Last week’s currency devaluation by China threw the global financial markets for a loop, affecting the values of stocks, bonds, commodities and other currencies. As a result, many tech stocks came under the microscope, especially those such as Apple and Qualcomm that do a lot of business in Asia. If the Chinese economy is slowing down, the reasoning goes, then its citizens’ demand for discretionary goods such as smartphones should also subside.

While that is certainly a valid concern for American manufacturers of big-ticket items such as automaker Ford, we question the extent to which Chinese consumers will delay upgrading to the latest Apple iPhone as a result of an economy now growing at an annual rate of “only” 6 – 7% instead of 10%. In fact (and we admit to being biased on this subject), we believe the smartphone is the single consumer goods item that enjoys the closest thing to inelastic demand that is not inherently life preserving. 

That being the case, price weakness in American tech stocks due to concerns over Chinese consumption should be viewed as long term buying opportunities if the fundamental qualities of the companies remain in tact. In our opinion Apple is a strong buy at $115, given it is trading at 12 times forward earnings with a return on equity of 41%. Yes, that may be diminished a bit over the next couple of quarters, but the stock is undervalued from an intermediate and long-term term perspective.

Qualcomm, however, is a different story. We will write more about it in next week’s issue of Smart Tech 50 Weekly Movers, but its future success is dependent upon much more than investors simply coming to their senses. Point being, the Chinese currency devaluation is a diversion that is used for convenience by analysts who are unwilling to dig deeper into the nuances of what really drives revenue for each individual company. To lump them all together in the same category is lazy at best, and irresponsible at worst.

In this issue we add two new stocks to our portfolios, so that you may profit while other investors fret over imaginary threats. To be clear, there are many legitimate concerns that global tech companies have to deal with – chief among them the continuing possibility of Europe and parts of Asia slipping in to deflation – but a 3% decrease in the value of the Yuan is not one of them.