We believe the momentum stock rally, driven by Amazon (tkr: AMZN), Apple (tkr: AAPL), Microsoft (tkr: MSFT), Alphabet (tkr: GOOG), and Facebook (tkr: FB) will end, but we do not want to make the mistake of trying to time the turning point. We owned a substantial overweight in Amazon and a market weight in Alphabet, for a 10% combined exposure in our portfolios. To reduce that exposure, we decided to cut our Amazon position. The stock remains attractive, particularly since Amazon Web Services dominates the data center space and research suggests that more than half of product searches start on AMZN’s website. However, since AMZN’s outperformance had caused it to grow to 7% of our portfolios and the stock is among the most richly valued and volatile of the momentum stocks, we thought it prudent to trim our holdings. We think AMZN would react more negatively in a momentum pullback and we are also concerned about whether its growth trajectory can continue to meet market expectations. We still like the company and the stock, however, and will continue to hold a substantial overweight position.

This change reduced our consumer discretionary weight (AMZN falls into the consumer discretionary sector) and increased the technology weight, bringing our portfolio closer to market weight. It also slightly reduced our exposure to the “Fab Five” momentum stocks.

On the other hand, we think that Alphabet is the momentum stock with the most solid investment thesis and most attractive valuation in view of its growth prospects, and took the opportunity to add to our position when the stock declined. This brought us to an overweight in Alphabet.

We added to our Verizon (tkr: VZ) position because we believe that VZ is undervalued relative to the market, its peers and its own history. VZ’s most recent quarterly report gives us confidence that it can regain customers, despite premium pricing, due to its superior network. Furthermore, it is a stable company with a 4.75% dividend yield, and should be a more defensive name if the market shows concern about valuations. Adding to our position also enabled us to match our new telecom sector target.

In concert with increasing our telecom sector target, we reduced our energy sector weighting and trimmed Schlumberger (tkr: SLB). We think the company has potential cash flow issues, as some of its customers, particularly Venezuela’s national oil company, may have trouble paying their bills.

We also sold our remaining F5 Networks (tkr: FFIV) position. In the short term, we believe its recent product refresh cycle is not living up to the hype. In the longer run, FFIV’s core market is maturing. In anticipation of the product refresh hype waning, we had trimmed our position in January. We think it is increasingly likely that FFIV’s products may be marginalized as workloads go to the cloud, leading us to close out our holdings.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.