Russia-Ukraine war ‘keeps me away from going all-in’ on tech stocks, portfolio manager says

Independent Wealth Solutions Management Paul Meeks joins Yahoo Finance Live to talk about tech stocks outlook, picks within the tech sector, how tech will respond to Fed interest rate hikes, and Russian-tied commodities and metals impacting the production of chips and semiconductors.

Video Transcript

RACHELLE AKUFFO: Welcome back, everyone, to Yahoo Finance Live. So how far did Chairman Powell's comments go to relieve uncertainty in the market for tech stocks? Well, I'm joined by Paul Meeks, Independent Wealth Solutions Management portfolio manager. Thank you for joining me today. So, obviously, given the year that tech stocks have had so far, the biggest names and FAANG stocks still down year to date. How sustainable will this current rally be, you think?

PAUL MEEKS: Yeah, I'm a little bit worried about that. A couple of things I do feel better about-- we've now been through the quarterly earnings period. And so we have a better idea of who are the tech survivors coming out of COVID and who are the pretenders. And so we can focus on that list. And then we did get the hawkish statements out of the Fed yesterday. And even though they're going to be a pretty stiff headwind for tech stocks and other aggressive growth companies, you know, the data is now known. And when it's known, it's absorbed in the market. The thing that I still worry about-- and it keeps me away from going all in on tech-- is what's happening in Eastern Europe, because if we still have geopolitical risk, we still have risk to these stocks.

RACHELLE AKUFFO: And it's interesting because we saw Wedbush analyst Dan Ives saying that investors have been given the bright green light to own tech stocks. But as you mentioned, you're not all in on tech now. So what are some of the signals you're watching for and some of the sectors that are giving you-- that are keeping you up at night and not making you want to go all in?

PAUL MEEKS: Yeah, so I continue to worry about the geopolitical risk. And even though we had a bit of a oversold bounce in tech stocks the last couple of days, you know, some relief from the Fed statements yesterday afternoon, and that still is going to be, as I said before, pretty stiff headwind. As rates rise, you depress these stock valuations. And we have-- and we've seen this during the most recent quarterly earnings period. You have some great companies, not good companies, great companies, that have crushed analysts' estimates and have also given very positive guidance. Yet, their stocks fall because their margins and valuations continue to contract somewhat. And so I think that's still going to continue. And we're not out of the woods. And so I'd continue to be super careful.

RACHELLE AKUFFO: So then talk about the tech stocks that you do like right now and the criteria that you're really focusing on when you're picking them.

PAUL MEEKS: Yeah, so I'm looking at companies that play into some killer themes. And those are pretty easy to hatch, you know, things like AI and 5G wireless rollout. I'm looking for companies that, regardless of what's happening around the world, are going to grow their earnings this year and next, and companies that actually have a decent price chart. So all tech stocks have felt the pain, but if they've held up relatively well during this carnage, I think they're showing some signs of optimism.

RACHELLE AKUFFO: And obviously, retail investors sort of assessing this carnage, trying to figure out how they should move. What is the best way, do you think, for retail investors to balance their portfolio, given what we're seeing in the market and given what we're going to see with the Fed increasing interest rates, as well as also trying to tighten its balance sheet?

PAUL MEEKS: So I think that tech is OK for long-term investors. The problem is with most retail investors, they say they're long-term, and then they take a hit the second or third day after they bought a stock, and they're disappointed. You can't be. But if you're really a long-term investor, I think there is a pretty good opportunity here. But what I would do is, I'd get back into the sector, and I would go in only with a portion of your capital. Take it very slowly, very deliberately. Focus on the leaders. Among the FAANGs, I like all of them, but I particularly like Microsoft and Google.

And then there's some semiconductor stocks that have been really whacked recently, companies like Broadcom, Advanced Micro Devices, Nvidia, Qualcomm, Marvell, that I think are buyable. And again, go in slowly. Go in deliberately. Don't put in all your capital the first day. And make sure that you truly have a long-term perspective, and you're not just saying it.

RACHELLE AKUFFO: And you raise an interesting point about chipmakers. I mean, how are you viewing them now? We're, obviously, still seeing supply chain bottlenecks that were starting to get loosened, but now a lot of worry now as we look at Russia and Ukraine. And that's also predicted to push up raw materials prices. What should people be aware of when it comes to the chipmakers?

PAUL MEEKS: So the chipmakers can be somewhat of a beneficiary of tight supplies because they're doing the supplying. However, neon gas, which is a major product coming out of that part of the world that's under wartime threat is important as a raw material to make semiconductors, and so is the metal, palladium. But I still think that that is mostly in the stocks at this point, right? The Russians went in, they've been in ever since the third week of February. And that's probably baked in, at least, that risk, unless we have a lingering conflict in the prices of the semiconductors, and that the names that I mentioned just now I think are the cream of the crop within that industry, within that sector.

RACHELLE AKUFFO: And what would you recommend either starting to rotate out of at this point in your portfolio?

PAUL MEEKS: I think some of the defensive names. You know, they've held up pretty well. And obviously, energy has been great. Now energy was a sector that was the dog of the 11 economic sectors of the S&P for many years, rolling into the tight supplies, only exacerbated at the beginning of 2022 by the war. So you know what you could do if you had a long-term perspective, and you want to be a contrarian? Take some money out of energy and some of these super expensive commodity stocks and food stocks, and then start to, again, slowly and deliberately, rotate back into tech, not indiscriminately, but in some of those focused names.

RACHELLE AKUFFO: All right, everyone, do your homework. Thank you so much. Paul Meeks, the Independent Wealth Solutions Management portfolio manager, thank you for your time today.