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In Precarious Moment for Tech, Stocks Are Still Finding Friends

(Bloomberg) -- Tom Ognar isn’t used to having to explain his big bet on tech stocks like this.

After all, the portfolio manager of the $4.5 billion Wells Fargo Growth Fund beat 93 percent of peers over the past year by piling into Amazon.com Inc. and Google’s parent Alphabet Inc. But between Facebook Inc.’s privacy scandal and the back-to-back fatal crashes at Uber Technologies Inc. and Tesla Inc., the tech-sector doubters are suddenly speaking out as one stock after another slides.

Ognar is unmoved: “We don’t think the party is over.” Nor do the bulk of his fund-manager peers, as it turns out. Behind the ugly headline losses -- including the FANG complex’s worst-ever day on Tuesday -- there are data points that suggest that many funds are a long way from abandoning the industry that has added more to the wealth of U.S. stock investors over the past five years than any other. What’s more, the Nasdaq 100 Index is actually the only major U.S. stock benchmark still in the green this quarter.

“Think of things like your thermostat that used to be pretty basic and analogue. Now you can control them with your phone,” said Ognar from his office in Menomonee Falls, Wisconsin. “Your coffee machine, your coffee maker -- it’s a huge secular shift that hopefully will continue to put up sustainable growth.”

The stance on Wall Street strikes a discordant note with the backlash building in Washington. While it’s too early to say whether Facebook’s woes will lead to meaningful losses in users and advertisers, the drumbeat for tighter regulation has some wondering if it’s a watershed moment for an industry that promised to change the world for the better.

“You have the darlings of growth stocks that are going through some tough times, and it’s not going to be a short and quick story,” said Jennifer Ellison, a principal of San Francisco-based Bingham, Osborn & Scarborough, which manages $4.2 billion. “This is a tip of that iceberg.”

Even Amazon, largely shielded until now, was hammered on Wednesday by talk of a tougher government stance. Axios reported that U.S. President Donald Trump is contemplating ways to “go after” the e-commerce giant, including whether to wield tax or antitrust legislation. The shares were down 2.1 percent Thursday as of 10:34 a.m. in New York, while the Nasdaq 100 climbed 0.5 percent.

Trump features again when it comes to Apple Inc. shares, which are more than 8 percent off their record high partly on concerns about the prospect of a trade war between the U.S. and China. In a worst-case scenario, the U.S. could impose a tariff that affects iPhones and other Chinese-manufactured electronics. And car accidents have roiled market darlings Tesla Inc. and Nvidia Corp.

For more reading:
Facebook Fallout Spreads With Product Delay, Privacy Overhaul
Tesla Plunges Anew as Questions Swirl Around Fatal Accident
Amazon Replaces Facebook as the FAANG’s Biggest Punching Bag

Not to worry, say analysts, who’ve flooded email inboxes with reports reaffirming a bullish stance on the broader industry. The bull case? Tech fundamentals remain strong and, for all the worry over privacy, fake news and tech power, the U.S. giants are still cranking out products that people want to buy.

Facebook is sitting on a pile of cash so big that fines equaling the largest corporate penalties ever would amount to less than 7 percent of it. Alongside Google, its online dominance is so complete that there are few alternatives for users or advertisers.

Scarred, Intact

“They’ll come out bruised and scarred but they’ll come out intact,” said James Cakmak, an analyst at Monness Crespi Hardt & Co. who has maintained his buy rating and $210 price target on Facebook. “Radio and TV aren’t the future, we know that, digital is. And it’s not going to affect the direction of the dollars, which is toward Google and Facebook. The question is what is the speed that they get there.”

The damage to all these stocks over the past couple weeks remains contained if viewed through a wider lens. Even after Tuesday’s 7 percent rout, Nvidia’s stock is double where it was a year ago. Tesla, while losing almost a fifth of its value this year, is still up sevenfold from the start of 2013.

Analyst estimates and fund flows show few signs of panic. In fact, profit forecasts for the tech industry have been barely changed over the past two weeks despite the market turmoil. At 30 percent, the expected pace of growth exceeds all but one industry in the S&P 500 Index.

Investors in ETFs seem in no rush to bail. Take the PowerShares QQQ Trust Series, the biggest fund tracking the Nasdaq 100. Outflows peaked around $2 billion on March 19 and trickled down to less than one-tenth of that amount Tuesday, a day when Nasdaq companies lost $260 billion in market value.

“Tech has given us more than it has taken away,” said Kim Forrest, senior portfolio manager at Fort Pitt Capital Group LLC in Pittsburgh. “The future is going to have more connected devices.”

©2018 Bloomberg L.P.

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