2022 has been a tough year for tech stocks. With the sudden increase in risk aversion among investors, many companies in the sector are no longer able to finance their investments and ambitious growth plans. To weigh on the performance of these stocks was primarily the change in central bank monetary policy.
For the past two decades, this hasn’t been a problem: capital costs did not exist thanks to near-zero interest rates so companies didn’t have to worry about financing terms. With extremely low interest rates, many companies were tempted to borrow, even to increase their return on equity.
What has changed?
This year the situation has changed. Growth stock valuations are disproportionately affected by surprisingly high interest rate hikes. The increase in interest rates has caused a sharp increase in the cost of capital for companies. Growing companies, which often operate in innovative and young sectors such as technology, are particularly affected by these changes: they often still generate losses and need capital to finance their growth.
However, it’s important not to lump all technology companies together. Indeed, there are many companies in the industry that are not so adversely affected by the rising cost of capital. Let’s talk about big tech like Meta Platforms, Netflix e Alphabet, which are highly profitable and have high free cash flows and large cash reserves. I am therefore well equipped to finance further growth despite the rising cost of capital in the financial markets and to pursue my growth path without hesitation. And it is precisely this that makes the difference in the current context together with the high market penetration in digital marketing services.
The big tech certificate with an initial coupon of 15 euros
Based on the above, the technology sector can still be a valid investment theme but one must be selective in stock picking to increase the probability of success of the operation. In the new series of Maxi Cash Collect recently issued by BNP Paribas we also find the certificate with ISIN NLBNPIT1NJ06 on basketball made up of the following three titles: Meta Platforms, Netflix and Alphabet. A product that will pay a maxi initial premium of 15 euros, with a valuation date of 5 June 2023. For this issue, the maxi coupon payment takes place regardless of the performance of the three underlyings.
Subsequently, until the expiry date (March 3, 2026), the certificate pays a quarterly bonus of 1 euro if, on each intermediate valuation date, the value of all the shares making up the basket is greater than or equal to the barrier (60% of their respective initial value) and will continue its life until the next valuation date. All conditional rewards have a memory effect.
From the sixth month (September 2023), if Meta Platforms, Netflix and Alphabet quote above the initial value on the quarterly valuation dates, the certificate, in addition to the payment of the premium (1 euro) with memory effect, will also repay the nominal value in advance (100 euros). Furthermore, the certificate has a Quanto option which makes it immune to exchange rate fluctuations between the euro and the US dollar (the currency of the three underlying securities).
Flurry of buys from analysts on basketball stocks
The consensus gathered by Bloomberg on the three titles in the basket, which we report in the table above, is substantially positive. Almost all analysts recommend the purchase (buy) on all stocks with a minority suggesting keeping in the portfolio (hold) and the almost absence of selling (sell). Furthermore, the 12-month average target price indicates that these stocks currently appear underpriced and from which analysts expect important upsides. This makes these underlyings suitable for strategies with investment certificates such as Cash Collect, i.e. for those who have a lateral or moderately bullish view of a specific sector (in this case the American technology sector) in the medium to long term.
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