The best way to build a technology portfolio right now is through high-quality companies with reasonable valuations, top analyst Toni Sacconaghi told CNBC on Monday.
In particular, Bernstein's senior technology analyst recommended the following stocks: Dell, F5 Networks, TE Connectivity, Apple and Check Point Software.
The recommendations are in response to the significant multiple expansion many technology companies have seen recently, Sacconaghi said on "Squawk Alley." The sector is trading at 22 times earnings, its highest level in 15 years.
That multiple expansion has driven growth in the technology sector in the last three years, Sacconaghi said, to the point where the Technology Select Sector SPDR Fund, one of the biggest tech exchange-traded funds, reached an all-time intraday high on Monday.
Earnings growth had primarily been responsible for tech stocks' growth prior to that, Sacconaghi said.
"I think it's too tough to say this is going to reverse, because there is better structural growth in tech," Sacconaghi told CNBC. "I think investors just need to be aware that they're really paying for that now. They're paying at elevated multiples."
Sacconaghi, who is rated consistently the No. 1 analyst on IT hardware and electronics manufacturing services by Institutional Investor magazine, also warned about the risky outlook for tech stocks heading into 2020 in a note to clients Monday.
Sacconaghi said the six stocks he listed are not the only ones he recommends to be included in a tech portfolio, adding that probably around 25 stocks meet his criteria. He didn't name them all.
Asked whether he prefers companies that are focused on hardware or software, Sacconaghi said, "I wouldn't pick subsectors per se."
"I think our governing theme is trying to find high-quality names at reasonable valuations. That's generally easier to do in hardware," he said.
For example, while he recommends Dell, which is a hardware play, Sacconaghi said Check Point Software also makes the cut.
"When you're in an environment where valuations are higher, you want to have high conviction, particularly if you're going to pay up, in good earnings visibility and quality," he said. "So that's really our message, rather than you need to overweight specific subsectors."
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December 17, 2019 at 04:15AM
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These are the best tech stocks to own, according to top analyst Toni Sacconaghi - CNBC
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