25.0706° N, 77.3967° W

crypto bahamas tech

Monday was an early one. But not because of the markets. I’m writing this as I head across Alligator Alley (Interstate 75) in Florida. I’m on the way to the Bahamas for four days. I’ll be attending Crypto Bahamas, a collaboration between investment firm SkyBridge Alternatives and cryptocurrency giant FTX.

My interest in cryptocurrency is primarily centered around how it trades technically and with momentum. I’ll be flying out of Fort Lauderdale at noon and touching down at the coordinates of 25.0706° N, 77.3967° W by 1:30. Before I hop across the channel, let me show you something important. 

The “Tech” Recession Worry

Over the weekend, I read an article that posited a smart question. When a recession hits, where do technology investors go? The answer is simple: Where they’ve gone over the last six months.

Since November, the Nasdaq 100 has been in a structured freefall. Institutions – fearing higher interest rates – have used short term rallies to aggressively sell tech stocks. This is evident in the ongoing wave of lower lows and lower highs in the Nasdaq 100. 

This week, Citigroup argued that tech investors should remain in the tech sector. I do agree that there are remarkable opportunities in technology. But I argue that tech value and tech cash flow strategies – which I’ll explain soon – are how you handle it. 

Instead, Citigroup released a list of stocks on Friday that didn’t seem to have any logic to them. Citigroup recommends that tech investors consider the following stocks:

  • CheckPoint Software (CHKP) 
  • Fortinet (FTNT) 
  • Palo Alto Networks (PANW)
  • Infinera (INFA)
  • Teradata (TDC)
  • Oracle (ORCL)

There’s a lot to unpack in this list.

Red Flags Everywhere

Does anyone care to look at the red flags on this list? In a period where I anticipate an acceleration in valuation compression, this list is horrible.

This list largely consists of stocks that will leave retail investors holding the bag if inflation and interest rates take even a conservative bite out of the sector for the rest of the year. It took me about two minutes on each stock to make my eyes pop.

  • CheckPoint (CHKP) trades at a price-to-sales ratio of 8.5x. It’s already sitting at the consensus price target of about $140. And no insiders have bought these stocks despite a recent selloff. This stock is still overvalued… and there is more downside than upside.
  • Fortinet (FTNT) trades at a nosebleed level of 15.5x price-to-sales. Fair value for the stock is in the $220 range (the stock is over $300 today). Insiders have been DUMPING shares none-stop for two years, including a wall of insider selling in March 2022. Again, why would Citigroup want retailers to buy this stock, unless they’re trying to help clients get rid of it?
  • Palo Alto Networks (PANW) has had no insider buying since early 2020. Its operating and net margins are negative. Price-to-sales is over 10x. Again, this is very expensive. At a price to sales of over 10, a company would have to payout all of its revenue for 10 years in the form of a dividend… without any money for variable or fixed expenses, taxes, dividends, or profits. It’s an insane ratio – and it’s the one that experienced so much dramatic compression after the Dot Com Bubble. 
  • Infinera (INFN) has experienced dramatic insider selling over the last three months (north of $5.1 million shares). Hedge funds are dumping thick. Momentum is negative. Asset growth is negative. Debt concerns are also an issue at a time that interest rates are heading higher. 
  • Teradata (TDC) has a reasonable P/S of just 2.3x. Fair value is about 25% lower than the current value of $43. Insiders have been dumping the stock since 2020. 
  • Oracle (ORCL) is probably the best of the bunch here, but insider selling is negative. There is consistent growth and there is fair value in line with current prices. But hedge funds have been net sellers, and it remains in negative momentum conditions. 

Focus on Value 

If you’re worried about rising interest rates, economic contraction, geopolitical tensions, and more, I think it’s a fair time to focus on value. 

There are several strategies out there that can help you navigate the difficult times ahead. I’m talking about liquidation value, deep value, M&A, insider, and anomaly strategies. I’ll start outlining them soon. 

Please remember, Citigroup and the rest of Wall Street isn’t here to help you. They’ll throw out a list of stocks without any fundamental analysis. I urge caution right now, and we’ll talk about why value strategies will be king in the months and years ahead.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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