Say you own the best restaurant in town.
The food is great. Every table is full. Profits climb every year.
On Wednesday, a buyer offers you $1 million for the place. On Thursday, the same buyer comes back with an offer of $933,500.
Nothing changed in the kitchen. Same cooks. Same customers. Same profits.
But your restaurant is suddenly worth 6.7% less overnight.
That’s what happened to tech stocks last Thursday.
The Nasdaq fell 5.5%, marking its worst day in 19 months. The tech sector dropped 6.7%.
And for most of those companies, nothing in the kitchen changed either.
Adam’s Green Zone Power Ratings system saw this risk coming. It loves tech businesses. It just doesn’t trust tech stocks.
Let me show you why…
The System Loves the Businesses
The system grades every stock on six factors. Two of them measure the business: Quality and Growth. Three measure the stock itself: Value, Size and Volatility. The sixth, Momentum, tracks the trend.
I ran all 523 tech stocks in our universe through it and compared them with every other stock in the market.
Start on the left side of the chart.
Tech scores 63 on Growth. That’s the best of all 12 sectors. The rest of the market averages 49.
Tech scores 65 on Quality. That’s second-best. More than one in three tech stocks lands in the top fifth for Quality.
Put simply, tech companies grow faster than everyone else, and they’re more profitable doing it. Now look at the right side.
The System Hates the Ride
Tech scores 31 on Value. Only health care is pricier.
And it scores 23 on Low Volatility.
That’s dead last. Not close to last. Last.
Think about what that means.
Utilities score 77. The rest of the market averages 49. Tech scores 23.
Here’s another way to see it…
Just 2% of tech stocks make the top fifth for calm. More than 40% sit in the bottom fifth. No other sector comes close.
That drags down the whole sector. Tech sits in the bottom third of all 12 sectors in the system right now. Only about 1 in 10 tech stocks rate “Strong Bullish.” Only utilities have fewer.
The system doesn’t doubt what these companies do. It doubts what their stocks will do to your account. Last Thursday’s absence of tech and tech-adjacent stocks showed you why.
The 2% That Beat My Screen
So here’s the question I asked.
What if you could get tech’s best trait without its worst one?
I screened for tech stocks that score above 70 on Quality, above 70 on Growth and above 50 on Low Volatility.
Strong business. Calmer stock.
Out of 523 tech stocks, just 14 made it.
Here are the six names you’ll know.
Now watch what they did last Thursday.
The tech sector fell 6.7%. The S&P 500 Index fell 4.4%. These six stocks fell 0.3% on average. One of them rose. The other five fell 2% or less.
To be fair, I ran this screen after the fact.
One day doesn’t prove a strategy.
But it shows you what a calmer score looks like when the market panics.
The Calmest Name on the List
The top name on the list is Motorola Solutions Inc. (MSI).
Forget the flip phones.
Today, Motorola sells the radios police and firefighters carry, the software that runs 911 call centers, body cameras and video security.
That’s why it scores 87 on Low Volatility, the highest on the list. Cities don’t cancel their 911 systems when the Nasdaq has a bad day.
The business backs up the calm.
Last week, Motorola reported a record backlog of $16.6 billion. That’s signed work waiting to be delivered, up 14% from a year ago.
Sales rose 12%. And management raised its outlook for the year again.
This strong performance helped its shares rise 4% last Thursday. But this stock doesn’t swing much either way.
Its beta is 0.46. That means it has typically moved less than half as much as the market.
One caveat applies to Motorola and most of this list.
They aren’t cheap. Motorola scores just 4 on Value. Four of the six score under 15.
That’s the price of calm. You’re paying up for a business that doesn’t keep you up at night.
What To Do Now
If you want to buy tech after last week’s drop, don’t grab whatever fell the most.
Check the tech stocks you already own. Look up each one’s beta on any free quote site. If it’s above 1.5, that stock swings at least 50% more than the market. Ask yourself if you’d hold it through another day like last Thursday.
If the answer is no, trim it. Put the money into a calmer name.
Tech still has the best businesses in the market. You just don’t have to take the worst ride to own them.
Until next time…
Safe trading,
Matt Clark, CMSA®
Chief Research Analyst, What My System Says Today
P.S. You may be far more exposed to tech than you realize, even if you’ve never bought a single tech stock. Right now, 4 out of every 10 dollars in the stock market sit in just 10 companies. That’s a bigger share than at the very peak of the dot-com bubble.
If you own an index fund, a 401(k) or almost any retirement account, your money is riding on a handful of tech behemoths. And starting November 16, those giants are headed for a collision with Washington.
Most investors won’t see it coming until it’s too late.
That’s why Strategic Fortunes chief strategist Ian King, Money & Markets chief investment strategist Adam O’Dell and Grey Swan founder Addison Wiggin have teamed up in a new service called The Alliance.
They’ve built a 12-position Final Reckoning Portfolio designed for whatever happens next as this market shift takes place. You’ll also receive weekly portfolio updates, alerts and new investment ideas from all three of them. Click here to get the full details.