Electric vehicle and clean-tech stocks were hammered Tuesday, and analysts from at least one Wall Street investment research firm expect the carnage to continue for some time.
The head strategist at JPMorgan Chase & Co. (NYSE: JPM) told clients yesterday to look for aspirational sectors to deflate as investors pump new money into cyclical sectors riding the economic recovery.
Marko Kolanovic, head of macro quantitative and derivatives strategy at JPMorgan, made quite a name for himself during 2020. In June, he correctly predicted stocks would move back to new highs despite the ongoing pandemic. The Croatia-born 45-year-old reasoned that financial-market liquidity and the willingness of Washington politicians to legislate economic stimulus would lead to higher asset prices.
Now that the economy has been primed for the better part of a year, Kolanovic is looking for traditional economic sensitive issues to lead markets higher. He specifically favors energy, metals and hospitality, according to a report at Business Insider.
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On the other side of the ledger, the JPMorgan strategist is more vague. While not mentioning any specific names, he did theorize that clean energy and electric vehicle stocks have been rising on a “reset agenda” … a grand reimagining of the world after COVID-19.
That’s a cool theory; however, it’s not why tech stocks have been rising.
Tech surged in 2020 because the sector was the epicenter of sales growth, even with many parts of the global economy shuttered.
The stock market performance was more about digital transformation than a wholesale shift to green tech. This distinction is important because the transition to digital business models is only getting started.
The current weakness is a longer-term buying opportunity for the shares of companies that are instrumental in this tectonic shift.
Managers at Accenture plc (NYSE: ACN), a global business consulting firm, noted this week that enterprises have compressed a decade’s worth of digital transformation into only two years. The firm’s Technology Vision report surveyed 6,200 business leaders. A staggering 91% believe they need to embrace digital strategies now to capture future markets.
That’s your 2020 tech rally in a nutshell, with all deference to the analysts at JPMorgan.
Investors should get to know the essential tech platforms at the center of digital transformation. Shares of these businesses are likely to come back strongly in the weeks ahead.
Amazon, Inc. (Nasdaq: AMZN), Microsoft Corp. (Nasdaq: MSFT) and Alphabet, Inc. (Nasdaq: GOOGL) are the leading public cloud providers. From enterprise infrastructure to connected car platforms these businesses have become gatekeepers to the digitalization of business.
Salesforce.com, Inc. (NYSE: CRM), ServiceNow, Inc. (NYSE: NOW) and Adobe Inc. (Nasdaq: ADBE) make software platforms that sit keenly atop cloud infrastructure. These companies run the Software-as-a-Service subscriptions that have become ubiquitous in the Fortune 500.
Other software firms such as Appian Corp. (Nasdaq: APPN), Twilio Inc. (NYSE: TWLO), MongoBD, Inc. (Nasdaq: MDB), Workday, Inc. (Nasdaq: WDAY), Veeva Systems Inc. (NYSE: VEEV), DocuSign, Inc. (Nasdaq: DOCU), CrowdStrike Holdings, Inc. (Nasdaq: CRWD) and ZScaler, Inc. (Nasdaq: ZS) build niche products to help system administrators develop bespoke corporate applications and/or run parts of the enterprise.
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Then there are the essential silicon and sensor companies that make data integration possible. Throw into the mix NVIDIA Corp. (Nasdaq: NVDA), Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM), ASML Holding N.V. (Nasdaq: ASML), Analog Devices, Inc. (Nasdaq: ADI) and Sony Corp. (NYSE: SNE).
These businesses are the core of the enterprise digital transformation stack. They are all growing quickly and taking market share from legacy competitors. They’re not part of a reset agenda or fad. Their share prices reflect an ongoing transition from analog to digital business models across most of the world’s largest corporations.
Other businesses are transforming specific sectors like drug discovery, energy exploration, steel fabrication and yes, even car manufacturing. Longer-term investors should look for pullbacks in the shares of Schrödinger, Inc. (Nasdaq: SDGR), Guardant Health, Inc. (Nasdaq: GH), Schlumberger Ltd. (NYSE: SLB), ArcelorMittal (NYSE: MT), Magna International Inc. (NYSE: MGA) and General Motors Co. (NYSE: GM).
It’s easy for analysts to argue investors have been irrational. And any implication that throws Tesla, Inc. (Nasdaq: TSLA) into the mix is certain to grab headlines and pique interest.
Longer-term investors should be extremely skeptical about easy explanations. Digital transformation is a tech megatrend that is in its infancy. Smart investors will strongly consider buying dips.
Best wishes,
Jon D. Markman
