Some beaten-down tech stocks are now 'outright cheap': JPMorgan

Some battered tech stocks could finally be worth a nibble based on attractive valuations, strategists at JPMorgan argued in a recent note.

"On the price-to-sales metric, non-profitable tech is closer to outright cheap territory, as are payments, after being at record highs a year ago," JPMorgan strategist Mislav Matejka said in a new note to clients.

The call comes inside of a broader short-term — or "tactical," as JPMorgan refers to it as — view on beaten up growth stocks out of Matejka's team. Matejka thinks it's time, at least in the short-term, for growth stocks to show better performance relative to value pockets of the market.

"Bond yields could be more range bound from here over the next few months, rather than upward moving," Matejka wrote. "As the activity dataflow moves closer to contraction territory, the Fed could end up more balanced in their messaging, point of peak hawkishness would have been passed. We note that the gap between breakevens and bond yields has closed now. Unless oil price spikes again, inflation forwards could settle. The upward repricing of nominal bond yields, and the move in real rates from -100 basis points to +50 basis points, was a constraint for the valuations of the long duration part of the market, but that could temporarily ease."

To be sure, growthier areas of the market have been among the hardest hit amidst the bear market in stocks this year.

This reflects investors betting on higher interest rates from Federal Reserve, which has the corresponding effect of cutting valuations and discounting future growth.

Federal Reserve Chair Jerome Powell reacts to a question on Capitol Hill in Washington, D.C., U.S., June 22, 2022. REUTERS/Elizabeth FrantzThe Vanguard Growth Index Fund — which counts growth companies such as Microsoft (MSFT), Amazon (AMZN), and Meta (META) among top 10 holdings — has dropped 28% year to date. By comparison, the S&P 500 is down 19% on the year.

Once growth darlings such as Netflix (NFLX) and Roku (ROKU) have plunged 70% and 61% on the year, respectively. Cathie Wood's ARK Innovation ETF (ARKK), is down over 50% this year.

Investors in turn have rotated into perceived value plays, or companies seen as having more predictable cash flows and relatively low valuations.

The Vanguard Value Index Fund — which has top value names Berkshire Hathaway (BRK-B) and JPMorgan (JPM) as its top two holdings — is only down 9% on the year amid the thirst for value.

Not everyone on the Street is on board with picking at beat-up growth stocks, however.

"I would say that you need to look at value-based equities, organizations generating cash flow closer to today versus out into the future," Ariel Investments portfolio manager Danan Kirby told Yahoo Finance Live.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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