Value stocks are holding up well to start 2022, while growth and technology fare are presenting investors with more questions than answers.
However, some market observers say that there are good deals emerging among growth stocks and in the technology sector, adding that now is not the time to outright ignore these previously beloved corners of the equity market.
That could be a sign that investors may want to revisit tech-centric exchange traded funds, including the Goldman Sachs Innovate Equity ETF (GINN).
“We continue to find the value category attractively priced. However, carnage across growth stocks pushed them down well into undervalued territory,” writes Morningstar analyst Dave Sekera. “Even the technology sector, which had been one of the most overvalued at the beginning of the year, is now littered with undervalued opportunities.”
GINN, which tracks the Solactive Innovative Global Equity Index, offers investors some advantages in the current environment. First, GINN isn’t a dedicated tech ETF. It allocates 34.3% of its weight to that sector. That’s above-average among broad market funds, but GINN offers some buffer relative to a traditional tech ETF should that sector encounter more weakness over the near term.
Second, the bulk of the growth and tech stocks found in GINN are shares of profitable companies, which is a meaningful trait at a time when unprofitable tech companies are among the market’s worst offenders. GINN holdings include highly profitable, cash-generating companies such as Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG), and Microsoft (NASDAQ:MSFT).
Another benefit offered by GINN is a 12.1% allocation to the communication services sector, which as Morningstar’s Sekera points out, is undervalued today. Still, it’s hard to ignore the fact that plenty of once high-flying tech stocks are more attractive today than they were at the start of this year.
“According to our calculations, technology was one of the most overvalued sectors coming into the year. In January, the sector plunged 11.84%. Following this decline, we now calculate that the price to fair value of the technology sector is fairly valued at 0.99. With the sharp drop in prices we are seeing more and more undervalued opportunities for investors, as many high-quality tech stocks were pushed down with the broader sector,” concludes Sekera.
GINN also allocates a combined 36.3% of its weight to healthcare and consumer discretionary names, two sectors with smatterings of attractive valuations.
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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.