Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names

Key Points
  • The tech-heavy Nasdaq Composite reached new highs during Tuesday's trading session, with FAANG names Amazon and Netflix leading the index.
  • But investor David Katz says smaller tech names are a better bet.
Feel pretty good about market if trade worries settle down, says CIO

The tech-heavy Nasdaq Composite hit record highs Tuesday with FAANG names Amazon and Netflix leading the index. But David Katz told CNBC that these "high-flying stocks might slow down soon."

"We think the duller things, like a Cisco, is going to start to do a lot better," Katz, president and chief investment officer of Matrix Advisors, said Tuesday on "Power Lunch."

"If you can buy a good technology company, like a Cisco, at 14 times earnings with a good yield, we think you’re going to do well," he said.

Tuesday's comeback in tech stocks pushed the Nasdaq 0.6 percent higher after falling as much as 0.7 percent. Amazon reached an all-time high, up 1.5 percent. The e-commerce giant had previously fallen 1.4 percent after Amazon suffered glitches during Prime Day. Meanwhile, Netflix also rebounded, trading 4.3 percent lower, compared with its earlier low, down as much as 14.1 percent. The streaming company fell after reporting weaker-than-expected subscriber growth during Monday's earnings.

This year's market has been dominated by the tech sector, with FAANG giants — Facebook, Apple, Amazon, Netflix and Google — representing more than 80 percent of the gains this year.

Many investors thought the dip represented a buying opportunity, but Katz said he's "weary about buying something at 80 times earnings. Because if there’s any sort of disappointment, the stocks really do have a lot of downtime. Not just for one day, but for actually months."

View of the phone company QUALCOMM technology 5G in the Mobile World Congress.
Ramon Costa | SOPA Images | LightRocket | Getty Images

Another stock to consider: Qualcomm.

Katz said that although the telecommunications equipment company is "caught up in the China tariff trade war, we think if there’s any sort of resolution, ... that’s got 30 or 40 percent upside."

— CNBC's Fred Imbert contributed to this report.