After riding out the pandemic in Los Angeles for the past five months, I finally got to see my family over the weekend.
At our family dinner, we talked about the tech-heavy Nasdaq's incredible 28% run higher since we all last saw each other.
“Should I sell my tech stocks?”
With the US presidential election just six weeks away, volatility is expected to pick up soon.
With some nice gains on the table and worries that stocks might not have a lot of room left to run, my family members wonder whether they should take profits now… starting with their technology stocks.
If you have the same question…
You Might Be Surprised by My Answer
The Nasdaq 100 is up 159% over the last five years alone. That’s spawned talk of a “Tech Bubble 2.0,” with many people—my family included—fearful of a March 2020 repeat:
But I’m not only holding on to my tech stocks, I’m adding to these positions every month.
I can hear you now: “But Robert, technology stocks are so expensive! We have to be in a bubble!”
I don’t believe we’re in a tech bubble. If you compare today's tech stock prices to their March 2000 peak, they are not expensive:
The five largest technology stocks are 20% cheaper than they were in March 2000.
And that’s with the Federal Reserve’s easiest monetary policy in US history.
The Fed Keeps Lending the Market a Helping Hand
Remember the good old days of earning 5% on a bank savings account?
The Federal Reserve’s easy money policies ended that. That’s because the goal of easy money policies is to push people out of “safe” investments (i.e., money market funds and bonds) and into riskier assets (i.e., stocks).
The Fed’s easy-money policy was not nearly as easy back in the Tech Bubble days. There were certainly excesses. But with interest rates at 5%, it was nothing like what we have today.
That’s why—though technology valuations are inching closer to the highs we saw in March 2000—the historically low Fed Funds rate means valuations should be much higher than the technology bubble 1.0.
Experts Agree: No Bubble Burst, but Rather a "Pop" Higher
While this may seem like an out-of-consensus idea, I’m not alone in this. A recent survey by DataTrek Research shows that 56% of investors DON'T see a bubble. They expect a decline of 5% to 20%—like we saw over the last two weeks—not a “burst.”
Analysts see more upside, too. Potentially a lot more.
For example, last week analysts at JPMorgan raised their target price on Apple (AAPL) to $150:
That's a pop of about 27% from its recent price of $118.
And considering Apple is one of the strongest dividend payers in the world, it’s a great addition to any income investor’s portfolio.
When the Virus Goes Away, Its Impact on Tech Will Last
Fears over COVID-19 have abated in the last two months. Lockdowns are lifting and many employees are returning to work.
The technology companies benefiting from the new remote work and learning environment will still continue to thrive. Especially if the coronavirus collides with the coming flu season and sends everyone back inside.
But we don't need the worst-case scenario to know that cloud computing companies are well positioned to rise even higher.
More data is moving to the cloud than ever before because of COVID-19. That means companies are spending at an unprecedented rate to keep people’s data secure.
One such company that benefits from this is Oracle (ORCL).
The IT giant generates over 80% of its sales from cloud-related products. Oracle also secured a bid from TikTok—the wildly popular social media app that’s been all over the news lately.
Oracle will be the app’s “trusted technology provider” in the US. And this is a trusted name for us in another key way…
ORCL pays a solid 1.7% dividend yield. And with a perfect 100/100 score on my proprietary Dividend Sustainability Index (DSI), you can rest assured this dividend is safe.
The same can be said for Walmart (WMT). People who don’t consider Walmart a tech company have not been paying attention. The company is the second-largest e-commerce platform in the US, only behind Amazon (AMZN).
Walmart grew its e-commerce sales a massive 74% over the last year. This bests even Amazon’s robust 48% growth. And when it comes to dividend payers, Walmart is tough to beat. This Dividend Aristocrat has raised its dividend for 31 years in a row:
The company pays a modest 1.7% dividend yield, which my DSI tells me is safe AND set to grow over the longer term.
Walmart just paid its quarterly dividend last week, which my Yield Shark subscribers were on board to collect. That brings their total return to around 22% since they added their positions back in April.
Its next payout is due right around the turn of the new year, and I expect more upside from the stock in the meantime.
Same goes for Apple and Oracle, which are set to pay their dividends in November and October, respectively.
Bottom line: The only "bubbly" I see is the popping of champagne corks when those days come!