Big Tech is no longer expensive, cyclical stocks are cheap now - Credit Suisse
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The stock market selloff has brought multiples down to just marginally above the 50-plus-year average, Credit Suisse says.
"At the start of the year, the 100 most expensive stocks in the S&P 500 (SP500) (SPY) traded at a premium of 25.8x multiple points to the rest of the market," U.S. equity strategist Jonathan Golub wrote in a note Wednesday. "Following the marketâs correction, they currently trade at a 15.1x premium, in-line with long-term averages."
Golub said Credit Suisse's TECH+ group has seen P/Es fall back to 3.9x from 7.7x in January, more towards long-term trends.
TECH+ is an equal-weighted Russell 1000 (IWB) basket that includes traditional tech names found in SPDR Info Tech (NYSEARCA:XLK), but also Alphabet (GOOG) (GOOGL), Meta (META), Netflix (NFLX) and Amazon (AMZN), and not Tesla (TSLA).
Internet Retail and Media have seen the biggest re-rating, Golub said.
"Cyclical valuations are the most favorable of any group, with Materials (XLB) and Energy (XLE) trading at the largest discounts relative to history," he said.
"Financial (NYSEARCA:XLF) multiples have rebounded from a -6.6x discount at the start of the year to -4.2x today," he added. "Among groups, Banks (KBE) appear the most inexpensive relative to history."
"Non-Cyclicals are reasonably valued in aggregate, with Utilities (XLU) and Staples (XLP) expensive (2.9x and 3.7x premium) and Telecom (XTL) cheap (-4.1x discount)."
Still in the pricey area are small-caps (IWM), and Growth (IWF), which, "despite YTD underperformance ... is currently trading 7.8x above Value vs. a 4.8x premium over the past 20 years."
BofA has three buying opportunities for the S&P.