One result of the COVID-19 outbreak and ensuing market volatility is that investors are placing renewed emphasis on companies with strong balance sheets, which could prove to be good news for large- and mega-cap technology companies as well as ETFs such as the Invesco QQQ Trust (QQQ).
The recent sell-off may also be a potential buying opportunity for bargain hunters, particularly those that missed out on some of tech’s leadership during the recent bull market. Fortunately, tech and QQQ are home to a slew of cash-rich companies.
“For investors looking to jump back into the market, this is a rare opportunity to buy tech’s Big Five— Alphabet (GOOGL), Amazon.com (AMZN), Apple (AAPL), Microsoft (MSFT), and Facebook (FB) —on the cheap. The virus issue affects them all, but each company is likely to come through the downturn with its business intact,” reports Eric Savitz for Barron’s.
In order, Microsoft, Apple, Amazon, Alphabet, and Facebook combine for over 41% of QQQ’s roster, according to Invesco data.
Getting Defensive
Technology has been a prime playground for investors looking to add growth and momentum factors to their portfolios. However, that’s changing as investors looking to play defense in a raucous market environment, but companies with cash can aid in a defensive quest.
“All five companies have sparkling balance sheets. Together, they have $587 billion in cash against just $200 billion in long-term debt,” according to Barron’s. “Apple has the biggest pile of total cash, with $207 billion at year-end, against $108 billion in borrowings. Accounting for debt, Alphabet is even more flush. It has $128 billion in net cash.”
Recently, market observers warned that given disappointing Q4 results and the threat of the novel coronavirus or COVID-19 pandemic, analysts have downgraded 2020 earnings estimates for Energy, Industrials and Materials by the most. On the other hand, the technology sector has maintained a slightly positive outlook, despite the segment’s high exposure to foreign markets, and utilities were also showed a favorable earnings outlook.
“Alphabet, Amazon, Apple, Facebook, and Microsoft have shed a collective $1.4 trillion in market value from their February peaks; the stocks were down an average of 25% through Wednesday. And therein lies the opportunity,” according to Barron’s.
As stocks are sliding this month, QQQ is outperforming the S&P 500 by 480 basis points.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.