Longtime tech investor explains why he’s ‘really worried now’

Independent Solutions Wealth Management Portfolio Manager Paul Meeks joins Yahoo Finance Live to discuss the recent sell-off in tech, investor sentiment, inventory pressures in the chip industry, and the best and worst FAANG names.

Video Transcript

JULIE HYMAN: All right, let's take a look again at what's going on markets here. Because we have turned lower. Initially, we had a bounce here this morning. Futures actually dipped very briefly into the red and then came back up again, and now stocks overall are back in the red.

Now, we are not seeing tech lead to the downside like it did yesterday. But nonetheless, we saw a big sell-off happening yesterday that now appears to be continuing into today. The NASDAQ, remember, yesterday hit its lowest level-- or biggest sell-off, I should say, since June of 2020, prompting the top six tech giants in the US to lose $500 billion in value.

Joining us now to discuss is Independent Solutions Wealth Management Portfolio Manager Paul Meeks-- long time tech investor. Paul, what do you make of what we saw yesterday? Now, to be fair, it came off of what had been a little bit of a bounce in tech stocks over the prior week or so, or a couple of weeks or so. How severe do you think sentiment is around tech as reflected by yesterday?

PAUL MEEKS: I think yesterday was absolutely brutal. And I wouldn't be surprised as we turn into the close at 4:00 Eastern time that we don't have a meltdown a la yesterday. But there still could be pressure. And it is sobering when you see no bounce back, particularly after a particularly nasty day yesterday.

And the way I look at this sector is I would be underweight the sector. And I'm a guy that's been in this sector a long time. And quite often, I'm saying overweight-- that's my shtick. But I am clearly underweight here.

I manage a lot of tech portfolios and I have abnormally large cash positions. And when I go in the sector, I try to play it very defensively with tech-ish names instead of pure tech names.

JULIE HYMAN: I just want to put a fine point on this for a moment, Paul-- you are saying underweight-- you, Paul Meeks, underweight technology right now. I mean, how often have you been underweight technology over the course of the past, say, decade?

PAUL MEEKS: Well, I think one of the reasons that I'm on the air quite a bit and I've been on pretty frequently since the mid-'90s is I always try to tell the truth. So I do turn bearish and articulate that probably more than most in my sector. But oh yeah, I mean, obviously, I've made a multidecade career in this space. And so I believe in it long-term.

But I'm really worried now, because the key driver for the tech sector is semiconductors. And between semiconductors and hardware, that's about 45% of the weight of the tech sector. And the semiconductor stocks are in peril. In addition to all the issues that we've had over the last couple of years since the pandemic began, now we're facing a new one, and it's nasty.

It's an inventory correction. And so if you are essentially zero weight semiconductors like I am, you can't really have any hope for a tech rebound because the semiconductor companies will be required to lead us out. And unfortunately, they're really sagging here. I don't see near-term relief.

BRAD SMITH: That kind of answers the question that came to mind for me, Paul, which was, what would be the catalyst for any type of, as hard as it is to just call the bottom of anything, what would be that catalyst for any type of rebound within tech? And you're saying it would be so contingent on semiconductors.

We know that there's heavy spending that's going to be taking place within that space, whether it's breaking ground on new plants and bringing production and capacity up to speed-- so what is the timeline that if people are looking to invest in tech right now, what's the time horizon that they should be keeping in mind?

PAUL MEEKS: So I'm pretty cool with people investing in tech if they are sincerely long-term investors. But in my experience, everybody says that but nobody really means it when their stock they just entered goes down, you know, tomorrow or the day after tomorrow.

I think what you need to see as a catalyst, not only for semiconductors but the rest of the sector, and probably even most stocks in the market, for that matter, is you need to have some kind of confidence that the next time the company reports quarterly earnings it's not going to be another miss, either revenue or earnings per share, or we're not going to have another, immediately after the quarterly conference call, downgrade again in guidance by Wall Street analysts.

When I think that the bottom is in, regardless of how bad it is-- when the bottom is in on the estimates, then you can build a base, do some valuation work, and start to rebound. But I'm just not sure the next couple of quarters we're going to see the bottom in on those estimates. And that is absolutely critical.

JULIE HYMAN: For long-term investors, Paul, you sent us a list of only 15 stocks within tech that you think are worth long-term investors' time right now. The top two I have to notice-- and they are in alphabetical order-- but the top two are Apple and Amazon. Do you think what you were just talking about is true, in particular of those two companies? And if you're looking long-term, would you recommend people buy those two companies right now?

PAUL MEEKS: I actually think Apple, since they've reported and also since they've had their debut of the next generation of the iPhone, I don't want to say they're clear. No one is clear. And Apple has exposure, as we all know, not only to demand but supply in China. And of course, that is squirrelly.

But among the FAANGs, I feel OK with Apple near, intermediate, and particularly long-term. Amazon I'm a little bit worried about the next quarter or two. But we have seen, at least last quarter, a nice rebound where the stock rose and the estimates actually increased a bit versus everybody in tech, where they continued to dive.

And so yes, among the FAANGs, Apple first and foremost. Second fiddle goes to Amazon, but those would be the only two, even long-term right now, that I would invest in among the FAANG stocks.

BRAD SMITH: The entire thesis behind FAANG was high growth internet. And so if we're revitalizing the way that we should think about some of these high growth internet names and the pivots that they're making as well, advertising is one of those high margin businesses that they're trying to lean into, or at least build infrastructure around, at a time where some of that advertising spending is pulling back. How quickly do you believe that could be accretive to some of their businesses?

PAUL MEEKS: So it's obviously a great business. We know the world has, long ago, moved from linear advertising to digital advertising. We know the two biggest players, right, are Facebook, aka Meta, and Google, aka Alphabet, and maybe even Amazon's advertising business in third place.

However, even though digital advertising is taking share from legacy advertising, in a recession, which if we aren't in one right now, it's imminent, the whole advertising budget, traditional and untraditional, will collapse. And those stocks will see continued pressure.

And I think Meta is actually the worst off, because not only do they face that severe headwind in a recession, but also we know that they're going through this metamorphosis to a new model. People don't really understand what the new model is. Until I can better grasp that, I probably stay away from that one at almost any price.

BRAD SMITH: It sounds like I won't find you in the metaverse, Paul Meeks. You know, until they get legs on everybody in the metaverse, I'm not sure if I want to be there either. Independent Solutions Wealth Management Portfolio Manager Paul Meeks joining us here this morning. Thanks so much, Paul.