Morningstar’s top strategist reveals tech stocks he likes or is avoiding
Investors have been watching tech stocks keenly in the past year, amid a significant bout of volatility in the sector. Morningstar’s top strategist, however, has an underweight on the sector and is staying clear of several Big Tech names. “The technology sector in and of itself is really priced to perfection,” the firm’s U.S. Markets Strategist David Sekera said. Tech stocks are now trading at a 6% premium to fair value and are now “getting into an area that I can consider to be overvalued overall from a sector wide basis,” he told CNBC’s “Street Signs Asia” on Sep. 27. Sekera’s current position on tech is a reversal from the optimism he had — particularly on small and mid-cap names — earlier this year. It also comes despite the strong gains in U.S. stocks more recently, led by strong performances in key tech firms, as well as solid economic indicators which collectively lifted overall sentiment. Overvalued plays For now, Sekera is staying clear of headline grabbers like iPhone maker Apple , database software maker Oracle and IBM whose valuations have “just run up too fast,” he said. Morningstar has a two-star rating on Apple. The financial services firm gives stocks a rating of between one and five stars, with a five-star rating indicating that the shares are undervalued. “I would say we weren’t necessarily all that impressed by their AI rollout,” Sekera explained. “We’re seeing some relatively sluggish sales in China, and the purchasing for the iPhone 16 maybe is on the slow side as well. So that’s one where I think it’s a good time to take some profits off the table,” he added. On Oracle, Sekera believes the market is “overestimating the long-term growth for their cloud business.” The stock has a one-star rating from Morningstar. The firm’s caution on the stock is in stark contrast to the optimism of other veteran industry watchers . Oracle recently raised its fiscal 2026 revenue forecast to at least $66 billion, more than the $64.5 billion LSEG analysts were expecting. Morningstar’s concern is that “they will end up losing market share over time to other database types,” Sekera explained. Oracle is another company “that’s really been pulled up by the AI story, but more than it should have been,” he added. As for IBM, Sekera noted that “a lot of its businesses have just been a melting ice cube over the past decade.” Morningstar has a one star rating on the the stock. Sekera’s pessimism comes even as IBM’s second-quarter earnings surpassed Wall Street’s expectations . The company — which provides hardware, software and consulting services — expects 2024 free cash flow to come in above $12 billion. “Yes, it will benefit, to some degree, from artificial intelligence, but we don’t think there’s going to be enough AI here in order to cover up for a lot of the other business there,” Sekera explained. ‘Hitting on all cylinders’ There is one Big Tech stock that Sekera still likes: Microsoft . “I’d be looking to swap out of some of these other overvalued companies, like Apple, Oracle, IBM, moving into someone like Microsoft that’s really still doing extremely well today,” he said. “Microsoft just hitting on all cylinders … [it’s] cloud business is accelerating going into the second half.” Morningstar has a four star rating on the stock. Elsewhere in the market, Sekera is watching “undervalued” American Depositary Receipts (ADRs) closely. These include Chinese tech giants like Baidu , Pinduoduo , JD.com , Tencent and Yum China . Morningstar has five star ratings on Baidu and Yum China and four star ratings on PDD and JD.com. — CNBC’s Jordan Novet contributed to this report.
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