Amazon, Apple and Netflix are three companies that are now too cheap, according to stock pickers, after share price falls to start the year.
Higher inflation and the potential for central banks to raise interest rates has hit tech stocks hard, as this reduces the relative value of their future earnings.
Overall, the tech-heavy Nasdaq index is down 7.3% in 2022, but this masks some of the extreme price changes that have taken place within the tech sector.
Companies such as electric carmaker Tesla, which has dropped 22.3% to start the year, and Meta, which is down 31.5%, have stumbled after years of outperformance.
There could be more pain to come if the market environment does not change, but within the tech space there are some companies that continue to look like good bets despite the near-term price falls. Below, Trustnet asked stock pickers for their top picks among the struggling US tech giants.
Netflix
Of the companies selected, the firm that has come under the most pressure is streaming service Netflix. So far in 2022 shares are down 30.9% after a set of disappointing results in January.
Full-year revenue rose 18.8% to $29.7bn (£21.9bn) and lower than anticipated content spend in the fourth quarter helped operating margins rise from 18% to 21%, but new subscriber numbers came in below expectations and Hargreaves Lansdown equity analyst Laura Hoy said forecasts for new clients made for “difficult viewing”.
Netflix share price in 2022
Source: Google Finance
However, Jon Guinness, portfolio manager at Fidelity International, said he was still positive on the stock, despite the recent wobbles.
“After a very strong 2020 as a ‘Covid winner’, performance was flatter over the latter part of 2020 and the first half of 2021 as investors rotated into post-Covid reopening plays,” he said.
Guinness acknowledged that the stock had made a slow start to the year but was still optimistic, seeing it as “good opportunity” for Netflix.
He said: “Given the likelihood of subscriptions picking up again – particularly in markets like Europe and Asia-Pacific. It remains a clear leader in streaming, and is approaching a period of free cash flow acceleration.”
Apple
Phone maker Apple has had a much steadier ride than some of its counterparts, avoiding double-digit losses of some with shares down just 3.1% this year.
Louise Dudley, global equities portfolio manager at Federated Hermes, said the firm “continues to offer growth”, but investors need to understand that it is now a “mature company”.
Last month it became the first company to break the $3trn market capitalisation figure, before swiftly dropping back.
“Apple stays ahead of regulation despite its size and navigates the evolving market environment well. Sentiment and profitability are positive for the brand, and the company routinely has a strong balance sheet,” she said.
“Recently, it has been able to navigate supply chain disruptions better than peers due to enhanced oversight and its direct sales force. With a strong brand and loyal fanbase, even in a constrained consumer environment, it should continue to outperform, while the 5G rollout remains an ongoing tailwind.”
Alphabet
Search engine firm Alphabet has also avoided the worst of the market falls but is down 2.5% so far this year, proving that it is not immune.
However, Dudley said the firm was one of the best options available to investors that still want to back the US tech trade.
“Alphabet’s cloud business has been a source of steady growth and strength, with improving economics. Overall, it is an increasingly diversified business that offers resilience,” she said.
“The balance sheet is a notable area of strength versus peers and even with reducing margins they are still relatively wide.”
Now on a “reasonable valuation” the company offers investors exposure to many areas of the tech space, including online advertising, e-commerce and the cloud.