Is tech in trouble? Has it gotten too expensive? Will we need to worry about how poorly tech will fare if President Trump can't find common ground with President Xi and tariffs get jacked up in December?
With the market at such lofty levels I think the question is worth pondering. I know it's being thought about among the big trigger-pullers on Wall Street because Bank of America Merrill Lynch put out a piece today cleverly titled ch-ch-changes, about how to reposition for next year and the big headline from the report is it's time to lighten up on tech.
It's pretty trenchant. The thesis, headed "from trade war to tech war" states: we lower tech to marketweight on risks of the trade war shifting to a tech war post-election. A move toward dual U.S. /China supply chains could represent short-term pain. Plus it's not just China trade, there's a strong dollar to worry about as well as some weaker holder, namely some momentum players who bolt at a moment's notice.
Nor can it be ignored. Consider how, just last week, Cisco (CSCO) gave a discouraging forecast for precisely the reason mentioned in this piece. You might have been fortunate enough to sell Cisco before the big drop and even though I think the stock represents good value now, there will be plenty of people who have soured on the stock because CEO Chuck Robbins presented the bear case in stark fashion.
But lest you decide to bail, let me tell you why that would be a very bad mistake if you have any sort of longer term horizon, which is the horizon I want you to have for your portfolio because that's the best way to make money.
First, and most important reason? There is no "tech" in tech.
When I got into this business years and years ago, there wasn't much tech at all, some semiconductor companies, some defense contractors, IBM (IBM) and five competitors then known as BUNCH, or Burroughs, Univac, NCR (NCR) , Control Data and Honeywell (HON) .
By the mid-80s, with the birth of the p.c. and the spread sheet, we saw an explosion of information technology companies and their enablers and we all know about the internet and all of its accouterments.
But these days I rebel at the term tech. Is a company like Square (SQ) , which we have on Mad Money tonight, a company that makes millions of small businesses competitive with large ones, is that tech? Is a company like Levi's (LEVI) which we had on last night that is making personalized jeans using novel technology that it designed, is that tech? Is Shopify (SHOP) , a company that has enabled companies to sell on the internet worldwide a tech company? How about Twitter (TWTR) , which needs to spend more on tech to keep up with Facebook (FB) ? Are video games tech? How about the hardware that powers them? The software that enables them, the graphical user interfaces that make them lifelike?
And, most important, how about the software as service companies, like ServiceNow (NOW) , which was just added to the S&P 500, or Adobe (ADBE) , which went from being a company that allowed you to send a fancy document to an e-commerce juggernaut or perhaps the most visible of all: Salesforce.com (CRM) , which has defined an industry that didn't exist until Marc Benioff created it, the customer relations management software as a service platform that enables so many companies to digitize in a world where you digitize or die.
The word that comes to mind when I think of these companies isn't trade, it's indispensability. I am not saying these stocks won't go down on a tweet that says, "I am sick and tired of my good friend President Xi and I am taking tariffs up to 30% in two weeks because he won't even by the pork to keep his people fed." In fact they are the first that go down. It's algorithmic.
What I am saying is that these stocks come bouncing back with alacrity because they are forces of nature.
This morning Kohl's (KSS) the department store chain that used to be one of the fastest growing retailers in the country, reported a disappointing quarter to say the least although to listen to the company talk they had a blow out. It a 'headscratcher', which is something I advise you not to do if you have as much make-up spray painted on you as I do.
I think this company is in existential crisis mode, kind of like two of my faves, Sartre and Camus, no not the wines, the authors. We are in a period of incredible retail turmoil where the only real survivors will be those who are off price or online and Kohl's is really neither. It has to either find a way to become the lowest cost seller, which I don't think it has the ability to do, or it can spend fortunes and develop an online strategy that can compete with Walmart (WMT) , Target (TGT) or Amazon (AMZN) , and I don't think, after listening to today's call, that's possible, because management seems to be in total denial of how much it needs to spend on tech to get in the game.
That's why I rebel against the idea that you have to lighten up on tech because it is crowded or because of the tariff war which I think will just get hotter.
But how about the biggest companies on Earth, how about Microsoft (MSFT) and Apple (AAPL) ? The former's omnipresent and has gotten so far out of the old p.c. that you can't even imagine it as being crimped by China. Apple? It will always be an issue because you can't turn your backs on 1.5 billion customers. But Apple has managed to do something no other company in history has ever done: it has created millions and millions of jobs in both countries and has the confidence of both leaders. Is there anyone else you can think of who has done that? I know I can't.
Oh, and lets remember that the rest of FAANG, notably Amazon, Alphabet (GOOGL) and Facebook have nothing much to speak of in China and when you got nothing you got nothing to lose, at least in terms of earnings per share.
So, if you sell, ask yourself exactly what you are selling. If you are selling an ETF, be my guest those are just stupid amalgamations of stocks slapped together by people who have figured out how to capture fees by deluding people into believing there is just the kind of tech that I know doesn't exist, they just won't do the homework and realize the same thing, or maybe, just maybe, it could hurt their business, which is more important than your money, not that they would ever admit it.
(Cisco, Honeywell, Facebook, Salesforce, Kohl's, Amazon, Microsoft, Apple, and Alphabet are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.
