Scalper1 News
Technology ETFs are badly hit, having lost in the range of 8% to 23% so far this year (as of February 8, 2016). While the broader market selloff since the start of the year kept this high-beta segment subdued, the tension flared up when LinkedIn Corporation (NYSE: LNKD ) issued a lackluster guidance for the first quarter of 2016 in early February. LinkedIn set the alarm bells ringing for the entire social networking space and plunged 44% in just one day on February 5 – the day after it reported earnings. Though LinkedIn beat on both lines, it guided revenues in the range of $3.6−$3.65 billion for fiscal 2016, below the Zacks Consensus Estimate of $3.920 billion. Pressure is also building up in LinkedIn’s Talent Solutions business which closed out 2015 with 30% year-over-year growth and is now expected to moderate to the mid-20% level this year. Management held the ongoing global market turmoil, especially in EMEA and APAC regions , responsible for this slowdown. Investors took this performance as a cue to the upcoming disaster in the entire social media space. Is LinkedIn the Sole Spoiler? The technology sector is cyclical in nature and performs well in a recovering economy, especially in the early and mid-cycle phases, per Fidelity . In these cycles, economic activities bounce back, credit growth speeds up, and economic policies are still accommodative to neutral. However, since recessionary threats are grabbing hold of the global market presently, all this economic cycle related optimism appears to fade away. Several developed economies are getting recessionary warnings, emerging economies are slowing down and the U.S. economy – the star of last year – hit the brakes in the final quarter of 2015. Yes, the U.S. economy is still far away from anything that looks like a recession, but corporate recession in the U.S. has already taken hold. Investors should note that the earnings of the S&P 500 index is likely to decrease 4.6% in the first quarter of 2016 while revenues are expected to fall 1.7% as per the Zacks Earnings Trends issued on February 3, 2016. The earnings and revenue expectations are projected to fall 1.9% and 2.1%, respectively, in the second quarter of 2016. In such a situation, investors seem to have lost faith in the broad-based emergence and adoption of high-growth tech areas like Internet, social networking and clouds, per the analysts . And the tech bubble that formed last year surprisingly has burst now. Notably, the PowerShares QQQ Trust ETF (NASDAQ: QQQ ) – an ETF built on the tech-laden Nasdaq-100 index – added 8.7% in 2015 despite declines in the other two key indices the S&P 500 and Dow Jones Industrial Average. ETFs that Got Crushed Almost all ETFs catering to cyber security, broader Internet, cloud computing and software were the hardest hit in the recent technology meltdown. The PowerShares DWA Technology Momentum Portfolio ETF (NYSEARCA: PTF ), the First Trust DJ Internet Index ETF (NYSEARCA: FDN ), the PureFunds ISE Cyber Security ETF (NYSEARCA: HACK ), the iShares North American Tech-Software ETF (NYSEARCA: IGV ) and the PowerShares NASDAQ Internet Portfolio ETF (NASDAQ: PNQI ) were among the top five losers in the last five days, having lost in the range of 11.4-13.6%. Investors should note that overvaluation concerns also dragged down these tech ETFs. As of now, PNQI, FDN, PTF and IGV have P/E (36 months) of 41.82, 41.41, 35.84 and 34.56 times, respectively. These four ETFs topped the list of the highest P/Es in the Zacks Screener . The P/Es were against the SPY’s P/E of 16.14 times and QQQ’s P/E of 20.44. So, from this trend it is clear that investors are mainly dumping ETFs with outsized P/E ratios from the online segment of the tech space. Bets for Now Still, investors may hope for a market revival and keenly desire some tech picks as the sector is among the few that are likely to report positive earnings and revenue growth in Q1 of 2016. As of now, investors can have a look at these relatively undervalued ETFs. First Trust NASDAQ Technology Dividend Index ETF (NASDAQ: TDIV ) The fund includes 100 technology and telecom companies that pay a common dividend. The lure of dividend helped the fund to evade the recent blow by a large degree. TDIV shed only 3.3% in the last five trading sessions (as of February 8, 2016). TDIV yields 2.71% annually (as of February 8, 2016). Plus, TDIV has a compelling valuation with a P/E (TTM) of 15 times. PowerShares S&P SmallCap Information Technology Portfolio ETF (NASDAQ: PSCT ) This small-cap tech ETF is less exposed to global growth worries and mainly deals with demand from the U.S. PSCT has a Zacks ETF Rank #2 (Buy) and lost 5.4% in the last five trading sessions (as of February 8, 2016). PSCT’s P/E (TTM) stands at 23 times. Robo-Stox Global Robotics And Automation Index ETF (NASDAQ: ROBO ) The fund is designed to measure the performance of robotics-related and/or automation-related companies. ROBO’s P/E (TTM) is 19 times. The fund was off 3.9% in the last five trading sessions. Technology Select Sector SPDR ETF (NYSEARCA: XLK ) This is the largest tech ETF. This large-cap fund has a compelling P/E (TTM) of 17 times and has a Zacks ETF Rank #1 (Strong Buy). The fund retreated 5.9% in the last five days, much less than some Internet funds. Original Post Scalper1 News
Scalper1 News