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Be wary of this tech stock

The stock market is volatil...

Posted: Oct 17, 2018 5:51 PM
Updated: Oct 17, 2018 5:51 PM

The stock market is volatile again, and tech has been leading the sharp plunges and huge gains.

Nervous tech investors may want to reconsider their portfolios, Exponential ETFs chief executive Phil Bak said on CNN Business' weekly Markets Now live show.

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They should start by dumping Facebook (FB).

"Investors aren't getting their money's worth," Bak told Markets Now host Richard Quest Wednesday. Bak said the company's push to correct its privacy and security mistakes of the past come at the expense of growth. Facebook has lost about a third of its value since July.

Tech stocks have become particularly volatile as interest rates rise.

For more than nine years, tech has been leading the stock market's surge. Investors have poured billions of dollars into tech stocks that have little or no profit.

Investors are growing worried that risky stocks like tech could be the first to tumble if rising rates cause economic growth to slow.

"It takes a certain braveness to hold a stock while P/E ratios rise to infinity," said Bak, referring to a common measure of a stock's relative cost.

So if you pull your money out of tech, where do you invest? Should you move from tech to value stocks that pay dividends and rise in good times and in bad?

Many investors have been doing that. Recently, the market has shifted into health care, consumer staples and utilities — stocks that don't typically rise when the economy is improving.

But that might not be a great strategy, Binky Chadha, chief U.S. equity and global strategist at Deutsche Bank, said on Markets Now.

"Tech has been at a market perform [level] since May," Chadha said. "I wouldn't recommend taking money out of high-growth into value stocks. ...Tech looks great from a fundamental point of view."

Chadha thinks the economy still has room to grow. So he recommended investors continue to stay in high-growth stocks, resisting the urge to pour money into bonds as yields rise. He said next month's midterm elections will be a catalyst for stocks to keep rising.

Commodities are also a risky bet, Chadha said. He believes oil prices should be about $50 instead of $70, about where they are now. Recent events in Saudi Arabia, as well as Washington policy decisions about Venezuela and Iran, have driven up oil prices this year.

Betting on oil when the fundamentals aren't backing up oil's price could be dangerous.

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