TrimTabs’ Bob Shea has an underweight rating on FAANG stocks – here’s why

By: Wajeeh Khan
Wajeeh Khan
Wajeeh is an active follower of world affairs, technology, an avid reader, and loves to play table tennis in… read more.
on Jul 27, 2021
  • Bob Shea says free cash flow profitability is the most important factor for him.
  • The TrimTabs Asset chief executive has an overweight rating on the IT space.
  • Apple and Alphabet will report quarterly earnings after the bell on Tuesday.

The FAANG stocks are talk of the market this week, with Apple Inc (NASDAQ: AAPL) and Alphabet Inc (NASDAQ: GOOGL) scheduled to report quarterly results after market close on Tuesday. Both stocks have rallied quite nicely this month. On a year-to-date basis as well, the FAANG stocks except for Netflix have performed sufficiently well.

Bob Shea’s remarks on CNBC’s “Squawk Box”

The mega-cap tech companies, however, have not done enough to please CEO Bob Shea of TrimTabs Asset, who has a “pretty significant underweight” rating on FAANG stocks and Tesla. In his interview with CNBC’s “Squawk Box”, Shea said:

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The most important factor for us is the free cash flow profitability because GAAP earnings can be more easily manipulated and distorted. What we’re seeing and what we saw in Q1 is that these mega-cap tech firms beat their net income dramatically, but their operating cash flow doesn’t really grow in line with the net income, creating a spike in accruals.

Shea says he is underweight on FAANG and Tesla stocks by roughly 1,500 basis points. The announcement comes a day after Tesla said its profit topped $1.0 billion for the first time in the fiscal second quarter. Despite upbeat results, shares of the world’s leading electric cars manufacturer slipped about 4% on Tuesday morning.

TrimTabs is overweight on the IT space

The TrimTabs CEO acknowledged the recent rally in these stocks but attributed it to “performance chasing into these earnings”. Risk parity flows and what’s been happening with the interest rates, he believes, has also fuelled the gain.

During his interview with CNBC’s Joe Kernen, Shea also highlighted that TrimTabs has an overweight rating on the IT space.

Names like Accenture, Palo Alto – and old tech names like Cisco and IBM score much better from our vantage point. We really do go where the free cash flow is, he added.

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