Fiscal stimulus and the ongoing economic recovery from COVID-19 has boosted value stocks, says Fidelity’s Brian Lempel, and he says the same is true in the information technology sector—even though it’s mainly known as a haven for growth stocks.
“Many value and cyclical tech stocks have outperformed the tech sector so far this year,” says Lempel, portfolio manager of Fidelity® Select Technology Portfolio (FSPTX). “I think it’s simply because they offer investors exposure to important tech mega-trends, such as digital payments, software as a service, and artificial intelligence, but at more attractive prices.”
Lempel says he’s sought to balance the fund by owning value stocks he thinks could benefit disproportionately from economic reopening, as well as growth stocks he believes offer good value based on his longer-term estimates.
For example, as of June 30, the fund held shares of several contact manufacturers that have increased revenue and worked to improve margins, but still traded at a low price based on forward earnings—such as Flex (FLEX) and Jabil (JBL). Lempel notes that each traded at less than 10 times calendar 2022 earnings at the end of May.
Conversely, on the growth side, Lempel owned chipmakers NXP Semiconductors (NXPI) and ON Semiconductor (ON) in the portfolio. He believes each could see more upside from a cyclical recovery, as well as longer-term growth due to exposure to mega-trends such as electric autos and autonomous driving.
In addition, Lempel continued to favor software-as-a service companies he thinks are showing leading indicators of faster revenue growth, but also trade at low price-to-sales multiples versus their peers. He cites enterprise cloud platform provider Yext (YEXT) as one that fits the bill.
Also in software, the fund owned growth-oriented Cognyte (CGNT), a provider of security analytics and a recent spin-off from Verint Systems he thinks could help companies reduce their risks related to ransomware attacks. Lempel notes that the company generates about 90% of its revenues from repeat customers.
“None of these are flashy tech stocks, but by balancing value and growth holdings in the sector, I’ve attempted to keep the fund exposed to the tech companies I think have great business prospects,” he says.
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