Smarting from losses in the stock market? Buy more shares says Bank of America’s David Bianco.
He’s particularly focused on the tech sector, which he believes has shown substantial strength during the economic rebound and which is the most exposed to the global growth via foreign sales.
Bank of America:
We believe the best way to feel better during a correction is to buy some shares. We recommend using the correction to buy the S&P 500 broadly with a preference for mega-cap stocks, especially big-cap Tech stocks.
Tech is trading at a PE of 14x and 13x on our 2010E and 2011E EPS, in line with the S&P 500. Our 2011 Tech earnings estimate is about 10% lower than bottom-up analyst estimate and assumes an average EUR/USD of $1.23 in 2011.
We believe investors are over estimating the negative impact of the strong dollar and weaker Europe on Tech. Although Tech is the sector with highest foreign sales, much of Tech’s European exposure is to corporate technology spending. Multinationals globally have strong balance sheets and the rebound in tech spending is mainly from upgrades and spending to take advantage of new initiatives like cloud computing. This particularly benefits the Tech conglomerates. The Tech conglomerates are gaining market share, have little to nil direct competition from Europe, and benefit from multinationals’ desire to deal with a single tech provider globally. The Tech conglomerates also showed much better earnings resilience during the 2008/09 downturn.
(Via Bank of America, ‘Self-induced correction’, David Bianco, 21 May 2010)