If you don't own tech stocks into 2018, you could be missing out.
Sure, investors have sold tech stocks this month and rotated into companies that stand to win big from tax reform. But that is probably a small bump in the road.
The tax bill contains an 8% one-time tax on illiquid assets and a 15.5% tax on cash and cash equivalents held overseas. Translation: the hundreds of billions of dollars Silicon Valley heavyweights such as Apple (AAPL) and Microsoft (MSFT) store overseas can be repatriated back into the U.S. for much less than before. That sets the stage for a host of shareholder friendly things, such as special dividends and big stock buybacks.
Apple, for example, had more than $250 billion in overseas cash at the end of last quarter. Instead of paying the old 35% corporate rate to bring that back to the U.S., Apple would now pay just 15.5%. That's the difference between $87.5 billion and $38.8 billion. Here comes Apple's new mega stock buyback plan.
Meanwhile, the corporate tax rate cut will likely unleash companies to invest in new data centers, cloud services and other technology. To be sure, that is music to the ears of Amazon (AMZN) , Microsoft and Cisco (CSCO) .
Plus, Credit Suisse says the tech sector is its favorite as price volatility and sensitivity to economic events shrinks. What's better than owning a stock that shrugs off the rare disappointing economic data report?
The only major downside worth considering in the tech space is competition. Not a day goes by without some hungry tech startup trying to take down a Twitter (TWTR) or Facebook (FB) . Even still, the scale of the established tech players means upstarts will have a tough time dethroning them. So, how strong a risk is competition? Maybe not as much as first perceived.
Considering their new and notable tax advantage, and favorable overall investment characteristics, tech stocks are unlikely to stay down for long. If you think that a small dip was a signal of impending doom, you could be among the dumbest on Wall Street.
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