Tech Ideas For Those Who Are Worried About High Valuations

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I like the ETF itself and have a long position in it. But it does hold positions with valuations above what many are comfortable with. The largest portfolio holding, at 3.5%, is Zoom (ZM), with a price/sales ratio of you-really-don’t-want-to-know (Hint: It’s not between zero and 100). 

Five Ideas

These are value ideas drawn from a universe of innovation defined by the ETF (obviously, you won’t be seeing ZM among the results of the screen). In the alternative, you could view these in terms of a possible core-satellite setup;  value-oriented satellite positions to accompany a core position in XITK.

Cohu Inc. (COHU)

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Semiconductors (chips) are a key part of manufactured goods and in this day and age, considering the kinds of goods we’re making and buying (intelligent this, intelligent that, faster intelligence, more intelligent, etc.), one could say the health of the chip market is emblematic of the health of business activity in general (much the way past generations talked about steel). COHU doesn’t make chips. Instead, it sells to chipmakers; it makes equipment used to test and inspect chips and printed circuit boards (things to which chips are affixed). End markets (goods using chips) of particular interest to COHU include migration to 5G, auto intelligence, and the work-from-home phenomenon. As a small-cap (with all that implies in terms of fixed costs and scale), COHU stock hasn’t gotten much attention in recent years. But with exposure to attractive areas and a price/sales ratio of 1.37, this issue qualifies quite well as an emerging-tech “value.”

J2 Global (JCOM)

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I guess we might call JCOM a 21st century conglomerate (I really hope nobody at JCOM sees this and flames me for using the dreaded “c” word). It has a bunch of businesses grouped into five segments: Technology (digital media; let’s say electronic magazines and sales circulars), Health (a collection of health-information web sites, the kind you see if you search Google to look up a health condition); Security (VPN services, digital storage, etc.); Communications (online faxing, messaging, phone-type services), and Martech (tools that help small- and mid-size businesses attract and interact with customers). It tends to grow by acquisition. All in all, do you see why I used the c-word?  But unlike the long-gone but not-mourned 20th-century conglomerates, JCOM is profitable (its Power Gauge factor rank for Return on Equity is Very Bullish) and growing (it’s five-factor Earning Growth Power Gauge rank is also Very Bullish). At 2.31, its price/sales ratio may not seem cigar-butt-value-like, but in this day and age, when compared to everything else in the market, that factor score comes out Very Bullish as well.

Note though that a while back, a short seller came out with a hit piece accusing management of self dealing and inadequate impairment of goodwill impairment. Nothing came of it, as often happens with these attack. But be aware it’s been out there.

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Disclosure: Long XITK.

Disclaimer: None.

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