Reports of the death of cyclical technology stocks are premature, apparently.
As Hewlett Packard Enterprises (HPE) has shown that demand remains strong and there is still room to run before a cliff, stocks like Micron Technology (MU) and (IBM) IBM have been dragged up from the depths pre-market trade worries had plunged them to.
HPE rose 6% in late afternoon trading, helping raise both IBM and Micron poke into the green shortly before the market close after significant downturns pre-market amid news of elevated trade tensions. The companies' valuation and exposure to secular growths sectors have appeared to outweigh the Sino-American strife.
"Companies are spending on technology to gain market share and increase efficiencies, helping to improve profitability," Wilmington Trust Senior Investment Strategist Meghan Shue wrote in her 2019 economic outlook. "We see technology spending driving the capex cycle, and we expect companies across economic sectors to continue spending on technology investment."
She added that this spending will help extend the economic cycle beyond 2019. With companies like Micron and HPE helping underpin the industry, such an extension would be ideal as concerns over supply and demand issues could be assuaged.
Wilmington Trust Chief Economist Luke Tilley added that the overall cycle will take some time to turn as well in an interview with Real Money, noting that it will take's time following a yield curve inversion for a recession to strike.
He acknowledged that the market is late in its cycle, but expected continued growth into 2019.
To be sure, not all market-watchers were so bullish on the prospects for 2019.
"End-2017 was the very peak in the global trade cycle, which started to slow rapidly from early 2018. China's deceleration, the ending semiconductor cycle, and a sharp increase in uncertainty over trade relations as the US rhetoric on trade suddenly changed," Ajay Rajadhyaksha, Barclays Global Head of Research wrote on Thursday. "Will financial assets rebound strongly in 2019? We do not believe so."
Still, buoying a buying thesis is the sheer value in companies like HPE and Micron. As the market makes a shift back towards value investing from years of growth investing, a rational valuation is a serious positive.
Micron's price to earnings ratio for the next 12 months is a stunningly low 3.8, while HPE's still remains at 9.9 despite a significant jump post-earnings.
If investors are looking to play the technology sector at this point, some of the older names like HPE and Micron remain the cheapest around.
The question for investors is whether the price is worth the risk, or if some hedging, like that of Stephen Guilfoyle, might be in order.
Shares of both have risen swiftly from their pre-market levels on Thursday.