Investing Strategies: How To Find Top Tech Stocks In New Market Rally


hi everyone and welcome to Investing
Strategies it’s Alissa Coram with Investor’s Business Daily from the
Nasdaq market site in Times Square today we’re analyzing current market
conditions as stocks look to solidify a new rally what could boost the uptrend
or unravel it financial advisor is here to give us his take on the recent
volatility and to big cap tech stocks and for this week’s technical analysis
we’re putting Microsoft and Apple head-to-head for a key lesson about
timing when it comes to buying tech heavyweights plus we’re speaking with
the strategist of QQQ to learn how the tech-heavy ETF could help you capture
gains not only from top technology stocks but other innovative sectors to
investing strategies starts now okay let’s begin with this week’s market
insights joining me for today’s discussion is John Burke he’s the
president of Burke financial strategies thanks so much for coming on John hi
good morning Alissa alright so it looks like we’re starting off the week with a
little bit of upward momentum but what do you make of all of the volatility
we’ve seen as of late it looks like we’re still not quite out of the woods
yet Alissa last week was what we call a
three-alarm week it was the worst week we’ve had a whole year usually the
market doesn’t bounce right back from such a dramatic week stressful week the
the first alarm was of course the the inversion of the yield curve we’d
already had an aversion of their short Treasury to the 10-year Treasury but
last week we had an inversion of the two-year to the ten into the third year
and that is a major bear market signal for a lot of investors second alarm was
Trump escalating the trade war with with China and then the third alarm would be
the unrest in Hong Kong all of these things are enough to really unsubtle the
markets and and we doubt that it’s just going to bounce right back from that we
probably have a few more days if not a few more weeks of stress before the
markets march on up yeah I mean between the headline risk that’s ongoing and
then from a technical perspective we’re still not seeing the major indexes above
their 50 day moving averages IBD would like to see that in order to really feel
like we are going to continue this upward momentum here but speaking of the
yield curve what do you make of the bond market right now it’s not really as an
appealing place to be right now for your clients is it
well it’s first of all to bond yields have gone down the ten-year was at three
and a half now it’s it’s it’s up to 1.6 today but was below 1.5 last week so
it’s come down a lot and that worries us a lot because in the long run that means
the investors are going to make less money in their bonds we’re not extremely
certainly worried about the the yield curve inversion but it seems to me more likely
that the yield curve inverting is a signal that the Fed is going to tighten
in order to keep the inflation from getting away
and clearly the Fed is not going to tighten and the fact that the Fed may
ease again and the Fed is not the problem here by the way if the Fed is
the president says the Fed was a problem that would indicate the interest rates
are the reason why the economy is slowing down and that’s not the reason
the economy is slowing down it’s slowing down because of the world economy which
is slowing down and likely because of the tariffs interesting so how are you
advising your clients to position their portfolios during this time well we
think that what’s going to happen here with the interest rates going down as
much as they have again 10-year Treasury 1.6% this morning that investors are
going to start to look for alternatives and we think that the dividend paying
stocks are a great alternative if you take these stocks in the S&P 500 out that
don’t pay a dividend so the remaining it’s about two-thirds of the stocks that
are remaining the remaining stocks pay three point one percent and a dividend
yield so that’s that’s double what you can get in a ten-year Treasury and yes
there’s risk but do you have another upside to your dividends and that is
that the dividends tend to go up over time unlike when you buy a bond you lock
in whatever income you’re going to get all right well speaking of dividend
stocks let’s get to this week stocks to watch starting with Cisco now the stock
did gapped down after its earnings report last week investors really honing
in on that guidance but what do you make of where the stock is now and where it
could be headed from more of a long-term perspective yeah so we’re always focused
on a long term perspective last week was real rough on the stock they actually
beat the expectations for earnings they beat the expectations for revenues the
market is super focused right now in revenue growth and the company reported
year-over-year revenue growth of 6% which is much better than average and so
you would think hey what what would make the stock go down as much as it did last
week and it was comments by the CEO Robbins as to the future and we were not
as concerned about that as Wall Street is because if you look at Cisco’s
we formally run by John the CEO John chambers for years many years he was
famous for talking down expectations lowering the bar so that then they could
exceed those expectations so when we think that perhaps robbins is doing the
same thing here he when he made his forecast for the rest of the year in
terms of sales growth and earnings drove he put zero in for sales – Wow way and
