These tech stocks may have bottomed after massive sell-off, Bank of America says

Published Tue, Feb 22 20222:14 PM ESTUpdated Tue, Feb 22 20225:25 PM EST

Jesse Pound @/in/jesse-pound @jesserpound

The decline in tech stocks is now entering its fourth month, but investors may still want to be selective when betting on a bounce back. Bank of America strategists led by Savita Subramanian said in a note to clients on Tuesday that it is too early to buy the dip in tech broadly, but some smaller segments of the group might be ready to outperform. "Today, Tech overall is in 'Growth Purgatory' rather than 'dirt cheap, buy everything' Tech: higher rates, growth disappointments and a COVID-inflection point are being priced in real-time," the note said. The firm put together a list of stocks with characteristics of companies that can outperform their peers in this market period. The list includes stocks with a buy rating from Bank of America analysts that have, among other qualities, high one-year return on equity and positive EPS revisions. Additionally, the stocks have high free cash flow to enterprise value, which means that the stocks are cheap relative to the cash generated by the underlying business. One group that is well represented on the list is semiconductors, with Qualcomm and Lam Research among the biggest names on the list. That is not a coincidence, according to Bank of America. "Semiconductors now screen well in our quant work … and our Semis analysts are positive. … We also favor Tech stocks with healthy FCF/EV, a good late cycle factor and the best value factor within Tech," the note said. One name on the list that is famous for its cash flow is Apple . The company's "cash pile" — consisting of cash, cash equivalents and marketable securities — was valued at more than $200 billion as of Dec. 25, according to securities filings. For investors who want to avoid tech stocks related to hardware, IT consulting name Accenture also appears on Bank of America's list. The stock has fallen more than 20% year to date, but it still has a buy or overweight rating from the majority of Wall Street analysts, according to FactSet. — CNBC's Michael Bloom contributed to this report.

A Qualcomm sign is seen at the second China International Import Expo (CIIE) in Shanghai, China November 6, 2019.

Aly Song | Reuters

The decline in tech stocks is now entering its fourth month, but investors may still want to be selective when betting on a bounce back.