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Big technology and work-from-home stocks, which have rallied hard amid the pandemic, are too expensive, according to one investor.
Clark Kendall, president and CEO of Kendall Capital told Yahoo Finance’s On The Move that investors are “overpaying for these success stories right now.” He highlighted the divergence between stocks benefiting from COVID-19 lockdowns, and the rest of the market.
“The top 5 stocks of the S&P (^GSPC) represent 23% of the market capitalization. The last time it was this high, was back in 2000,” Kendall added.
Meanwhile, as Netflix (NFLX) — one of the highest-flying stocks since the COVID-19 crisis began — came crashing back to earth after a lackluster earnings report, Kendall warned that it could easily lose its luster.
“Qualcomm (QCOM) at the turn of the century was the Netflix of today,” said Kendall.
“I think people are going to keep on Zooming (ZM), people are going to keep on Neflixing, people are going to drive Teslas, but I just feel like we’ve overpaid,” the investor said. “I question how predictable is the cash flow of these Covid success stocks.”
On Friday, the streaming giant dropped more than 7% following weak guidance for the current quarter, suggesting its ballooning new subscriber growth would slow down in the second have of the year.
Still, Kendall sees opportunities in some Russell 2000 (^RUT) stocks, mainly in areas like homebuilding.
“What a good portfolio manager does is looks for relative value,” said Kendall.
“What I’m pointing out here is the relative value is in second tier names, not the ‘Nifty 50,’ the Covid success stocks that everyone has been all over,” he added.
Ines covers the U.S. stock market from the floor of the New York Exchange. Follow her on Twitter at @ines_ferre