The technology sector is a favorite of mine in the current environment, but just because I like the space as a whole doesn’t mean that every single stock within it has the potential to be a winner.
In fact, I recently took a closer look at the NASDAQ 100 Index and after testing the following names against my strict NexGen criteria (fundamentals, technicals and intangibles) I came across three large-cap tech stocks that I’m staying away from.
Let’s talk about each.
Technology Stocks That Just Don’t Make the Grade: Cisco Systems, Inc. (CSCO)
First up is Cisco Systems, Inc. (NASDAQ:CSCO), a mature player in the tech industry, having survived for decades through some of the harshest and most difficult periods ever to befall technology stocks. CSCO stock is currently up a mere 4.3% for the year, putting Cisco’s market cap just below $158 billion.
Fundamentals: The growth here is gone. How do I know this? Well, earnings are expected to increase by $0.02 this year to $2.38 a share and just $0.07 in 2018. Enough said. Fail.
Technicals: Looking at the chart, it’s clear that CSCO has struggled recently. And it’s lagged the technology sector as a whole with a mere 4.5% gain so far in 2017. After gapping lower in May (circled), the stock has been unable to gain any momentum, and resistance up around $32.50 (the black line) looks to be an impenetrable ceiling.
The overall trend is bearish, volume is negative and the relative strength index (RSI) recently gave us a sell signal. I think that speaks for itself. Fail.
Intangibles: Cisco was at the forefront of innovation 20 years ago, but its products are simply not NexGen. This is still a large tech company, but without new cutting-edge technology on the horizon the stock will continue to be a laggard. Fail.
Technology Stocks That Just Don’t Make the Grade: Akamai Technologies, Inc. (AKAM)
Next up is Akamai Technologies, Inc. (NASDAQ:AKAM), a comparatively smaller tech player involved in the business of selling cloud storage products and services. Currently, AKAM stock is in negative territory, down nearly 30% for the year.
Fundamentals: Full-year earnings are expected to fall to $2.52 from $2.70 a share last year and then eke back up to $2.73 a share in 2018. If that weren’t bad enough, that 2018 estimate may be too high considering expectations decline even further in the following years. Fail.
Technicals: AKAM has been trendless for years now, and since topping out in February it has lost more than one-third of its total value. This week saw another huge move lower, with soft guidance from management pushing the shares to a fresh 52-week low. Fail.
Intangibles: The cloud services that this company sells are in demand in the current environment where world data and video continue to grow. But with management struggling to profit from this NexGen trend, it’s clear the intangibles are not here for AKAM. Fail.
Technology Stocks That Just Don’t Make the Grade: Check Point Software Technologies Ltd. (CHKP)
Finally, there’s Check Point Software Technologies Ltd. (NASDAQ:CHKP), involved in the business of selling IT security and related products and software to enterprises. Currently, CHKP stock is up nearly 26% for the year.
Fundamentals: Check Point has experienced single-digit earnings growth recently, but that is expected to slow in the next few years. That, combined with a PE ratio in the low 20s, makes this stock expensive when compared to its peers and the market as a whole. Fail.
Technicals: The chart was looking good until CHKP ran into a double top around $118. The failure to break out above that 2000 high combined with a big-volume breakdown has the chart set up for even lower prices. Fail.
Intangibles: This is another company that’s in the heart of the NexGen technology revolution, but the current valuation model and breaking-down chart while the market continues to hit new highs are red flags for the long term. Fail.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.