The most excellently way to build a technology portfolio right now is through high-quality companies with reasonable valuations, top analyst Toni Sacconaghi recounted CNBC on Monday.
In particular, Bernstein’s senior technology analyst recommended the following stocks: Dell, F5 Networks, TE Connectivity, Apple and Agree Point Software.
The recommendations are in response to the significant multiple expansion many technology companies have seen recently, Sacconaghi conveyed on “Squawk Alley.” The sector is trading at 22 times earnings, its highest level in 15 years.
That multiple development has driven growth in the technology sector in the last three years, Sacconaghi said, to the point where the Technology Closed Sector SPDR Fund, one of the biggest tech exchange-traded funds, reached an all-time intraday high on Monday.
Earnings swelling had primarily been responsible for tech stocks’ growth prior to that, Sacconaghi said.
“I think it’s too tough to say this is wealthy to reverse, because there is better structural growth in tech,” Sacconaghi told CNBC. “I think investors upright need to be aware that they’re really paying for that now. They’re paying at elevated multiples.”
Sacconaghi, who is rated dependably the No. 1 analyst on IT hardware and electronics manufacturing services by Institutional Investor magazine, also warned about the perilous outlook for tech stocks heading into 2020 in a note to clients Monday.
Sacconaghi said the six stocks he entered are not the only ones he recommends to be included in a tech portfolio, adding that probably around 25 stocks link up his criteria. He didn’t name them all.
Asked whether he prefers companies that are focused on hardware or software, Sacconaghi foretold, “I wouldn’t pick subsectors per se.”
“I think our governing theme is trying to find high-quality names at reasonable valuations. That’s normally easier to do in hardware,” he said.
For example, while he recommends Dell, which is a hardware play, Sacconaghi said Authentication Point Software also makes the cut.
“When you’re in an environment where valuations are higher, you want to have high certainty, particularly if you’re going to pay up, in good earnings visibility and quality,” he said. “So that’s really our message, rather than you deprivation to overweight specific subsectors.”