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Cramer: The worry over Big Tech is overblown. Here’s my view on each FAANG stock

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When the Nasdaq does nothing but go down on a few clicks of the bond market, you have to ask: Is the problem with the bonds or with the reset? I think it’s the latter. We are undergoing a great reset where we seem to be returning to the precise levels hit before the pandemic began in early 2020. So what’s driving the Nasdaq down so vociferously? First, so much of the tech-heavy index relied on just five huge companies and their helpers. Second, the Nasdaq turned out to be a China proxy, And third, the analysts just aren’t caught up with the downside; price targets are coming down aggressively enough. Now I know I could easily make this morning scene setter about the broad-based S & P 500 , but the real devastation is among the techs. Let’s pull this group apart and make sense of it by using the old FAANG stocks — Facebook parent Meta (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOGL), formerly known as Google — as a basis for the punishment that’s being meted out. For starters, do we really think that every tick of bonds spells another death rattle for tech? If we do, we are close to the end of the charnel house because the yield on the 2 Year Treasury would only have to go up a half point to hit 5%. That signals a federal funds rate of roughly 4.5%, only about 150 basis points up from current 3%-3.25% rate. I say “only” if the Fed gives us two rate hikes of 75 basis points. That means we have to hit a trifecta of bad: higher-than-expected producer price (PPI) and consumer price (CPI) inflation numbers on Wednesday and Thursday, respectively, and the November employment numbers coming in too hot. So far every number — and I mean every aggregate number — has been bad because of wages, food and housing, my new work-from-home trilogy. The sentiment is so negative, if just one of these three numbers comes in softer, expect a sharply higher bear market rally. I say bear market rally because it now seems that we have to have all three go right AND earnings be good before a bona fide rally happens. That may mean the Nasdaq returning to its pre-pandemic high of 9838 in February 2020 versus 11,030 right now. Sounds pretty grim, but that is “only” about 10% further down. Which brings us back to FAANG. Apple, Amazon and Alphabet are outsized positions, Meta being is now small, Netflix is non-existent. But let’s make it an M for Microsoft (MSFT) and lose the now cliched acronym I created many moons ago. And, of course, we need to be thinking about Tesla (TSLA). Meta, believe it or not, is setting up to be a winner here. Reels is doing better, WhatsApp is capable of being a standalone and the metaverse is beginning to take shape as an economic activity. It’s pretty insane that Meta’s stock has gone from $224 to $178, well below its pre-pandemic level. But CEO and founder Mark Zuckerberg said things are about to get worse and some critics see a company on its last legs. I don’t think that can drag us down. I think it’s an up stock actually and I want to buy some more after selling a lot much higher. Post-pandemic, Amazon and Amazon Web Services have taken market share, which is why we recently bought more shares . Alphabet has taken up much of the ad spending businesses make to reach consumers, big and small. It is the cheapest it has ever been. This stock is almost flat with its price before the pandemic began despite gaining share. That’s the best case to buy some shares. It’s a Covid winner that has only gotten better. Which brings us to Apple and Microsoft. Both of these big companies seem to have a precarious quarter ahead of them. Apple seems like it could miss this quarter and the next given a potential slowing in gaming service revenues. Why hold it? Because as much as the U.S. is cracking down on semis in China, Apple is definitely not on the list. If China gets past the bogus election of President Xi Jinping, there will be an opening that will reverse forces. It’s the ultimate play on China reopening. At $139, it’s well above $81 before the pandemic. So it is vulnerable, arguably the most vulnerable in the Nasdaq, and it is the biggest. I maintain my posture of owning, not trading, Apple, but this is the most precarious of them all. I could see why someone would want to dodge the downside. We are committed to it. Microsoft is also incredibly vulnerable. It has huge exposure to the almost defunct PC market and the slowing gaming market, which it is doubling down on with its acquisition of Activision Blizzard. With shares trading at $234, well north of $178 before the pandemic, it’s also a tough stock to own. The company warned about its dollar exposure, which is terrible, but it has more to it than gaming and personal computers. I regard it as a stalwart, but there are still many analysts with too-high price targets. Vulnerable. Tesla? It’s gotten so much better since the pandemic began that shares hit $223, up from $61. But it has rabid support. I think it remains an up stock. The thing that could hurt it is CEO Elon Musk selling Tesla shares to finance his purchase of Twitter (TWTR). I think the stock will be accepted by the market. Bottom line The good news: Apple and Microsoft are really the most vulnerable of the big tech names, while I regard the other stocks as ones that cold be poised to go higher after the next rate hike and their quarterly earnings reports. Apple and Microsoft can work their way lower into the quarter, but only Apple is truly set for disappointment from these levels because the regular iPhone 14 may not be doing well enough to offset slowing service revenue. Altogether though, big tech is a less dangerous group when you compare current stock prices to pre-pandemic levels, where the market seems to be going. Now we do have the gravitational pull of inflation, but that’s the driver for those stocks still above their 2019 level which I have just factored in. The bottom line for me is that the stocks that everyone is so worried about may be false worry. They aren’t semiconductor stocks. They aren’t levered to higher fed funds rate. And, ultimately there are more buys than sells. Of course, there are so many other stocks in the Nasdaq. But most of them are either related to these big tech companies or to health care, which is holding up rather well. Put that together and I come out saying that we have a chance to rally given that Nasdaq just fell 4% Friday. Pound the table? No. Stay the course? Yes! (Jim Cramer’s Charitable Trust is long AAPL, AMZN, GOOGL, META, MSFT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

The Nasdaq MarketSite in the Times Square neighborhood of New York, on Tuesday, May 31, 2022.
Michael Nagle | Bloomberg | Getty Images

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