The search for untapped potential in this market is on as stocks hit new all-time highs.
But with the U.S. 10-year Treasury yield near levels not seen since January 2020, high-growth sectors such as technology and health care are still struggling, the two biggest losers in the past month while energy and industrials take the lead.
UBS analysts released a note Tuesday upgrading tech and downgrading communications services and health care, citing tech’s recent underperformance.
Some investors may want to take advantage of tech’s decline, Delano Saporu, CEO and lead advisor at New Street Advisors Group, told CNBC’s “Trading Nation” on Wednesday.
If yields continue to rise despite the Fed’s relatively dovish stance, tech stocks will face “near-term pressure as the market tries to figure out what’s next,” Saporu said. “Long term, I think it will.”
“Long term, we’ll be in a good position,” he said. “So, if you’re a long-term investor, this is an opportunity to kind of get in at lower valuations and I think long term, we’ll see the tech plays rise higher.”
Saporu was also watching stocks that could see “tail winds from pent-up demand” — he flagged airline plays Delta and United Airlines in an earlier email to CNBC — and the video game and virtual reality industries.
“I want to see … what happens with maybe cryptocurrency plays” and nonfungible tokens, the digital collectibles commonly known as NFTs, as video game and virtual reality companies look to fold them into their strategies, Saporu said.
This market environment has become a particularly good one for stock pickers, Joule Financial’s chief investment officer, Quint Tatro, said in the same “Trading Nation” interview.
“For the first time in a long time, this is a stock picker’s market,” he said, adding that while Big Tech could remain under pressure as rates rise, “there’s unbelievable opportunity to pinpoint other sectors and stocks.”
“We would actually be sellers of Apple and Microsoft,” Tatro said. “Those … we view still as stay-at-home plays, and we would be a buyer of specifically Facebook, but also Google as sort of a reopening play and a play on advertising as small businesses look to really regenerate that growth and really stock those storefronts.”
Though often lumped in with tech, Facebook and Google parent Alphabet are the two biggest weighting in the S&P communications services sector.
Tatro also had his eye on a less conspicuous trade.
“I really think that investors need to look into a little-known sector that we’ve really lost sight of until recently, and that’s the materials,” he said.
Materials stocks are up about 6% over the past month and just over 8% year to date.
“Specifically, I think the industrial metals are very, very interesting here,” Tatro said. “We really like some of the steel plays: Commercial Metals, CMC, as well as Reliance Steel. These are names that have exceptional upside earnings here in the coming years, especially with … the sort of reflation and global growth story back on track, and they have exceptional balance sheets and they’re selling at real value.”
Disclosure: New Street Advisors Group, Joule Financial, Delano Saporu and Quint Tatro own shares of Apple and Microsoft. Joule Financial and Quint Tatro own shares of Alphabet, Facebook, Commercial Metals and Reliance Steel.