the spread of the virus compelled people to stay at home, binge on online shopping and work as well as learn from home.
However, after such a steep rally amid the pandemic, big tech stocks are now deemed overvalued by some investors. Amazon AMZN, Netflix NFLX, Alphabet GOOGL and Microsoft MSFT all lost in recent trading sessions.
One reason behind this big tech slump could be hopes of a rebound in stocks that have a close connection with the reopening of the economy. COVID-19-induced social distancing made tech stocks’ investors darlings. Now, since vaccine hopes have bolstered with Moderna’s (MRNA) successful early-stage clinical trials, risk-on sentiments are prevail.
Is Temptation for Tech Stocks Dying Out?
Though many corners of the global economy have started to reopen, the trend for work-and-learn-from home should stay strong. Twitter (TWTR) has indicated that its employees may opt for permanent work from home. Visa (V) CEO expects the majority of company’s employees to work from home for the rest of 2020.
This new lifestyle will keep various corners of the technology sector, ranging from enterprise cloud computing, cyber security, remote communications, video gaming and e-commerce to online payments charged up in the coming days.
From the price/book (P/B) angle, the tech sector is cheaper (2.80X) than the S&P 500 (3.66X). Tech sector’s debt profile is also impressive. Debt as a proportion of equity of the tech sector is 17% versus 76% of the S&P 500.
Projected EPS growth of the tech sector is negative 4.24% versus negative 9.87% of the S&P 500. However, from the forward P/E angle, the sector boasts 29.01X versus 21.54X possessed by the S&P 500 thanks to such extraordinary rally.
Are There Any Tech ETFs That Are Undervalued?
As many tech behemoths are not cheap any more, investors can bet on tech ETFs that have low P/E ratios. The tech ETFs have a P/E as high as 82.28X (possessed by Global X Cloud Computing ETF (CLOU)) and as low as 16.32X (possessed by Invesco S&P 500 Equal Weight Technology ETF(RYT)).
Against this backdrop, below we highlight a few tech ETFs that have relatively undervaluation as well as the power to go higher.
First Trust NASDAQ Technology Dividend Index Fund TDIV – P/E 18.63X
Invesco Dynamic Semiconductors ETF PSI – P/E 18.72X
iShares Cybersecurity and Tech ETF IHAK – P/E 21.21X
3D Printing ETF PRNT – P/E 23.01X
Defiance Next Gen Connectivity ETF FIVG – P/E 26.13X
ProShares S&P Technology Dividend Aristocrats ETF TDV – 26.31X
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Invesco Dynamic Semiconductors ETF (PSI): ETF Research Reports
3DPRINTING ETF (PRNT): ETF Research Reports
First Trust NASDAQ Technology Dividend ETF (TDIV): ETF Research Reports
Defiance Next Gen Connectivity ETF (FIVG): ETF Research Reports
iShares Cybersecurity and Tech ETF (IHAK): ETF Research Reports
ProShares SP Technology Dividend Aristocrats ETF (TDV): ETF Research Reports
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