How big tech could bail out long-suffering value investor

Mega-cap tech stocks have long been the bane of traditional value investors. The sky-high priceto-earnings ratios of companies such as Amazon.com Inc. and Alphabet Inc. violate everything that this group of investors holds dear. Even when such companies are leading the market as they currently are, most value investors won’t touch them.

But the very same tech stocks they argue against owning could very well become the key to unlocking the dormant value in the names that make up their portfolios.

In August, two companies that could be seen as value plays immediately benefitted from the shine that big tech brought them.

First, Alphabet’s Google announced a Us$450-million investment into home security company ADT Inc. that will see the two create smart-home software together.

Amazon, meanwhile, is rumoured to be in talks with Simon Property Group Inc., a commercial real estate company, to turn empty shopping mall spaces into fulfilment centres.

ADT’S stock, which had been languishing, surged more than 60 per cent after the deal was announced, while Simon’s shares rallied 10 per cent.

These kinds of partnerships could quickly become a trend, according to multiple portfolio managers who are actively investing in value and big tech stocks. The latter are flush with cash, they said, and are likely to continue to seek opportunities to expand their businesses into the physical world. The former are in desperate need of investment capital as institutional and retail investors are currently ignoring them.

It’s an obvious match.

“You’re going to see more of these things happen as big tech flexes its balance sheet,” said Baskin Wealth Management chief investment officer Barry Schwartz.

Schwartz can see Amazon, Apple Inc. or Netflix Inc. making investments into revenue-strapped movie theatre companies.

Schwartz thinks a company like Amazon could even take advantage of the space to sell Amazon products and/or services such as Amazon Prime.

Portfolio Management Corp. managing director Anish Chopra said partnerships with big tech companies could act as short-term catalysts for value stocks because they’d have “cash in the door, a partnership with a leading tech company and a stamp of approval.”