Tech stock headwinds leading to ‘more downside’ for the Nasdaq: Strategist

Independent Solutions Wealth Management's Paul Meeks joins Yahoo Finance Live to discuss the outlook for the Nasdaq, market swings, and where to find value in the tech sector.

Video Transcript

- Tech companies continuing to take a big hit today with the NASDAQ seeing its worst sell off since the 2008 stock market crash. This comes as several heavyweights in the industry are cutting down on costs and slowing down hiring. Uber just the latest company to do so, with CEO Dara Khosrowshahi telling staff that the company is slashing its costs and treating hiring as a, quote, "privilege," according to an email obtained by CNBC.

Let's bring in Paul Meeks. He's Independent Solutions Wealth Management portfolio manager. Paul, just give me a sense of how you're watching this.

I mean, we're talking about another decline of more than 3% for the NASDAQ. How much more downside do we see?

PAUL MEEKS: You know, I actually think there is more downside. And so I know whenever I'm on air, folks always want me to ring the bell and, you know, give stock ideas about things that are going to outperform not just tomorrow but this afternoon. I'm just not there yet. There are too many fundamental headwinds.

And even if you get beyond the fundamental headwinds, you have some great tech companies that are doing all the right things. They've just got through a quarterly report in which they beat Wall Street expectations and gave pretty good guidance. Yet their stocks are still seeing with this macroeconomic backdrop a valuation compression.

- All right--

PAUL MEEKS: So if you can't even win with the good guys, I really think that it's probably still savvy to be risk off rather than risk on here.

- So how do you look at this? Is it an opportunity to buy into some of these names that, to your point, have become quite inflated? But as we've seen in earnings, at least with the big tech names, the growth story is still intact. Do you get in on this opportunity now, or do you stay on the sidelines and expectation of a further pullback?

PAUL MEEKS: It's mostly the latter, but you're asking a dynamite question because with select names, for folks that are aggressive, not conservative investors, that want to be in my tech model, and they really can tell me-- not just say it, but really sincerely mean it-- that they have a one to two year out investment horizon, then there are several names that I'm starting to pick away at here. But I'm not going all in. I'm not risk on. I'm not too aggressive, but I have been buying the last couple of weeks, particularly as my favorites report their earnings if they look like they're pretty good and pretty good forecasts.

- Yeah, what are some of those names you've been buying into?

PAUL MEEKS: So there's a couple of names I'm interested in. Arista Networks, I had a great quarter. Advanced Micro Devices-- Micron Technology, one of my favorite semiconductor companies, does not report for several weeks. But I like their forecast.

And then there are some ways that you can get tech exposure, at least minimally. And I don't think you have too much downside left. Companies among the FANGs-- not all the FANGs. There's some I don't like.

But I do like Apple, Microsoft, and Google. And then there's a couple of real defensive high yielding tech companies that I hated for years and years, but they're finally showing their growth. And believe it or not, after all these years, all these years of hating them, I do have some love for AT&T and IBM.

- We mentioned that report from CNBC, Dara Khosrowshahi over at Uber putting out this note talking about essentially what could amount to a hiring freeze, at least a slowing of hiring. We got that report last week from Meta, hiring freeze in some divisions there as well. I mean, it feels like we're starting to get more and more of these headlines out of these tech companies.

Investors have really come to expect to only see upside. How should they be looking at that? Is that ultimately-- you hate to see anybody lose their job, but is that ultimately a good thing given just how big they have become?

PAUL MEEKS: I think so, because in the era of low to zero interest rates, free cash flow, earnings didn't matter. It was all about top line growth and some, you know, convoluted internet-based metrics that really don't have much to do with financials. So now with interest rates on the rise, we have to be at least some semblance of value investors even within the tech sector. And so now these companies have to pull back on the high cost growth and doing the right thing by essentially pulling back their expenses and hopefully ushering in an era where they are generating more revenue, more earnings, and, more importantly, more free cash flow by trimming their expenses.

- So if you are sort of reducing your exposure in these high growth names, where do you put that money? Have you just been putting it on the sideline, or have you been investing maybe some of the value names?

PAUL MEEKS: Yeah, so it's mostly on the sideline, as I mentioned, coming back with some very select names. Only after I hear their quarterly reports that I'm convinced that they'll be able to weather these periods. And as I said before, on the growth side of the house, companies like Arista Networks and AMD, which I think are strong. And then to play your Uber defensive, chicken tech-- tech-ish, but not tech-centric, things like IBM and AT&T with their 4%, 5%, 6% dividend yields.