It’s shaping up to be a bleak end of the year for stocks, with the S&P and Dow set to post their worst quarters since 2011.
Despite the carnage over the last few months, a few key Dow stocks are on pace to buck the trend and finish the year with double-digit gains. But with so many stocks on sale, should investors sell the winners in favor of the losers?
There’s been a rotation out of tech names in favor of more defensive trades, but Tepper believes investors should still have selective exposure to the sector, and Microsoft is one way to play the trade.
“Within tech what you really have to do is own the names that are going to have above-industry growth levels, and Microsoft is one of those companies,” he said Wednesday on CNBC’s “Trading Nation.”
He believes cloud storage is a key area that will drive gains for the company in the coming months. “Cloud is one of the best spaces to be in, and Microsoft has a really unique offering when it comes to the cloud,” he said, referring to the company’s hybrid solution that offers a public and private cloud component.
“Microsoft’s hybrid solution … [is] going to lead to double-digit earnings growth over the next several years,” he added.
“It gives us the ability to take advantage of both a strong consumer-spending environment, and also the secular trend of digital payment processing. … It’s also kind of an all-weather stock. If we see any weakness or recession in the US, Visa should do well because of their strong debit card presence,” he said.
Nike is another Dow outperformer this year, rising nearly 10 percent, and Piper Jaffray’s Craig Johnson says now is the time to buy the stock. The sportswear giant is down more than 18 percent this quarter, but Johnson believes it’s on the verge of breaking out to the upside.
“The stock has already corrected back to a very identifiable area of support. We think a lot of the bad news is in. We would be buying the stock here on this pullback,” he said on “Trading Nation.”
On the flip side, he thinks it might be time for investors to sell Merck — the Dow’s biggest gainer this year, up more than 30 percent.
“Merck is a stock that’s already been working. It’s done extremely well but we’re entering an environment where I think we’ve already seen kind of the handoff between growth and value start to play out. So I think you’re going to see Merck potentially be a source of profit-taking, and money rotating into names like Nike. And I think that’s going to be the play we’re going to see as we move into 2019,” he said.
Disclosure: Mark Tepper owns shares of Microsoft and Visa. Piper Jaffray makes a market in shares of Nike.