A rising tide raises all boats, right? Not so much. It’s starting to look like there may be a thaw in the U.S.-China trade war, but that doesn’t mean everything goes back to normal.
China may strike an interim deal with the U.S. for some things it wants — like pork and soybeans — but won’t commit to a complete deal. If China agrees to an intermediate deal, that would mean President Donald Trump can claim victory, Chinese President Xi Jinping can declare victory and the markets can continue to rally.
That still depends on if the two leaders can actually agree on intermediate terms. But for all the U.S. bluster, cutting a deal before the election next year and before a recession sets in at home is much more important than a wide-ranging deal set on U.S. terms.
The tech stocks below represent some important names on both sides of the Pacific. But given their ratings in my Portfolio Grader, they’re falling short of other top performers in their markets and sectors. Even if the trade war cools down, don’t expect it to have much of an effect on the trends of these stocks.
The seven tech stocks you need to avoid here don’t come close to making my list of Bulletproof Stocks. They just aren’t worth the risk of buying the dip and hoping for the best.
Tech Stocks to Avoid: Sina (SINA)
Sina (NASDAQ:SINA) is one of China’s top tech firms. It owns Weibo (NASDAQ:WB), China’s version of Twitter (NYSE:TWTR). It also owns a number of other complementary sites that drive traffic in and between each other.
The trouble is, the Chinese economy is slowing and that doesn’t help revenue. The stock is off 16% year-to-date and 30% in the past year. It may experience a bump with the trade deal, but turning the Chinese economy around will be a different deal entirely.
Granted China’s economy is still more than double that of most industrialized nations, but it has to maintain a higher level of growth to keep its workforce productive and expanding.
There’s no doubt that SINA will see brighter days, and I once had a great win with this stock a couple of years ago. But I’m all U.S. these days, and there’s still a greater downside risk with SINA than there is upside opportunity.
Baidu (NASDAQ:BIDU) is the Google of China. It’s not the Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) of China because its doesn’t have all the far-flung ventures that Alphabet has under its umbrella, and certainly doesn’t have the most popular mobile operating system on the planet.
However, it is China’s leading search engine. And that means it is also one of the leading companies in search-engine revenue.
But like many consumer-focused digital businesses right now, it is struggling in China during this economic slowdown. And an intermediate-term trade deal also comes with its own risks, like making the markets more volatile as it may not lift Chinese consumers as much as U.S. consumers.
While BIDU stock is off 32% year-to-date and 50% in the past 12 months, this isn’t the time to go bottom fishing. We still need signs that the Chinese consumer is back on track.
NetApp Inc (NASDAQ:NTAP) is a data storage business that focuses on U.S. companies. It has been around since the early 1990s, so it has a solid book of business and has survived the dot-com boom and bust as well as the 2008 financial crisis. It also offers a 3.4% dividend, so it’s certainly a mature company that is shareholder friendly.
However, the trade war has hurt business spending since many enterprise companies are affected by the global economy. A stronger dollar means lower-valued revenue from abroad, and weak economies also mean slower and fewer sales.
NTAP gets its share of this. And in its recent earnings report, management warned about slowing revenue and earnings through the rest of the year. The market pounced. While the stock is only down 5% year-to-date, it’s off 34% in the past year, and that means its dividend isn’t helping much. I only want the highest quality from my dividend investments — not just a high yield.
Teradata (NYSE:TDC) is an enterprise database analytics and consulting company that has offices and clients around the globe. It was formed in 1979 as a joint venture between the California Institute of Technology and Citigroup’s (NYSE:C) Citibank.
Again, the problem here is the “global” part of its business. With Brexit making businesses in Europe sit on their hands while waiting for a resolution, China — and the broader Asian market — slowing due to the trade war and money from around the world running for safety into U.S. bonds (rising the value of the dollar), this makes it very hard to keep earnings chugging along.
And all this growth also slows U.S.-based firms that rely on global growth for a piece of their business.
Most of TDC’s losses have come in 2019, with the stock off 12% year-to-date and almost 17% in the past year. It’s not a terrible value here, but while the global economy sits on the fence between recession and expansion, it’s hard to get TDC’s motor started.
And as with all these stocks, if things get worse before they get better, there’s more downside risk here.
Angi Homeservices (ANGI)
Angi Homeservices (NASDAQ:ANGI) is creating the world’s largest digital marketplace for home services. And given sinking interest rates in the U.S. and relatively comfortable U.S. consumers, this stock was doing well since it primarily focuses its business in the U.S.
As I’ve made clear in Growth Investor, housing related stocks are the place to be. And with leading online brands Angie’s List and HomeAdvisor, ANGI has a big lead on its competition in this sector. But there are competitors that are nipping at its heels, like hyper-local social media service Nextdoor.
Economic mixed signals have hurt this high-flier in the past year. The stock is off 65% for the year and 51% year-to-date. Yet the stock is still sitting on a trailing price-to-earnings ratio around 53.
Even after that significant haircut, it’s still pricey. Any more bad — or merely uninspiring — news could easily clip this stock more.
Alliance Data Systems (ADS)
Alliance Data Systems (NYSE:ADS) is technically a tech company — but it slots in the fintech space. It is one of the leading providers of loyalty and marketing services, like private-label credit and debit cards. But its business isn’t really in the cards as much as it is in the data that the cards provide to the company’s customers.
You can learn who uses them, how they use them and how you need to market to reach your target audiences. Whether its pharmaceuticals, diapers, financial services or travel, ADS is in the space gathering data.
This the newest iteration of direct mail, but it is wildly more nuanced and yields massive amounts of data.
It’s a great business to be sure. But it isn’t so great when you’re in a slow economy. And Alliance Data Systems’ global exposure means that some of its business isn’t doing well right now. And even in the U.S., the consumer is spending, but not with great enthusiasm.
The stock is off 10% year-to-date, but almost 45% in the past year. That’s not a good trend. Until things turn around, it’s best to stand clear and focus on Bulletproof Stocks.
DXC Technology (DXC)
DXC Technology (NYSE:DXC) is a recent spinoff of Hewlett Packard’s (NYSE:HPE) 2017 merger with Computer Sciences Corporation.
The new company is a global player in the technology consulting and outsource servicing sectors. But the problem here is, not only does it have to manage the integration of the CSC merger, but it also has to figure out how to organize the company during a global economic slowdown.
For example, in India, DXC is having to cut about half its offices (from 50 to 26) and cut nearly 7% of its workforce. Indian operations make up more than 33% of its workforce, and thus a large segment of its revenue.
This restructuring is not helping in the current environment. And as artificial intelligence makes its way into the jobs that the U.S. previously outsourced, DXC is fighting both a tough economic environment and technological shifts in its business model.
It’s no surprise then that the stock is off 38% year-to-date and 64% in the past year. There’s no point in rushing into this one. It’s not even clear if its current plan will help it emerge from its ongoing challenges.