Tech can still outperform the S&P; BMO screens for good bets
Urupong
With tech trailing the broad market investors should be more selective, but not shun the sector, according to BMO Capital Markets.
"Technology (NYSEARCA:XLK) performance has cooled down over the past two months following its torrid start to 2023 with the sector lagging the S&P 500 (SP500) (NYSEARCA:SPY) (IVV) (VOO) by 3.5% since the start of June," strategist Brian Belski wrote in a note. "Despite this recent underperformance, we remain committed to our Overweight stance."
"As we mentioned in our upgrade report, we expected Technology momentum to subside and for the sector to outperform at a more moderate pace in the coming months," Belski said. "From our perspective, nothing has changed in this regard. Earnings growth improvement was the basis for our upgrade and trends since then have only been better."
"Yes, elevated valuation could be a sticking point for some investors, but we would point out that it has been a horrible predictor of future performance for Technology."
Belski suggests looking at a longer timeframe to put this year's big first-half gains in context.
When "extending performance to rolling 2-year holding periods, trends are not necessarily out of context when examining the post dotcom bubble period," he said. The "most recent peak occurred during June with the figure at 9.5%. If it holds this would be the lowest one over this timeframe and roughly 6.7% lower than the average of the prior four peaks." 
"Technology went on to outperform for an average of roughly 15 months following those peaks," he added. And "it has been quite rare for Technology to underperform for extended periods post the dotcom bubble. In fact, the sector has outperformed the S&P 500 roughly two-thirds of the time for all rolling 2-year holding periods since 2002."

The combination of falling stock correlations and elevated valuation levels "warrant an active approach," Belski said, recommending a strategy of picking stocks with growth at a reasonable price, or GARP.
The following GARP tech screen looks at two-full-year P/E, FY2 EPS growth and FY2 price/earnings to growth:

Broadcom (AVGO), rating Outperform
Cisco Systems (CSCO), No Rating
Cognizant Technology (CTSH), Market Perform
Corning (GLW), NR
DXC Technology (DXC), Market Perform
Enphase Energy (ENPH), Outperform
F5 (FFIV), NR
First Solar (FSLR), Market Perform
HP (HPQ), NR
Hewlett Packard Enterprise (HPE), NR
Intel (INTC), Market Perform
IBM (IBM), Market Perform
Juniper Networks (JNPR), NR
Keysight Technologies (KEYS), NR
Microchip Technology (MCHP), Outperform
Monolithic Power Systems (MPWR), NR
NetApp (NTAP), NR
Gen Digital (GEN), NR
ON Semi (ON), Market Perform
Oracle (ORCL), Market Perform
Palo Alto Networks (PANW), Outperform
Qorvo (QRVO), Market Perform
Qualcomm (QCOM), NR
Skyworks Solutions (SWKS), Market Perform
SolarEdge (SEDG), Outperform
Teledyne Technologies (TDY), NR
Trimble (TRMB), NR
Tyler (TYL), NR
Zebra Technologies (ZBRA), NR
Seagate Technology (STX), NR
TE Connectivity (TEL), NR


More on market strategy

SPY: Sector PEG Valuations Are Sky High And It's Not Just Tech
XLK: Almost Perfect Buy Signal For Technology Sector (Technical Analysis)
'Pure defensive' may be the stock trade of the rest of '23 - J.P. Morgan's Kolanovic
BTIG: S&P 500 near key technical support levels after last week's dip
Stocks most loved and shunned by hedge funds
Morgan Stanley shakes up its Dividend Equity Portfolio