Brace yourself for a tech earnings wave over the next two days as some of the biggest names on Wall Street open their books to scrutiny.
Piper Jaffray’s Craig Johnson has sifted through the bunch and picked one he thinks has the best potential: Apple.
“Clearly it’s a great company,” Johnson told CNBC’s “Trading Nation” on Tuesday. “It hasn’t gotten as extended as what we’ve seen with other companies in the tech landscape.”
Apple has endured a sharp pullback this year, siloed off from a broader market rally that lifted the S&P 500 to new records this year. Its shares slumped 4 percent last week, its worst performance since September, after several reports of weaker iPhone demand in recent months. Apple’s signature smartphone is the largest contributor to sales.
Its recent decline has pulled its price-to-earnings ratio back below 15 to trade at 14.2 times forward earnings this week, its lowest level since October. By comparison, the Technology Select Sector ETF trades at 18.9 times forward earnings and the S&P 500 18.6 times forward earnings.
Compare Apple to some of the darlings of the tech space. The FANG stocks — Facebook, Amazon, Netflix, and Alphabet — trade at a far higher premium relative to earnings. Amazon holds the highest P/E at an eye-popping 168 times forward earnings and Alphabet the lowest at 28 times.
“They’ve all gotten fairly extended, a lot of the charts are starting to look a bit parabolic, almost going straight up,” Johnson said of the general tech rally.
Tech gains carried the market in 2017. Facebook ended the year with its second-best annual performance since going public in 2013; earnings beats and a surprise purchase of Whole Foods fueled Amazon’s 56 percent; steady subscriber growth helped Netflix add 55 percent; and Google rose 33 percent in its third straight year of gains. The XLK Tech ETF rallied 32 percent in 2017, exceeding the S&P 500’s 19 percent gain.
For Michael Bapis, managing director at HighTower Advisors’ Bapis Group, any gains for the rest of the tech sector will stem from product innovation in the last quarter and beyond.
“Reinventing yourself in today’s technology world is one of the crucial components to earnings releases,” he said on “Trading Nation.” “What’s the next product they’re developing? I think at the beginning of the year coming out, they should be focused on certain technologies that maybe no one is.”
For example, Bapis is keeping an eye on Microsoft for any announcements tied to new gaming or blockchain technology. Microsoft is scheduled to report earnings after the closing bell Wednesday, as do eBay, Microsoft, PayPal, Qualcomm and Symantec.