While 2020 has taught us that we are all naive about the possibility that the world will be brought to its knees by a pandemic, it has also taught us that we cannot exist without the interconnectivity that giant tech companies offer.

Of course, this awareness has not gone unnoticed by the market, which has largely rewarded technology stocks; the industry climbed 47.5% for the year, and the average gain for the powerful group of Apple, Alphabet, Microsoft, Facebook and Netflix was 51.2%.

However, hot stocks may calm down, which happened as early as September with some names in tech, including Amazon, as positive vaccine data drew investors’ attention to stocks that had been beaten by. Covid but who would eventually come out of hibernation.

In one form or another, despite two surges in February and again in April, “reopening of trade” has dominated the US market since last fall.

Pundits regularly proclaim the demise of tech stocks, predicting their continued underperformance and citing the many reasons why this trend is expected to persist.

Whether it’s higher interest rates, inflation, over-valuation, or the rise of the startup economy, the names of tech are now seen as underdogs.

Should they be?

My initial reaction is non-statistical and gut-based, which means it’s worth less than the screen it’s typed on: almost everyone who pontificates in the market today is very negative about tech stocks, so that seems to me like a bullish signal.

A more nuanced look under the market canopy reveals some important undercurrents.

The popular term “tech sector” generally encompasses a wide range of stocks belonging to the official tech group S&P, such as Apple and Microsoft, but also digital powerhouses Google and Facebook, both of which belong to the “communications services” sector.

Tesla and Amazon reside in the “consumer discretionary” sector, which further shows that there is no single, seamless gathering place for companies whose technological innovations have generated their enormous success.

Bubbles that have accumulated in various groups, such as favorites Robinhood and Reddit, have already burst to some extent, with many actions, such as Tesla, Snowflake, Teladoc, Zoom Video, Trade Desk and many more, down from 30% to 50% of their peak.

At their peak in 2021, stocks sold at valuations of over $ 10 billion – more than 14 times the expected sales of the next 12 months – accounted for over $ 5 trillion in market capitalization, or roughly 10% of the market. US total, according to FactSet. Despite their decline, the global market did not implode, but absorbed these exchanges without major disruption.

When it comes to digital giants that the market sees as “big growth tech” including FANG and Microsoft, we see an interesting picture emerging.

Just as they have underperformed over the past six months and more, their consensus earnings estimates for 2021 have accelerated between August 2020 and today. This implies that their price-earnings ratio has fallen, due both to falling prices but also to positive EPS adjustments.

The table below illustrates the changes in estimate since last August and the resulting declines in the P / E ratio today.

The table above suggests that GOOGL, FB, MSFT, and AAPL are certainly not as expensive on a single measure (P / E ratio) as they were last August, reminding us that strength in 2020 was not not just based on multiple expansion, as the market intelligently anticipates accelerating earnings. On average, the expected profits for these four companies rose 31% since last August and their P / E fell 14%, while the median price increase was 7% compared to the 18% increase in S&P. .

How do these changes compare to the value and reopening of inventory? We have selected a group of diverse stocks, from a range of industries such as airlines, hotels, retail and banking, and pulled the estimate changes from last August through today. hui.

Profit swings have been both up and down, but each name’s P / E ratio has risen significantly, with median price action rising 62% since the end of the summer.

Large digital stocks (formerly “darlings” but not now) have become more attractive again, and some reopen / value / cyclical stocks are currently being extended. There is little argument that the communications technology and services sectors will grow their profits at a faster rate than airlines, manufacturers and big banks in the long run.

However, upward revisions and incredibly strong first quarter results for growth stocks, including Apple and the above cohort, weren’t enough to generate much enthusiasm for buyers. This type of market indifference can create buying opportunities.

Who can predict, but the big digital players could become the “value stocks” of the second half of 2021.

Karen Firestone is President, CEO and Co-Founder of Aureus Asset Management, an investment firm dedicated to contemporary asset management for families, individuals and institutions.