Alphabet, Meta, and Other Low-Debt Stocks to Consider If Interest Rates Stay High

• Big name growth stocks have seen their stellar pandemic-era run end during early 2022.

• Shares of Meta, Amazon, Apple, Netflix and Google are all lower relative to the wider US market.

• JPMorgan’southward equities strategists have weighed in on whether these stocks now wait inexpensive.

Big tech stocks take seen their stellar pandemic-era run abruptly end in early 2022.

With geopolitical turmoil in Ukraine, high inflation around the earth, and expectations of rising involvement rates, the entire market place has started the year sharply lower. But shares of Meta (FB), Apple (AAPL), Amazon (AMZN), Netflix (NLFX), and Alphabet (GOOGL) are faring even worse than the rest of the marketplace, begging the question: are these top growth stocks at present cheap enough to buy?

For JPMorgan, the answer is no. Strategists Mislav Matejka, Prabhav Bhadani, Nitya Saldanha and Karishma Manpuria have examined the market in forensic particular for their latest equity strategy report.

The FAANG stocks — or Meta (né Facebook), Amazon, Apple, Netflix and Alphabet (Google) — are all lower, even relative to the wider U.s. equities market place, which is down over 9% so far in 2022.

Shares of Meta crashed after the visitor reported its first-ever decline in daily active users last quarter, while  Netflix took a like dive when the company announced it believed subscriber growth will slow next quarter. Equally a result, shares of Meta are downwards over 39% year-to-date, while Netflix is downwards 36%. Meanwhile, Apple shares are downwardly 7%, while shares of Amazon and Alphabet are both downwardly over 9% this year.

But according to the team at JPMorgan the event isn’t the price of these loftier-growth stocks — it’due south the timeframe. When looking at the big picture the JPMorgan team is unconvinced growth stocks are a bargain correct now.

“Despite recent underperformance, growth continues to trade nigh highs, in a multi-year context,” they wrote. “In a longer term context, the recent underperformance of growth is much less stark, equally it comes on the back of years of outperformance.”

“Similarly, the recent underperformance of FAANG relatively also appears muted, considering its large outperformance over the last decade. In fact, the cost earnings differential between engineering science and banks is still close to the widest on record.”

Invest in value over growth

Given this, where should investors put their money? The JPMorgan team said that despite its recent rally, value investments continue to trade “outright cheap relative to growth.”

“Every bit growth stocks weakened of tardily, they derated, but are even so non outright cheap,” they wrote. “On the other side, financials and commodities in particular had a strong rally, but are far from expensive, especially relative to underlying commodity prices and relative to the magnitude of potential rate changes by central banks.”

JPMorgan noted that the earnings of growth companies “might not be infrequent anymore,” while the earnings of certain value sectors are “bouncing.” They also said the forward earnings of value appear to be “bottoming out” versus growth stocks.

“The large driver remains the management of bond yields,” the JPMorgan team explained. “Over the past 10 years, growth manner benefitted from negative real rates and subdued bond yields, rerating vs value sectors. If bond yields show a more persistent upside, every bit fundamental banks undergo a serial of rate increases, and as the demand-supply for bonds changes, then the big valuation premium that growth sectors accept over value will keep reducing.”

Inflation peaking might not be a “durable reason” to become back and buy growth stocks, they warned, but it could offer a short-term tactical bounce.

“Nosotros believe one should wait through the widespread ‘slowdown’ calls that are currently in vogue, and stay bullish on
banks,
mining,
energy,
insurance,
autos,
travel
and
telecoms. The year-to-date market place performance is tracking these well.”

“The question is whether one should buy back quality, especially if one sees a potential peak in inflation,” the team continued. “In our view the fundamental is the management of bond yields – we look them to go on moving higher, and that was ever consistent with cyclical leadership.”

The squad also gave a nod to one geographic part of the equities market place that looks attractive. “Regionally, nosotros reiterate our upgrade of the UK to overweight, after six years of a cautious opinion.”