already this weekend President Trump said they’re gonna give a 90-day
extension to companies doing business with Huawei so that and so you this
morning Cisco is outperforming it’s up one-and-a-half percent compared to the
markets 1 percent so so already we’re seeing the fact that that ya Robbins was
probably a little too pessimistic in his comments about the future right maybe a
little a bit of conservative guide there right um and then in terms of the stock
it is it is well off highs for those growth investors looking for a little
bit of momentum it would be nice to see it firm up here maybe get above it’s
moving averages but in terms of your outlook for the stock and the dividend
that it provides potentially a good name for a longer term position well we just
love high dividend stocks and and we love them even more if they increase
their dividends so Cisco in the last four years just four years they’ve
increased their dividend by 67 percent that’s pretty darn good
so dividend increases come from free cash flow so their free cash flow yield
is is above 6 percent right now so it’s more than double the dividend yield of
3.1 percent so there’s plenty of room for them to we keep increasing the
dividend and we found that the surest way for a stock to go up would be for
dividend increases over time interesting so a good dividend play here
and profitability being a key metric that you’re looking at when you’re
analyzing potential positions well our favorite metric is free cash flow we
look at that from a different number of different ways one of the ways to
measure free cash flow would be cash it’s available to be returned to
shareholders either through stock buybacks or dividends and dividend
creases and and like I said they’ve got a lot of it at over 6% and and right now
in the tech sector in fact it’s hard to find
tech stocks that are reasonably priced and when that are very profitable right
now as opposed to you know some projections into the future all right
well let’s contrast that then with Netflix which if you look at the chart
here it’s pretty much gone nowhere really for the whole year but taking a
step back even further has had a huge run but it looks like the fundamental
picture is now changing a little bit they are still spending a lot of money
on their original content and competition is deepening well look it’s
a great story and we have not never invested in Netflix so you don’t pay a
dividend aside our type of stock but the story is certainly you know they went to
what I think it was around 2002 they went to Blockbuster and they said why
don’t you take us over and blockbuster said no you know what happened from
there huh and so yes from there until earlier this year where the stock made
its high you would have been 200 times your money from I think 2002 in the
middle of sometime in the middle 2002 200 times your money but that’s part of
the problem the stock has just gone up too much and if you look at them the
metrics on the company they’re gonna they’re gonna have a negative free cash
flow we talked about a second ago Cisco free cash flow yield they’re gonna
they’re gonna have minus 3 billion dollars of a freak of free cash flow
this year that’s they’re spending 3 billion dollars more than they’re making
bringing in that’s not the same thing as earnings but but in terms of the money
that’s available for things like dividends they don’t pay a dividend
because they don’t they don’t make any free cash flow so and if they’re not
making money now we’re they’re gonna be once Disney comes out with their
streaming service in the fall at I think it’s at $7 and and which is much cheaper
than than their service and then after Disney comes out you’re going to have
Comcast coming out you’re going to have ATT with their Time Warner unit coming
out you’ve got Hulu you’ve got you know all
of this competition coming out with with streaming services and they took away
friends and they took away off the the office valuable content valuable
content which they’re still streaming now but they’re going to come off the
off of Netflix anyway so if there are making money now
when they got streaming more or less all to themselves and and easy to get
content I don’t see how they’re ever gonna make any money yeah well I guess
that begs the question of will they change their business model with all of
this competition maybe look at live content or sports to you know I guess
only time will tell what they’re going to do to really tackle this competition
head-on well I think the reason the stock went up so much is because because
of what halfway the Amazon Amazon did something that nobody’s ever done before
and they said we’re gonna build scale to a level that nobody’s ever seen before
we’re not even gonna worry about rate making money and and and that worked out
fine for Amazon because they got such tremendous scale and of course retail
and and now Amazon’s making money and and and it worked for them okay and
Amazon’s certainly not going to go out of business Amazon in great shape but
they’re not it’s not the same stories right no this scale there’s only so far
you can take scale in that business and you’ve still got to create the content
which is very expensive that’s where they’re spending their money so I don’t
see how the Amazon lead has anything to do with with Netflix
I just don’t think think that if they haven’t made it already they’re not
going to make it interesting well we’re gonna have to leave it there for now but
