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- It’s been a rough year for tech stocks and high volatility is still very much in play.
- It can be worthwhile to browse through the noise to add great companies to your portfolio at discounted prices.
- The $8.7 billion tech fund manager laid out the reasoning behind some of his top picks.
In the year Even for fund manager Adam Benjamin, who has held technology-focused responsibilities since 2014, taking on the $8.7 billion Fidelity Select Technology portfolio in January was a challenge in a giant style that was far from booming.
He recalls: “It was a volatile time. There was a lot of fundamentally misguided and misguided selling in all technology sectors. On top of that, I took a more conservative and defensive approach in some of my technology funds, so 2022 was my framework.”
There are three examples of this defensive position Apple, Microsoft And CiscoAll are placed in his top 10 possessions.
After following Apple for so long, his thesis on it has evolved over the years. It has become a staple for many people, and now follows a successful subscription model.
“The model is largely misunderstood. It has become less and less dependent on the release of the new iPhone every September. It is very sticky and consistent, which has led to the proliferation of multiples that are still inexpensive compared to the wider technology sector.”
He added that at 24.61% of the fund (as of July 31), Apple is his largest holding, with the stock down 6% year-to-date compared to the NASDAQ’s fall of roughly 20%, and wishes he could buy more.
In addition, the company’s silicon efforts – the M1 and M2 chips – are giving it a new special point when “everyone from Amazon, Microsoft and Samsung to Google and Facebook are trying to produce silicon”.
“They’ve done it in their iPhones and iPads for a while, but now it’s translating to differentiation on the laptop side, giving them a cost and performance advantage over their peers. Being able to do everything from software to silicon provides better product differentiation. Better performance, better power consumption and ultimately lower material costs.” Math, which translates into higher margins.
He says of Microsoft: “At the end of last year, software – and especially software-as-a-service – valuations really went up, from five or six times pre-pandemic to 15 or 16x, which made a lot of money.” Part of that is less compelling on a risk/reward basis. But Microsoft is a different animal. It’s a software business but their rapidly growing cloud business gives me confidence that their business will continue to grow exponentially.
He chose to hold Cisco in his portfolio to “fill demand” as the world entered a rising price environment. He looked for a relatively cheap stock that boasted “motivation.”
Cisco was a bit of a transition; It’s a little late to the cloud party, but it’s catching on — and, of course, it’s a small part of the overall business. He owned a large server enterprise and service provider; Two areas hit hard during covid.
The manager realized that when people return to the office after a two-year suspension, businesses will want to improve their infrastructure, especially if they are adopting hybrid work practices.
Benjamin’s specialty is the semiconductor space. As an analyst, he specializes in this area, seeing it as a great way to gain exposure to the broader technology themes he follows.
Also, the evolved fundamentals have gone through a period of evolution, taking on its once highly cyclical nature.
It says the sector has strengthened a lot, improving profitability, gross margin and operating margins, finding some major global themes in certain markets with favorable relative valuations.
In that area NXP Semiconductors It has been a mainstay for quite some time and serves as a strategic partner to many Original Equipment Manufacturers (OEMs) in the auto sector.
From battery management systems for electric vehicles (EVs), to leading radar capabilities used in ADAS (advanced driver assistance systems), as the transition from internal combustion engine (ICE) vehicles to EVs continues, overall semiconductor content levels will double, he explains. .
“If you think about a car becoming more like a smartphone, it’s going to require a complete re-engineering of the electronics. It’s already happening, and it will take time to fully roll out, but this is another area where NXP is very strongly positioned.”
Exemplifying his desire to find future disruptors is artificial intelligence (AI), which Benjamin believes will be the biggest theme of the next decade. Nivea Companies using a complete solution to easily deploy deep learning technology were named as future winners from that opportunity set.
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