Technology stocks and related exchange traded funds have been among the worst performers since the sell-off began at the start of April. The more intrepid investor, though, is beginning to look at the sector as a bargain opportunity.
Since the April 2 high, the Technology Select Sector SPDR (NYSEArca: XLK) is down 3.4%, Vanguard Information Technology Index ETF (NYSEArca: VGT) fell 4.4% and iShares U.S. Technology ETF (NYSEArca: IYW) dropped 4.2%. In comparison, the S&P 500 Index has dipped 2.6%. The ETFs are now trading below their short-term, 50-day simple moving averages. [Old Dogs Propping Up Tech ETFs]
Now, Oppenheimer & Co. technical analysts believe tech stocks are an attractive opportunity after last week’s decline, reports Michael P. Regan for Bloomberg.
Specifically, Oppenheimer is singling out new tech names like Netflix (NasdaqGS: NFLX) and Yelp (NYSE: YELP).
“In our view, the recent sell-off in high-beta Internet and technology stocks has created a buying opportunity in certain stocks in our coverage universe. As we view near-term fundamentals as unchanged, we are upgrading the shares of NFLX and YELP to Outperform from Perform. Based on prior price target calculations, we estimate 24% and 19% upside, respectively, with favorable near-term technical support,” Analyst Jason Helfstein said in a Street Insider article.
ETFs with these high previously high flying stocks have come on hard times. The PowerShares NASDAQ Internet Portfolio (NasdaqGM: PNQI), which has a 3.5% weight in NFLX, has declined 7.3% year-to-date. The Global X Social Media Index ETF (NasdaqGM: SOCL), which has a 5.5% allocation in YELP, is down 12.6% so far this year. [Not Just Biotech: Other Momo ETFs Taken to Task]
Investors dumped bets on earnings growth or momentum stocks, shifting over to shares with relatively low valuations. Deutsche Bank AG explains in the article that “equity beta positioning has moved towards neutral.”
Company stocks that exhibit higher beta typically outpace benchmark indices during market rallies but decline more quickly during corrections.
Oppenheimer argues that a good way to capture the tech space is by giving each company an equal weight as a way to capture the potential for “broad-based sector leadership,” instead of overweighting larger companies. For instance, the Guggenheim S&P Equal Weight Technology ETF (NYSEArca: RYT), which follows an equal-weight indexing methodology, has gained 3.0% year-to-date, whereas XLK is up 0.9% so far this year.
Additionally, Oppenheimer points to the tech sector seasonality trade as technology stocks typically outperform the S&P 500 between April and August.
Technology Select Sector SPDR
For more information on the tech sector, visit our technology category.
Max Chen contributed to this article.