- Investors should ditch overvalued assets like tech and
crypto , Richard Bernstein said. - He slammed cryptocurrencies as being the biggest financial bubble in history.
The investing world can be viewed as a risky seesaw with bubble assets balanced to one side, Bernstein said.
"On one side, we have all that I would call the bubble assets: tech, innovation, disruption, cryptocurrencies," he said in an interview on CNBC's "Trading Nation" on Friday.
"On the other side of this seesaw, you have literally everything else in the world," he continued. "I think if you're looking at 2022 into 2023, you want to be in the 'everything else in the world' side of that seesaw."
Tech stocks, including those benefiting from the shift to remote work during the pandemic, have continued their upward ascent in 2021, with many investors viewing the FAANG group as a comfort zone. The tech-heavy Nasdaq is up about 27% so far this year.
While tech valuations appear overvalued to some, others have trumpeted the prospect of growth in segments including cloud, cyber security, 5G, and the metaverse as unparalleled in history.
But Bernstein warned investors could be hurt by "bubble assets." "Valuations are very high and what you have to remember is the valuation is more important than the story," he said.
Even participants in the tech bubble of the 2000s took years to pocket profits, he noted. "If you invested in the Nasdaq 100, which were the real companies at the time, it took you 14 years to break even," Bernstein said. "Something tells me that the people today are not paying attention to valuations, but also aren't thinking it's going to take them 14 years to break even."
Bernstein said there's a scarcity of capital on the other side of the seesaw, which is likely to generate higher returns.
After earlier this year calling oil the most ignored bull market, he said the top play for 2022 should be the energy sector. The Energy Select Sector SPDR Fund, which measures stocks in the sector, is up 51% so far this year, according to data from TradingView.
"The last time the FCF [free cash flow] yield for the energy sector was this high relative to either the market or the tech sector was around the tech bubble, and energy outperformed for a decade. The sector's dividend yield is >3x the S&P 500′s dividend yield," Bernstein wrote in a note to CNBC.
As for cryptocurrencies, the investing chief expects bitcoin to tumble 90% from current levels. "Cryptos are the biggest financial bubble ever in history," he said. "This is just a monster one."
Bitcoin was last trading around $48,509 at last check Monday. While its year-to-date gains stand at 66%, the crypto is down 28% from its record high in November.
"I think one wants to wait to look at the true fundamentals, and look at the valuations before deciding that this is all over," Bernstein said.