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Technical bubble? Credit Suisse strategists say no, but it’s time to be more picky with these stocks



It looks like the market is still breastfeeding after the Federal Reserve, although it seems due to too little, not too much liquidity, the central bank said it would add to the proverbial blow.

But the bigger picture of the markets is the performance of the technology sector. Even with losses in seven of the last 10 sessions, the Nasdaq Composite COMP,
-1.26%
by Thursday it had still won nearly 22% in the midst of a pandemic and bounced back 59% from its lows in March. This week’s strong demand for initial public offerings from Snowflake-like SNOW,
-10.39%
show that the demand for technological stocks is still there.

Credit Suisse strategists say the word “bubble” is not appropriate for the technology sector. The share of technology investment in gross domestic product and capital sales costs are only slightly above their norms, and projected revenue growth is in line with trends, they say. The London-based team, led by Andrew Garthwaite, adds that during balloons, the price-to-earnings ratio usually expands to 45 to 72 times the profit; Nasdaq is currently at 37 times profit.

But even if they don’t use the word “bubble,” Credit Suisse strategists acknowledge that there are risks. In software, the price-to-sales ratio has increased and the top five stocks now account for 26% of the market capitalization, almost as much as 30% in Japan in 2000. The COVID-19 vaccine can stimulate the most sensitive sectors to the virus. such as financial, real estate and leisure, and this would be negative for technology. Another major threat is in terms of regulation – and not so much antitrust law as taxes. A 4% sales tax, similar to the proposals made in France and the UK, would take 20% of the profits.

Credit Suisse strategists emphasize SAP SAP,
+ 0.91%
and Microsoft MSFT,
-1.04%
like stocks of software they like. With the exception of stock-based compensation, Microsoft has free cash flow income of 2.6% this year and SAP is at 2.3%. Software also has the advantage of having security features as companies try to reduce costs through automation. The SAP business in the UK saw double-digit growth in the quarters after the Brexit vote, and its oil and gas business had its strongest quarter, when oil prices fell below $ 30 a barrel in 2016.

Ericsson is their best choice for telecommunications equipment to move to 5G, with rivals Huawei and ZTE effectively removed from US control of Chinese companies. Only 5% of smartphones are 5G, according to Credit Suisse. In semiconductors, they emphasize ASML ASML,
+ 1.20%
and Taiwan’s TSM semiconductor manufacturing,
-0.95%
for their “natural monopolies”, as well as Samsung Electronics 005930,
-0.33%.
Credit Suisse also has a positive effect on Chinese Internet / technology names, even under strict US rules, emphasizing Tencent and Alibaba BABA,
-0.87%.

Strategists are neutral on Apple AAPL,
-1.59%,,
as the Credit Suisse team indicates the size of Apple’s target market, they are the ones who earn at least $ 12,000 a year, which amounts to a market capitalization of $ 1,680 per capita for those 1.25 billion people. This requires $ 560 per person, which “seems ambitious, even if 15% -20% of Apple’s revenue is corporate customers.”

Credit Suisse is also struggling to justify TSLA,
-4.14%
market capitalization, representing 64% of the rest of the global automotive sector. But neither does the owner of Google Alphabet GOOG,
-1.66%
nor Facebook FB,
-3.30%
seems expensive for market profits and both seem attractive when comparing their free cash flow returns with the 10-year TMUBMUSD10Y treasury,
0.669%.

The buzzing

On Friday the contracts for key futures and options markets expire – the so-called Four-magic – which can bring volatility to the markets.

The University of Michigan Consumer Sentiment Index for September is the key economic message. The last reading of the weekly economic index of the Federal Reserve of New York fell to a reading of -5.11%, which is significantly better than the worst level of -11.45% at the end of April, but outside the peak of -4 , 81% at the end of August. St. Louis Fed President James Bullard must discuss recovery from the coronavirus pandemic.

The Federal Reserve said late Thursday that it could expand limits on buying back shares and dividends from banks by the fourth quarter.

The US Foreign Investment Committee has asked gaming companies to provide information on their data security protocols, including China’s Tencent Holdings 700,
-0.38%,,
Bloomberg News reported, citing people familiar with the matter. Tencent is an investor in Activision Blizzard ATVI,
-1.52%,,
among its many gaming links.

Ericsson ERIC,
+ 1.47%
said it was buying US-based Cradlepoint for $ 1.1 billion to boost its 5G offerings to corporate customers.

The market
After a drop of 130 points for the Dowa Jones Industrial Average DJIA,
-0.46%
on Thursday, US futures for ES00 shares,
+ 0.14%

NQ00,
+ 0.58%
blade higher.

European passenger stocks, including the owner of British Airways International Airlines Group IAG,
-10.27%
and easyJet EZJ,
-6.73%,,
were hit hard on Friday amid growing concerns about growing infections in Europe. British Health Minister Matt Hancock told Sky News that the UK government did not rule out a re-lock, as the World Health Organization had warned of a “very serious situation” in Europe.

The diagram

Are US markets too excited about the US election? Derivatives analysts at BNP Paribas point out that the options market prices in a much more volatile stock market than normal. They also note that the open interest in calls to the VIX VIX,
-1.96%
the stock market volatility index is close to the five-year low. “This makes the VIX less likely to have a higher blast, we think,” they say.

Random readings

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