Every move the stock market makes comes before the economic change it assumes.
It’s also, always, exaggerated.
What I have been saying for months is that we will see a rotation from tech stocks to “real economy” stocks. In with the cruise lines and the tractor makers. Out with the cloud applications.
That has now happened. While I’m still getting calls to write about industrials, I noticed today that Deere (the tractor company) is trading at 34 times earnings. That’s ridiculous. They’re not growing, and when they do grow it won’t be by anything like 20% per year.
The other side of this trade is the tech slide. What you’re looking for, as an investor, is a price to earnings ratio of about 25 on strong growth. Alibaba (BABA) is already there. Apple (AAPL) is at 29 times earnings. Facebook (FB) is at 26.
Don’t be fooled into buying cheap tech names. Cisco (CSCO) and IBM (IBM) are cheap for a reason. They’re not growing. If you’re going to pay 25 times earnings, you want growth with it. Micron (MU) is at 29 times earnings. Want to know why Cathie Wood is doubling-down on JD.Com (JD)? Because it’s under 15 times earnings.
If you see a tech stock with earnings and 20% growth, trading at 25 times or under, you grab it. As with everything, this move is going to over-shoot. Keep your discipline, nibble when you see your target, and ride it all back up.
