Wells Fargo: Tech Stocks Are Very Attractive and Very Dangerous

All eyes are on the tech sector as the five members of the big cap tech company group known as FAANG all announce earnings between now and August 1.

The tech sector dipped in early July with the S&P 500 Information Technology Index hitting a low on July 3 as investors worried that the tech stocks had risen too much year-to-date. But the tech sector has recovered since then as jitters have worn off.

"The tech sector is very attractive and very dangerous," chief U.S. equity strategist for Wells Fargo Funds John Manley told TheStreet.

While valuations are high right now and causing some concern, the fundamentals of the companies are what really matter, he said. The important takeaway from tech right now is that the fundamentals at many companies are surprisingly good, he said. While valuations aren't as important, they're still worth paying attention to because they can lead to volatility in the markets, he added.

Valuations are a starting point but it's better to look at the fundamentals, Manley explained. "You can trade around valuations and view corrections as a buying opportunity," he said.

Tech investors are particularly focused on Amazon right now with the e-commerce giant going after the grocery industry with its recent $13.7 billion acquisition of Whole Foods , as well as the meal kit delivery service, which has weighed on shares of Blue Apron , which recently went public.

Competing with Amazon is getting harder and harder, but time may slow it down, Manley noted. "Nothing can grow faster than the market itself indefinitely,"
he said. "There is a limit to this."

Source: Bloomberg Pro Terminal

Junior Trader Stefan Panteleev

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