thank you so much for all of your insights today thank you Alissa really appreciate
it all right and coming up next we’re gonna continue the conversation about a
large cap tech stocks I’ll be breaking down key tips to help you filter out the
noise and find the best buys at the right time after the break
leaderboard helps you invest better with winning stocks picked by our team of
experts select a stock to see current analysis check the chart for buy and
sell points plus get real-time price alerts improve your investing with
leaderboard start your free trial today when you’re buying stocks it can be
tempting to have a bias towards popular stocks or those with top-tier name
recognition like Netflix or like Cisco but the name alone won’t guarantee big
gains in your portfolio that’s why it’s important to filter out the noise and
combat your bias by leveraging data and charts to help you make your buying
decisions so today let’s go over IBDs tips for buying large cap stocks now of
course this is a great guide to use when you’re considering any stock to buy but
it’s especially important to keep in mind when you’re looking at these bigger
popular stocks to make sure your your emotions don’t get in the way so first
don’t buy stocks simply because they’re widely held take GE for example that’s
one of the most actively traded stocks in the market even though shares have
essentially been in a freefall for the past two and a half years and growth has
slowed tremendously now the company is trying to turn things around but it
hasn’t been able to do so yet so instead of buying a big-name stock that looks
cheap analyze the chart and fundamentals first fundamentals are key because
stocks follow their corporate earnings remember it’s ideal to see bottom line
growth of at least 25 percent and it’s even better when that growth shows
acceleration and the chart is important because our research shows that buying
stocks that are already in uptrend increases the likelihood of profiting
from that trade now keep in mind of course that timing when you sell is just
as important as timing when you buy now making sure the chart in the
fundamentals are up to snuff also prevents you from getting carried away
with the story of a stock this is where Tesla is a great example Tesla is no
doubt an innovative company with a great story but the stock is now trading at
the same levels it was all the way back in 2014 so if you held that stock for
five years it’s essentially gone nowhere as the company continues its cash burn
okay so now let’s put Apple and Microsoft head-to-head to demonstrate
another concept here don’t expect a leading stocks will always be leaders
and don’t expect lagging stocks will always be laggards so to explain this
let’s first take a look at a weekly chart of Apple now Apple is a long time
holding in many portfolios of course but for position traders the stock is
flashing some weakness Apple staged a break out over a cup with handle base
several weeks ago but shares hit resistance at the buy point and quickly turn
tail amid broader market weakness the next week Apple triggered a sell signal
by falling more than 7% below the proper buy point that means this buy point is
no longer valid even though the stock is trying to rebound now the weak chart
action comes amid fundamental weakness – Apple has now seen two quarters in a row
of declining earnings and sales growth is also week amid waning iPhone demand
so in short just because Apple has been a big winner in the past investors
shouldn’t automatically expect it to be a leader now and moving forward now
Microsoft’s chart on the other hand shows somewhat of the opposite picture
after peaking in the dot-com era it took Microsoft near at least 16 years before
it reached new hydrent again so Microsoft was a long-term laggard until
about three years ago earnings and sales growth has consistently been in the
double digits over the past year and the chart looks strong you can see how
compared to Apple shares of Microsoft were able to hold up much better in the
queue for 2018 correction Microsoft broke out of a cup with handle base in
late February and after a 22 percent run shares formed and broke out of another
base and Microsoft is currently trading within the 5% buy zone as it seeks
support at its 10-week line so all in all don’t let a personal bias or
preconceived notion get in the way of finding the best stocks at the right
time and instead of buying an individual big cap stock that’s a laggard your
portfolio would be better off buying an ETF that contains an array of large cap
stocks as its holdings we’ll talk about what exactly the QQQ ETF offers
investors when we come back this season on cultural capital we are in New York
City and San Francisco come with me as I tour some of the world’s most innovative
companies from Squarespace to C3.ai Giphy and figma learn how CEOs built growing
companies while maintaining the ultimate office culture on season three of
cultural capital on the brand-new Nasdaq.com if you want your portfolio to have
exposure to large cap stocks another way you can do so is with an ETF Invesco’s
QQQ tracks the Nasdaq 100 and boasts tech heavyweights Microsoft Apple and
Amazon is some of its top holdings and here now to share insights about the ETF
is Ryan McCormick he’s the QQQ strategist at Invesco thanks for being
here today Ryan thanks very much for having me all right so we’ll get into
the nitty-gritty of the makeup of the ETF but first taking a step back can you
comment on the level of out performance that we’ve seen with this ETF when
