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3 Reasons Why Big Techs Are a Buy Now: ETFs in Focus

Rising coronavirus cases in the United States and Europe and talks of major banks engaging in transferring illicit funds started weighing on investors’ sentiments at the start of the week. Notably, there has been an alarming rise in new COVID-19 cases in Arkansas, Colorado, Idaho, Montana, Nebraska and North Dakota over the past week. This piece of information triggered the fear of more phases of lockdowns and stalled economic recovery.

Time for Big Tech Is Back

Fears of new COVID-induced lockdowns acted as a positive for the tech space. This is because more coronavirus casesmean more uncertainty in health emergency and the related economic recovery. This also ensures a prolonged period of social distancing and continued surge in digitization (read: Stay-At-Home ETFs to Soar Further on New Lockdown Measures).

Investors should note that the month of September can be marked by the start of a rout in technology shares as investors began booking profits on this winning segment of the coronavirus crisis. The tech-heavy Nasdaq Composite has underperformed compared with its other key U.S. peers. But renewed virus fears along with the latest selloff in tech shares open up great scope for entering the space.

CNBC’s Jim Cramer continued to call for a recoil in mega-cap tech stocks. As per Cramer, Apple, Microsoft, Amazon and Alphabet are a buy now as these have reached a point of attractive valuation. Most importantly, these are stay-at-home stocks.

What Does Valuation Tell About Big Techs?

Going by valuation metrics, P/E (ttm) of Microsoft is now 34.9 times versus the industry average of 41.1 times. Forward P/E of MSFT is 31.4 times versus the industry score of 41.7 times. This ensures undervaluation (read: 4 Reasons to be Bullish on Microsoft ETFs Now).

P/E (ttm) of Apple is now 33.5 times versus the industry average of 26.7 times. Forward P/E of AAPL is 34.0 times versus the industry score of 26.0 times. Though it points toward moderate overvaluation, “new revenue streams, great balance sheet, stay-at-home economy exposure and 5G” should still keep bolstering Apple shares, per Cramer.

P/E (ttm) of Alphabet is now 31.5 times versus the industry-average of 41.2 times. Forward P/E of Alphabet is 32.0 times versus the industry score of 41.7 times.

P/E (ttm) of Amazon is now 113.8 times versus the industry-average of 49.8 times. Forward P/E of Amazon is 92.8 times versus the industry score of 45.8 times.After such a steep valuation, no wonder, Amazon is down about 14% this month. But Cramer sees it as “healthy pullbacks.”

Biden’s Higher Chance of Winning Another Positive

Chances are rising that the blue wave of Democrats will take over the House and Senate in November. Democratic candidate Biden’s foreign policy appears to be more liberal than Trump’s. So, pro-immigrant hiring policies (tech companies are highly immigrant-reliant) and moderate antitrust scrutiny would likely boost Amazon.com Inc. and other Big Tech companies in the Biden era, per many policy analysts, as quoted on S&P Global. This along with better relations with China will provide another tailwind to tech shares.

ETFs in Focus

If you think big techs are a buy in the dual tailwind of compelling valuation and better political environment, you can play Apple and Microsoft-heavy Technology Select Sector SPDR Fund XLK and Vanguard Information Technology ETF VGT. Alphabet-heavy fund Communication Services Select Sector SPDR Fund XLC or Amazon-heavyProShares Online Retail ETF ONLN also appear to be good bets. MicroSectors FANG+ ETN FNGS can also be considered for partial exposure.

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Technology Select Sector SPDR ETF (XLK): ETF Research Reports
 
Vanguard Information Technology ETF (VGT): ETF Research Reports
 
ProShares Online Retail ETF (ONLN): ETF Research Reports
 
Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports
 
MICRSFANG (FNGS): ETF Research Reports
 
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