Avoid work-from-home stocks as the Fed raises rates

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  • Investors should avoid “poster kids” work-from-home stocks as the Fed raises interest rates, Wedbush said.
  • The company downgraded shares of Docusign for “underperforming” as the company faces tough comparables from its pandemic highs.
  • “Some names in technology will be under the microscope for budget dollars…with clearly tougher times ahead,” Wedbush said.

Even after a more than 70% sell-off, investors should still steer clear of the work-from-home “poster children” who have seen business boom amid a global pandemic, according to a Monday analyst note from Wedbush Dan Ives.

Ives downgraded Docusign from “Underperforming” to “Neutral” and said that as markets enter risk-free mode, it will become even harder for battered tech stocks to show renewed life.

And this environment shows no signs of disappearing as soon as the


Federal Reserve

continues to embark on an aggressive tightening path through both interest rate hikes and a reduction in its balance sheet. The Fed is expected to raise the federal funds rate by 50 basis points on Wednesday.

“The scale and speed of selling off tech names has surprised us this year as fears of a


recession

and no more Fed-led easy money knocked multiples off a cliff in tech stocks with so much pain inflicted on bulls,” Ives said.

But just because some tech stocks have fallen so far from their peak doesn’t mean they should be indiscriminately bought by investors.

“Work-from-home poster kids such as Netflix, Zoom, DocuSign, etc. will continue to see multiples compress as results ease from pandemic highs,” Ives said, adding that Docusign in particular could see some tough growth ahead, and that’s share price doesn’t reflect that reality.

“Amid the downturn, we recognize that some tech names will be under the microscope for budget dollars and business models will be geared toward bountiful budgets with clearly tougher times ahead,” Ives said.

Ives also downgraded shares of Matterport and C3.ai to “Neutral” due to its high exposure to the real estate market and a slowdown in corporate deals for AI technologies, respectively. But while Ives turns bearish on some work-from-home stocks, the tech analyst remains constructive on other areas of the tech market like cybersecurity and cloud.

“We continue to believe that this bifurcated tech band will be driven by software, semi-finished, cybersecurity and product-centric (Apple) names as part of this digital transformation,” Ives said.

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