Analyst doubles down on tech stocks, names his favorite stocks to buy on the dip

Published Tue, Oct 5 20216:10 AM EDTUpdated Tue, Oct 5 20216:24 AM EDT

Zavier Ong

Despite Monday's rout in tech stocks, Wedbush Securities analyst Daniel Ives says the sector's multi-year rally is far from over and it's time to double down on a number of "winners." Technology stocks led a sharp sell-off Monday as inflation expectations pushed up bond yields, leading investors to dump high-value tech stocks across the board. The Nasdaq Composite fell 2.1% for its sixth negative day in seven as tech heavyweights Apple, Alphabet, Amazon and Microsoft all fell at least 2%. Shares of Apple and Facebook sank 2.5% and almost 5%, respectively, although both were higher in pre-market trading Tuesday. An expose by a Facebook whistleblower accusing the social media giant of putting "profit over safety" of its users also contributed to the fall in the company's share price. Following Monday's slump, however, Ives and his team said Wall Street was underestimating what they called the tech growth story. "We continue to believe this pressure on the tech sector is short-lived with our belief that tech stocks will be up [more than] 10% into year-end," the analysts wrote in a note on Oct. 4. "We believe relative to the outsized growth prospects ahead, this is not the time that we are throwing in the white towel, but rather doubling down on this opportunity." Stock picks Ives and team named Apple as their top FAANG stock to buy; Microsoft , DocuSign , Matterport and Pegasystems as favorites in the cloud sector; and Telos , Sailpoint and Tenable as picks in cyber security. The analysts' conviction stems from what they characterize as a "multi-trillion" digital transformation opportunity across the enterprise and consumer ecosystem that is just in its infancy. The transition to remote working and online shopping amidst the Covid-19 pandemic had fueled a sharp growth in demand for cloud, e-commerce, cyber security, and other facets of the technology ecosystem, Ives said, stressing that this growth may just be the tip of the iceberg, with "outsized growth prospects" sweeping over the sector in the next 2-3 years. "While valuations will fluctuate on tech names and some WFH poster child like Zoom are coming back to more normalized levels of growth over time, tech segments such as cloud, cyber security, and 5G are poised to see explosive growth rates over the coming year," the note said. Meanwhile, uncertainty surrounding China's heightened regulatory scrutiny on the capital markets and the recent crackdown on the country's tech sector — still fresh on the minds of investors — will also likely "drive more investment dollars into US tech stocks," Ives said. Michael Yoshikami, CEO and founder of Destination Wealth Management, agrees that concerns over interest rates — and their impact on stock prices — are overblown. "I think the sell-off is a bit of an overreaction. The ten-year Treasury [yield] is still in a pretty low range right now," Yoshikami said on "Squawk Box Europe" Monday. "The bigger news is what happened to Facebook and what centered around technology stocks ripe for a pullback after a pretty meteoric rise over the past 12 months on the Nasdaq, as well as Facebook spreading itself around and infecting the tech sector and global market sentiment. This is more of a Facebook issue than an interest rate issue." Treasury yields were mixed Tuesday morning , but have jumped in recent days. The 10-year Treasury yield topped 1.56% last week, its highest point since June. — CNBC's Yun Li contributed to this report

A trader works on the floor of the New York Stock Exchange (NYSE) in New York.

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Despite Monday's rout in tech stocks, Wedbush Securities analyst Daniel Ives says the sector's multi-year rally is far from over and it's time to double down on a number of "winners."