Some Tech Stocks Have Run Up Too Fast This Week - TheStreet

While many -- if not most -- tech stocks were oversold as they traded near last week's lows, some of the bounces that have followed feel excessive.

To be sure, some of the moves higher look justified, at least to a large degree. After indiscriminately selling off tech stocks in general in prior weeks, markets have shown a better understanding over the last two weeks of how some companies could see their sales hold up fairly well (or at least, not see massive declines) as the lockdowns enacted to slow COVID-19's spread remain in place.

As a result, Amazon.com (AMZN)  has seen a decent bounce, and is now actually above where it traded for much of January (before a strong Q4 beat was posted). Companies such as Netflix (NFLX)  and Roku  (ROKU) also caught strong bids, and so did chip companies well-exposed to end-markets that are seeing solid demand right now (i.e., notebooks, cloud data centers, 5G infrastructure).

But over the last few days, indiscriminate selling has been replaced with indiscriminate buying. Indeed, some of the tech sector's biggest gainers have been companies that are undoubtedly seeing major sales declines right now.

Money-losing online furniture retailer Wayfair  (W) is up 154% from last week's low (that's not a typo). Uber  (UBER) and Lyft  (LYFT) are up about 105% apiece; Zillow (Z)  is up 103%; Square  (SQ) is up 73%; and Yelp (YELP)  is up 69%.

While these companies had been previously hammered and deserved to rebound some, it's hard not to interpret such quick and giant moves higher as wagers that the current lockdowns will both be fairly short and followed by major snapbacks in the types of consumer spending and activity that have plunged in recent weeks.

At a time when the U.S. is still making new daily records for positive COVID-19 tests, with 10 states now reporting more than 1,000 cases and New York reporting more than 37,000, it's far from certain that we'll see a quick end to the lockdowns, particularly in major urban areas (certainly, a lot of medical professionals are advising against it right now).

Moreover, should (as one definitely hopes) conditions start improving over the next few weeks, any subsequent reopening might still be gradual. Stadiums and theme parks, for example, could take a lot longer to reopen than restaurants and coffee shops, and many companies could still urge employees to work from home and avoid travel when possible.

It's also worth keeping in mind that many consumers are likely to play it safe when it comes to their dining, recreation, entertainment and travel activities over the next few months, even if they're free to engage in them. And that the economic shocks that have been delivered to date are likely to weigh on discretionary consumer and business spending for a while.

Last but not least, it's worth remembering that the U.S. is by no means the only major economy that's seeing major economic and social disruptions right now. European consumer and business spending are also coming under significant pressure, and the same could end up being true for many other parts of the world.

None of this is meant to paint a doomsday scenario. As I mentioned last week, there are reasons to be optimistic that things will be better in a couple months' time than they are today -- from the success that some Asian countries have had in slowing COVID-19's spread with the help of aggressive countermeasures, to efforts to develop COVID-19 treatments, to the pending arrival of warmer weather.

However, the risk/reward has changed a lot for many names over the last 7-to-10 days. At a time when it isn't by any means certain that some big parts of the economy will see a quick V-shaped recovery, there's a good case for treading carefully and waiting for fresh selloffs to make new buys, particularly when it comes to companies that are seeing their sales get hit hard right now.

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"some" - Google News
March 27, 2020 at 05:00PM
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Some Tech Stocks Have Run Up Too Fast This Week - TheStreet
"some" - Google News
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