Text size
Amazon.com shares have fallen double-digits over the past six months.
Ina Fassbender/AFP via Getty Images
The past few weeks have been rough for tech stocks, and the past six months have been dreadful. But, if interest rates can stay cool this year as the economy normalizes, some tech stocks will be deals.
Growth stocks have gotten hit hard in recent weeks as the yields on the 10-year Treasury note have spiked. Higher yields on risk-free bonds make the relatively riskier stocks look less attractive. That’s especially true for growth stocks, many of which are promising technology companies that expect to see a large share of their profits far into the future. Higher interest rates erode the value of those future profits.
Over the past six months, the
Nasdaq-100,
an index of large capitalization tech stocks, rose over 3{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9}. The 10-year Treasury yield more than doubled during that period to above 1.4{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} as investors began pricing in higher inflation and expectations for increased economic demand, which typically favors value stocks over growth.
Rates backed down on Monday and could continue to remain subdued. As yields rise overall, tech stocks may continue their larger valuation adjustment. That will weigh a little on growth valuations. But as near-term earnings power ahead, some tech stocks could still perform well.
Equity strategists at BTIG screened the Nasdaq 100 for stocks that are down since September 2020 and have 10{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} or higher earnings growth expectations for 2021. The result is a list of growth stocks that can perform well this year especially if interest rates stop spiking.
That’s because the valuation—or multiple—on near-term earnings expectations of these tech stocks has gotten hit as rates have risen. That means even if multiples decline moderately, the earnings momentum for the near-term can carry these stocks higher if the yield’s move higher moderates.
Here are five such stocks that made BTIG’s list:
Amazon.com
shares (ticker: AMZN) have fallen 12.4{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} over the past six months but analysts expect earnings per share for 2021 to grow 14{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9}. And the stock has strong potential as the year progresses: EPS is expected to grow 38{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in 2022, according to FactSet.
Nvidia
(NVDA) fell more than 4{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} over the same period and is expected to see EPS grow 32{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in 2021 and more than 12{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in the next two fiscal years, respectively.
Netflix
(NFLX) fell 2.5{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} since September and is expected to see EPS grow 62{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in 2021 and then 32{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in 2022.
Advanced Micro Devices
(AMD) fell 6.3{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} and is expected to see EPS grow 52{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in 2021 and then 27{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in 2022.
DocuSign
(DOCU) fell 14.5{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} and could see EPS increase 54{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in 2021 and then 56{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in 2022.
Investors should still keep an eye out for momentary spikes in rates and pressure on valuations. Larger more profitable names, like some of the ones mentioned above, usually have more predictable valuations.
Write to Jacob Sonenshine at [email protected]
