Paul Meeks: Get back into Adobe, other tech on Trump weakness

Published Fri, Nov 18 20163:40 PM ESTUpdated Fri, Nov 18 20165:24 PM EST

Although I'm primarily a technology investor, prior to the election I hid out in other stocks because I felt that my tech favorites had been too expensive and that the shares of companies in other sectors had become too cheap — chief among the latter were financials (i.e., Signature Bank ) and health care (i.e., Pacira Pharmaceuticals ) stocks. Of course, President-elect Donald Trump changed everything. Therefore, in the tech stocks' carnage that has ensued, I've returned to some of my IT stalwarts, particularly those leading cloud computing. My revised Platinum Portfolio features cloud gurus Adobe Systems , Amazon.com , and Alphabet . My final holding is Facebook although I don't own it as a cloud play. Here's why: In addition to taking profits in nontech shares to raise proceeds to return to my favorite sector, I trimmed my stake in Facebook. To put this in perspective, however, I lowered my weighting from 48 percent to 33 percent, which is still the highest in the portfolio. First, unlike the shares of other tech giants that have been "Trumped," the stock has failed to find support at its 200-day moving average. Second, the firm will wound itself next year by reducing its news feed ad load. This may be smart long term to protect its brand by ensuring the best customer experience. But in 2017 however, this could slow the company's blistering growth. Third, Snap, Snapchat's parent, has filed for an IPO, which probably will be in the first quarter of 2017. I guarantee that Snap and its investment bankers will tell every institutional investor whom they meet on their IPO roadshow that the upstart firm will take gobs of market share from Facebook, particularly from younger users. They'll spin their story like a top. That's what IPO roadshows are about. This Facebook bashing won't be fair, but it could pressure the stock further because in investing there is such a thing as bad publicity. Interestingly, what I'm not concerned about at Facebook long term is what afflicts too many investors, which is the story — it isn't a story but the truth — that the company has overstated some metrics that indicate how effective their ads are. I don't think that Facebook is being sleazy. Like it or not, digital ads are emerging. When you define an industry as Facebook and Google are in this case, there are going to be growing pains. What would trouble me is if Facebook didn't heed the warnings and learn lessons from them. However, this company seems to make the necessary adjustments boldly and quickly. Founder and CEO Mark Zuckerberg is smarter than all of us. Get over it. With the proceeds from trimming my Facebook position and selling the nontech stocks, I funded my Adobe purchase. I admire the firm's CEO Shantanu Narayen. He embraced the cloud before most legacy tech companies. Adobe had a lot to lose in doing so. The firm had come to the dance in the 1990s client/server era. It had to recast its business in the cloud and sell its software on a subscription basis instead of with industry-standard perpetual licenses. Too many old-school software vendors — like Oracle and SAP — are amid a nasty transition in selling and distributing software. Thankfully, it's all rear-view mirror stuff for Adobe. Adobe isn't a cheap stock but it still may be a relative bargain given its stunning forecast growth. The Street consensus for the company's fiscal non-GAAP EPS for next fiscal year (ended November 2017) is $3.85, which would be 29 percent higher from what's expected for fiscal 2016, which ends in two weeks. Sales next year are forecast to rise 22 percent. That's heady top- and bottom-line growth, but note, however, that Adobe's margins are to rise because its EPS pop is expected to outpace its revenue increase. That's great operating leverage. The price/earnings (P/E) ratio for fast-growth tech companies can't be evaluated in a vacuum. That's why savvy investors often look to the PEG ratio. Theoretically, a fairly priced stock would be one in which the P/E ratio would be in line with "G," or the estimated compounded annual growth in EPS. In this case, Adobe's P/E is 27 times forward earnings. The Street view for the firm's EPS growth for the next five years is 31 percent. Therefore, by this measure Adobe is reasonably valued. I'd nibble on the stock here and be prepared to add to this position on any dip. I look for the shares' 100-day moving average, or $102.62, to be that support. Paul Meeks, CFA, contributes to CNBC PRO and is a Platinum Portfolio manager on "Squawk Box." He's the chief investment officer and a separate accounts portfolio manager at Sloy, Dahl & Holst (SD &H) in Portland, Oregon. SD &H manages approximately $1 billion. Meeks owns none of the stocks mentioned in this article p ersonally, or for clients .

Source: CNBC

Of course, President-elect Donald Trump changed everything. Therefore, in the tech stocks' carnage that has ensued, I've returned to some of my IT stalwarts, particularly those leading cloud computing. My revised Platinum Portfolio features cloud gurus Adobe Systems, Amazon.com, and Alphabet. My final holding is Facebook although I don't own it as a cloud play.