Don't buy the dip yet in high-growth stocks — wait for 'seller exhaustion,' a Morgan Stanley money manager says
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- Don't buy the dip in high-growth stocks just yet, Morgan Stanley's Andrew Slimmon said.
- "Once a very speculative bubble breaks, it's not a V-bottom because there's too many people looking to get out," he said.
- US stocks have just had their worst week since March 2020 as higher interest-rate anxiety kicks in.
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Investors should avoid buying the dip in expensive high-growth stocks because "once the fever breaks, it's done for quite a while," according to Andrew Slimmon, a senior portfolio manager at Morgan Stanley Investment Management.
Slimmon co-manages the MSIF US Core Portfolio fund, which has risen 36% in 2021. That beat the S&P 500's 26.9% gain last year.
"If you wind the clock back, if you look at some of these uber-growth funds back to where they were in early fall of 2020, that means a lot of people haven't made money, right? Because they chased into them after they peaked," he told Bloomberg in an episode of the "What Goes Up" podcast released Friday.
Growth stocks refer to companies that are expected to grow their revenues and profits at a faster pace than the market. While they can be found in any field, most are in innovation-focused industries like technology.
US stocks just had their worst week since March 2020, driven by concerns about the Federal Reserve's move to cool inflation by tightening monetary policy. The tech-heavy Nasdaq entered correction territory midweek, and it looks set for more losses Monday.
Slimmon compared the recent sell-off to the dot-com bubble of the late 1990s, saying that a growing sense of investor unease means returns are unlikely to recover quickly.
"The reason why the dot-com analogy is correct is that that means that every time they start to go up, there's someone that can get out even," he said.
"And so, there's tremendous selling resistance at higher levels because so many people have lost money. And that to me is very similar to the dot-com bubble, and other bubbles."
"Once a very speculative bubble breaks, it's not a V-bottom because there's too many people looking to get out."
Legendary investor Jeremy Grantham has warned of a "superbubble" in US stocks and predicted an epic crash is coming. Meanwhile, RBAdvisors' Dan Suzuki compared the frothiness in the tech sector to the dot-com bubble and said that it's never too early to sell.
But Slimmon doesn't think Big Tech stocks are as expensive as uber-growth stocks.
"In 2000, the Nasdaq had obscene prices. You also had some of these very big-cap tech stocks trading at triple-digit multiples," he said.
"And when I look at these uber-growth stocks, they're expensive as they were in 2000, but the main tech stocks, the Nasdaq 100, the big stocks, they're not as expensive."
"So I don't think the (comparison to the) Nasdaq break of 2000 is quite accurate because I don't think the really big tech stocks are as vulnerable."
The money manager's advice to investors for buying into highflyer stocks is to wait for others to show disinterest or lack of enthusiasm.
"I think it's first seller exhaustion, where stocks stop going down on bad news because there's no one left to sell them. And I'm just not sure we're there yet," he said.
Slimmon said even though these stocks are down quite a bit, he hasn't seen resistance in buying them. This, according to him, is one way to think about investment strategy.
"The other way I think about it is when no one believes that they can buy the dip anymore. That's when the bottom happens, right? When people say, 'I don't wanna touch them. These are uninvestible,' that's when I get interested," he said.
"But when people are saying, 'Hey, well, what do you think?' Because the memory of making a lot of money is too recent, and that leads people to try to bottom fish."
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