Investors paying 70 times earnings for Big Tech will lead to ‘something not good’, Wall Street CIO says

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  • David Katz, Matrix Asset Advisors chief investment officer, told CNBC, “When you’re paying 70 times earnings, something not good is going to happen.”
  • The CIO said he’s less optimistic about where tech stocks will go in the next year or two.
  • Katz is still holding Big Tech and thinks the companies will be OK, rather than “exceptionally good.”
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David Katz, Matrix Asset Advisors chief investment officer, told CNBC on Tuesday that he’s “less optimistic” about where tech stocks like Microsoft and Apple will go in the next year or two.

“It seems to be that the growth stocks can only go higher, but having done this 35-plus years we know when you’re paying 70 times earnings, something not good is going to happen,” Katz said.

The investment chief referenced a Bloomberg study that compares the capitalization of the S&P 500 growth versus value index. “If you look at that, we’re now four standard deviations extreme. The last time we were this extreme was 1999, you were two standard deviations extreme,” Katz said.

He explained that in 1999, clients and friends were calling him the “village idiot.” But in the next decade, the “Nasdaq was flattened down and the broader market was up 6%, 7%.” 

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Katz added that the Apple stock split may “bid it up a little,” but in the long term he believes Apple will still need to rely on fundamentals like earnings and iPhone sales for growth. He said he didn’t know if other Big Tech companies will follow Apple’s lead in stock splitting. 

Referring to Microsoft, Apple, and Facebook, Katz said: “We’re holding them, we just think they’re going to be OK, rather than other areas of the portfolio we think are going to be exceptionally good.” 

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