It may be time to go shopping for some tech stocks after the space has been hammered in recent weeks amid concerns on future returns during the Federal Reserve’s looming interest rate increases.
Veteran tech analyst Mark Mahaney at Evercore ISI has singled out three mega-cap tech names that should be on your shopping list.
“Our top three mega-cap picks this year are Uber, Amazon and Facebook [Meta],” Mahaney said on Yahoo Finance Live.
Mahaney’s call on mega-cap tech names reflects a mixture of compelling valuation and still attractive fundamentals.
“Facebook may be the easiest [choice] of those. It trades at 22 times earnings, and for something that I think can grow earnings 20% to 30%. You have a ton of cash on the balance sheet. This thing trades close to a market multiple for revenue growth that is three times greater than the market. Earnings growth that is two times greater. I think that is a great sort of value growth play in large-cap,” Mahaney said.
Meta shares are down 1% year to date compared to a 3.2% drop for the Nasdaq Composite. The advanced 23% in 2021, relatively in line with the Nasdaq.
While Mahaney upgraded Doordash this week on a view its food delivery service is becoming entrenched among consumers stuck at home amidst the pandemic, he still views Uber as a good play from the gig economy.
“Uber is our big recovery play. It’s the one with the most upside if and when we come out of the COVID crisis,” Mahaney said.
Uber’s stock plunged 21% last year, but shares are up 2.5% so far in 2022.
The final pick is Amazon, which as Yahoo Finance has written has become a battleground stock.
Amazon’s stock is down 1% for January. Zoom out and the performance is far uglier.
Shares are down 11% from their peak on July 8, otherwise known as a correction (decrease of 10% off the highs).
Mahaney acknowledged Amazon’s costs to build out its litany of services (see same-day delivery) during the pandemic has surprised him to the upside. But similar to Facebook/Meta, valuation is too attractive to ignore.
“There is a massive investment cycle going on at Amazon. What happens when you see that, margins come down. That was the surprise. That is what dragged the stock back down from breaking out. I think as you go through this year, you’ll start comping against that. This company faced a lot of inflation and supply chain risks in the back half of last year. I think all of those will be absorbed into the business model or comped against. That will allow margins in the back half of the year to accelerate, and the stock to take off,” Mahaney said.