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The technology industry has been one of the most unexpected postelection losers, but the recent selloff among large-cap tech stocks may present a unique buying opportunity if some of President-elect Donald Trump’s bold policies on domestic manufacturing fail to materialize.
In a note to clients Thursday, Piper Jaffray tech analyst Gene Munster said concerns about Trump’s impact on tech companies, including policies related to bringing manufacturing home from China and stricter immigration rules that tech executives fear will stifle innovation, have been “largely extrapolated from sound bites” and are “unlikely to manifest during Trump’s presidency.”
Munster believes some of Trump’s ambitious policies were just campaign rhetoric and would be hard to bring to fruition during a four-year presidential term. The postelection selloff of internet megacaps like Apple Inc.
AAPL, +0.04%
Amazon.com Inc.
AMZN, +0.53%
Facebook Inc.
FB, -0.65%
and Netflix Inc.
NFLX, +0.20%
therefore, presents a “rare opportunity to buy pullbacks in companies with clear multiyear revenue and earnings trajectories,” he said.
“We would be buying the fear,” said Munster.
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The tech industry has been publicly opposed to Trump for months and seems very much worried about his election. In a July letter signed by 150 tech executives, including representatives from Facebook, Apple, Qualcomm Inc.
QCOM, +0.95%
and eBay Inc.
EBAY, -0.78%
the industry expressed concern that his policies would stifle innovation and economic growth. Investors have fed into that fear, pushing shares of tech stocks down since the election. Shares of Apple have declined by 1.5%, those of Amazon have decreased by 4%, Facebook’s are off 6% and Netflix’s are down 7%.
The Dow Jones Industrial Average
DJIA, -0.22%
meanwhile, has risen 3% since the election, while the S&P 500
SPX, -0.27%
is up 2%.
Some companies have even started to take precautions. On Thursday, Japan’s Nikkei Asian Review reported that Apple approached its key suppler Foxconn Technology Co.
2354, +0.60%
in June about studying the possibility of moving some production to the U.S. in case Trump won and forced it to move some iPhone production to America. Several tech CEOs, including Apple’s Tim Cook, have also sent memos to employees ensuring their policies celebrating diversity wouldn’t change with the election results.
While Munster says tech-exec fears should not be ignored, he also believes that Trump will not roll back net neutrality and will neglect to alter the status of caps on H1-B immigration visas, which many tech companies use to acquire and retain international talent.
“We believe the tech industry is in more control of its own destiny than Donald Trump and will work past these issues, partially offsetting this temporary headwind,” he said.
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Meanwhile, at least one of Trump’s policies may be a boon. A tax “holiday” with a 10% penalty for companies repatriating overseas cash back to the U.S. would make it easier for companies to return international profits stored overseas. Apple, which has about $215 billion, or 91% of its $237 billion in cash and equivalents, stored abroad, is one of those companies that would benefit in particular.
“This obviously helps Apple,” said Munster. “Google would also benefit.”
In an effort to ease investor concerns after providing a disappointing outlook late Wednesday, Cisco Systems Inc.
CSCO, +0.47%
executives said they were optimistic that Trump’s proposed repatriation policies would materialize.
That would help the company pay down some of its debt, potentially start paying dividends again and pursue mergers and acquisitions. Last week, CFRA Research analyst Scott Kessler said repatriation would entice many large U.S. tech companies to increase domestic growth investments and return cash to shareholders through dividends and buybacks.
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