Tech stocks have endured a difficult start to the year amid a troubling macro backdrop, but fund manager Sid Choraria thinks there are some "must own" stocks in the sector. Investors have been shunning growth stocks, including once high-flying tech names, as the Federal Reserve hiked rates for the first time since 2018 amid 40-year high inflation and signaled that more could be on the horizon. The outlook has deteriorated considerably since, as the Russia-Ukraine war and a surge in energy prices rattled an already jittery market and sent investors into a tailspin. Some market watchers have also argued that recent movements in U.S. Treasury yields suggest a recession is around the corner. Against this backdrop, tech stocks ended the first quarter as the worst performing sector on the S & P 500, highlighting a continued lack of appetite among investors in the beleaguered sector. Still, Choraria, senior portfolio manager at Gordian Capital, believes Apple , Microsoft and Google parent Alphabet are "fantastic businesses" that investors must own. The investment veteran is best known for uncovering an under-followed 135-year-old Japanese company called Kobayashi Pharmaceutical and attracting the attention of legendary investor Warren Buffett in the process. Speaking to CNBC Pro Talks , he described Microsoft as "one of the greats of the greats," with significant free cash flow and a strong history of acquisitions. "[Microsoft's CEO] Satya Nadella has been a phenomenal capital allocator," Choraria said, citing Microsoft's acquisition of LinkedIn for about $26 billion in 2016 — a figure which Choraria initially thought was "over the top." But LinkedIn's strong revenue growth, which culminated in the company posting revenue of more than $10 billion for the first time in financial year 2021, changed his mind. "That [acquisition] was a steal," he concluded. Microsoft has continued to expand into other adjacent businesses. It completed the acquisition of Massachusetts-based cloud and artificial intelligence software provider Nuance Communications in a $19.7 billion deal last month, paving the way for its potential expansion into the fast-growing metaverse space. Read more Long-term investor explains why he likes Amazon but is 'not crazy' about Alibaba Meta's potential Another company making inroads into the metaverse space is Facebook parent Meta — a stock which Choraria is keeping a close eye on. "One of the topics talked about in Silicon Valley, but perhaps your viewers might not necessarily appreciate, is that Facebook has been a phenomenal capital allocator in the past," he said. "The acquisition of Instagram in April 2012 for about $1 billion screamed expensive at that time but has been an unbelievable steal," he added. Meta CEO Mark Zuckerberg highlighted Instagram Reels as one of the company's "major investment priorities" this year during the company's fourth-quarter earnings call on Feb. 2. The feature, which allows Instagram users to create and share short-form TikTok-like videos, is now Meta's "fastest growing content format by far," according to Zuckerberg. The feature is already the "biggest contributor" to engagement growth on Instagram and is growing very quickly on Facebook too, he added. The other thing to watch out for is Zuckerberg's "next big bet," Choraria said, advising investors to focus on Reality Labs — Meta's metaverse arm and new growth area. While Choraria does not currently have a stake in the company, he is actively watching the stock. Shares in Meta closed at around $215 on April 13, representing a 43% premium to Choraria's "no brainer" entry price of $150 on the stock. "This is a great company which generates a lot of cash. That means they are going to have options. [It also has] a CEO whose reputation is on the line but who was delivered great acquisitions. I wouldn't rule him out," Choraria said.
Investors are staying on the sidelines amid a broad selloff in tech stocks this year. Shares of Facebook parent Meta are down more than 30% this year amid a troubling macro environment and weaker-than-expected results.
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Tech stocks have endured a difficult start to the year amid a troubling macro backdrop, but fund manager Sid Choraria thinks there are some "must own" stocks in the sector.