you’re comparing it to the broader market over the long term yeah
absolutely I mean I think as you look at QQQ and the performance that we’ve seen
particularly since inception we have 20 years of live performance which is
something that not a lot of ETFs can boast and particularly in this most
recent market cycle you know post kind of ’08 we’ve seen significant out
performance relative to both the S&P 500 and other growth indices all right and
since it tracks the Nasdaq 100 of course you had those big tech heavyweights in
there that I mentioned earlier but can you talk a little bit about the full
makeup of the ETF in terms of yes we are getting a lot of exposure to tech but
also exposure to some other sectors as well yeah no that’s a great point and I
feel like when you look at QQQ generally that’s a misconception that we get a lot
in years past it has been significant weightings to technology but as you look
at it today our technology weighting is under 50% we have significant exposure
to consumer discretionary names to communication services names and I think
when you look at tech as a whole that the paradigm has kind of changed it’s
very hard to put companies in just one specific tech box as you as you drill
down into the auto it’s right you have self-driving cars and you only think of
auto companies as technology but there’s certainly an aspect to tech in their
underlying business so you know we believe that that the makeup of
nasdaq-100 and specifically QQQ is kind of large growth across the board
interesting yeah I think that’s an interesting point that every company
whether it is in in retail or communications what-have-you having that
tech edge is really important to to keeping sustained growth and something
else that’s important is you know strong research and development and that’s also
a common thread with the names in this fund it is
absolutely I mean we believe that qgq is a very innovative fund right and I think
in an effort to stay innovative right you need to be reinvesting in your
business as you look at the nasdaq-100 R&D reinvestment rates are near 10% so
meaning almost 10% of sales are reinvested in R&D and these in these
underlying companies so when you get from that is you know not always a
one-to-one kind of parallel of oh this dollar went to here but as you look
these are the disruptors the innovators that are out there in the market and
consistently they’re the ones that are bringing innovative products and and
frankly innovative ways to make money out to the market yeah and then that in
turn also boosts the fundamental picture as well bringing new products to market
boosting sales stronger needs and that’s something that our audience is really
focused on is the strong fundamental picture of these names and with that R&D
spend and reinvestment do you see that really translating to the fundamental
picture as well you do it and and to go back to your earlier point about
technology right I think as you look at tech of the past right it was you really
just needed a website to be considered a technology company right really no
earnings very limited sales it’s a very different picture not really your
parents technology companies I mean as we look Google celebrated its 15th year
IPO today right right so pretty big anniversary it’s hard to believe that
Google not being kind of a traditional tech company that’s been around but as
you look at this you know this reinvestment in R&D it really has
changed these businesses for the better right they’re delivering results to the
bottom line and as you look at the companies in QQQ on average relative to
say the sp500 or again other growth indices what we’ve seen is significant
sales growth significant earnings growth if you can believe it even significant
dividend growth so even maybe non growth e-type aspects of the market we’re
seeing that shine through and QQQ specifically relative to two other
indices out there specifically on the dividend point what exactly are we
seeing in terms of that being an appeal here yeah I so I don’t think you’re
gonna buy QQQ for the dividend yield right anytime soon you be an added bonus
it is a nice lie now the cake perhaps but I think when
you break it down you’re seeing these companies are finding other ways to
deploy their cash again looking back at old tech companies from from years past
you would shake your head if they announced a dividend now it’s almost
commonplace right so this cash at their earning not only are they redeploying it
in R&D but also in other ways to bring value to the shareholder in this case
dividends right so it seems like you know the tech weighting is there but it
is diversified so how do you see this ETF fitting in investors portfolios yeah
you know I think it’s firmly in the large growth category you know I’m a big
believer of knowing what you own and it’s going to be a concentrated large
growth type ETF right a hundred names you’ll have some concentration at the
top but you know you really are getting access to the most innovative and growth-y
companies that are out there all right well it’s a fantastic conversation thank
you so much for shedding light about this ETF for our audience
we’re definitely focused on the growth space so this matches that I guess you
could say thanks so much for coming in today thanks for having me all right and
thank you all for watching Investing Strategies I’m Alissa Coram and we’ll see
you next week for our show on emerging trends

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