Interview: What to Expect From Tech Stocks in 2012
Sean Udall sits down with Minyanville to discuss his thoughts on tech for the year ahead.
Sean Udall is the writer of the TechStrat Report for Minyanville, a cumulative report of important trends in tech stocks. A frequent contributor to Minyanville's Buzz and Banter, Sean sat down with us recently to discuss his thoughts on tech stocks for the year ahead.
His take? After this de-risking period that we're going through, he sees lots of opportunities to buy tech companies at really good prices.
Click on the video below for more.
What's the big story for 2012?
Well, the big story for 2012 is going to be some resolution or breakdown of the Europe situation. My gut is saying that we're going to have a positive resolution. I think the -- how it gets resolved is I think the ECB has to open up the purse strings and do some serious printing. How much printing they do or not do kind of depends on how much agreement the leaders over there get.
I think this is one of those times, very similar to 2008, 2009. So, in 2009, once basically -- now, March of 2009, once the FAS 157 rule was relaxed, it was basically open season to be an aggressive long again. And I think this Europe situation could play out the same way.
Now, it's binary. So on the other side, if something really bad happens, if Spain debt goes to 9% or Italy goes to 9% or beyond, you just kind of have to wait for that situation to clear. And people may have to be prepared to buy stocks up 10, 15, 20% because if Europe clears, that's just going to be a good start.
How will the elections affect the markets?
I think Romney is going to be there on the Republican side. I do think there's a lot of stuff that an existing president can do to juice things. And I do think some of that stuff is going to occur. So I think Obama's going to have actually kind of the wind at his back. As you know, I've been writing about actually really robust US strength, even though the world is kind of muted. I actually think the US strength can continue or maybe even accelerate. So Obama is going to have probably a rising stock market in a better economy and some sort of lower unemployment rate to run on.
So I don't know. The presidential race is going to be really close. I think the market would react very, very well if the Republicans ended up with the Senate. So no matter who gets elected president I think is less material than the Senate race.
What is everyone else missing in the markets?
You know, again, I kind of think this is either a mini or major version again of the 2008, 2009 period. And we got to a point when it made -- for a long time in that period it made sense to sell stocks, it made sense to de-risk. But we reached a point where valuations got ridiculous. So we're sort of in a similar moment, but we actually have a much better growth backdrop.
So in 2008 and 9, you couldn't say Google (GOOG) was growing at 30% and Apple (AAPL) was growing -- although Apple's growth rate was still fantastic. Today you sort of know what these growth rates are, you probably know they're sustainable. And you got P/Es at 10, 12, 14. Half or one-third of the growth.
So it's just -- I think the world is basically way too worried about systemic rate and not looking at the obvious things that are going to work, maybe eight months, 18 months, 36 months out. Which are, we're still sort in that generational opportunity to buy really good companies at really good prices.
How do you see risk transforming in Europe?
Again, it's kind of the same thing. We were talking yesterday, I think the thing that has to happen is we have to unwind the last three bubbles. So the first bubble that has to unwind, in my view, is the negativity bubble. The second bubble that has to unwind is the bubble in US Treasuries. So, maybe US yields rise, European yields fall, assuming some sort of resolution. But that whole risk picture sort of gets reworked globally. And I think people trade accordingly. Once they don't have to worry about Europe anymore, then they can say, wait, what's cheap and what should I buy and how much is moving and where momentum is occurring and stuff like that.
I do think, though, the one thing that we've seen that I think could continue are really, really high-flying 'momo' stocks with high valuations. Netflix (NFLX), SalesForce.com (CRM). We may see more of that. And Amazon.com (AMZN) might be fairly susceptible. Even if things clear and we re-risk, highly valued stocks could still be subject to some punishment.
So there's been a lot of investigation in China and Chinese companies and fraud and accounting issues and all that sort of thing. The company that has been the absolute Teflon Don has been Baidu (BIDU). And I did a lot of work a while ago when Google still had pretty good market share in the Chinese search market. So there was a time when Google had basically 30 to 35% share and Baidu had twice that amount. Well, the interesting thing was, Google's monetization or revenues they were getting from that 30% share was not concomitant with the revenues that Baidu was getting. In other words, Baidu was getting about two or three times the amount of revenue on a comparable basis.
So I have no idea. Baidu could be operating the books as clean as anybody, but I've never been able to rectify that situation why Baidu was able to monetize at roughly two or three times the rate as Google. So, does Muddy Waters come out with an investigation on Baidu or does something else happen, but that's a highly valued stock that, if anything gets found like that, that could be a huge story.
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