The "bulbous" cash piles held by Apple and other large tech companies makes them a poor investment, Bill Smead, CEO and chief investment officer of Smead Capital Management, told CNBC on Tuesday.
Smead said his firm had conducted significant research into the tech sector over the last six months and reached "the conclusion that tech is where cash goes to die."
Academic studies had found that massively over-capitalized companies performed as badly as those that are undercapitalized, Smead said.
"I think it's because there's not enough tension – you don't make very good decisions what to do with cash when you've got way too much of it – unless you're Warren Buffet," he added.
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Apple had $145 billion of cash and investments on its balance sheet according to its second quarter results in April. Hedge fund manager David Einhorn launch a public battle against the company earlier this year in an attempt to persuade it to unlock some of its cash pile.
Fellow tech giants Microsoft and Google are also sitting on substantial cash positions. Microsoft has $74.5 billion in cash, while Google's hoard is $50.1 billion.
But Smead warned: "Most of these companies don't come into life being great investors or great capital allocators."
He said he used to own Microsoft shares because the tech company fit six of the eight criteria his company judged it on "to a tea." But he added that it fell down on shareholder friendliness, and had failed to make the most of online opportunities.
"They've probably lost more money in the last 13 years in the online business than any single corporation has lost in a 13-year stretch in history. They lose money on each dollar of sales and they've been trying to make it up on volume," he said.
Large-Cap Rally
Smead's Value Fund, which invests in large-cap stocks has risen 29 percent between March 2012 and 2013 and Smead said he was confident the rally in large-cap stocks will continue.
According to him, the U.S. is still in the early stages of a five-year economic recovery, driven by improvements in housing and autos. He said large-caps were a good place to be because two of the largest money groups - the so-called echo-boomers (children of the baby boomers) and large institutions – are coming from incredibly low ownership of large-cap stocks.
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"So the psychology, a year ago, was that you knew – if you're a (large cap) equity fund like us - that the wind was going to be at your back," he said. "To us, this reminds us a lot of 1983, when the market had gone up in 1982 and 1983 off the bottom about 60 percent. And you got a fluffy excitement period."
Sectors to avoid, according to Smead, included energy, basic materials, heavy industrials, telecoms and utilities because these capital-intensive companies are the highest valued and would be hardest hit by a rise in interest rates.
He added that many of these sectors are closely linked to Chinese economic growth, and that anything related to China – which he said is heading for a deep recession – should be avoided at all costs.
"We are playing what goes on inside the borders of the U.S. as much as we can and staying away from what goes on outside the U.S. as much as we can."
It is at this relatively early point in the economic recovery, when confidence is growing, that consumers start spending on non-essentials, according to Smead.
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"We used to call it "pent-up demand" in the early- to mid- eighties, coming off a deep recession," he said. "We want to be overweight in what we call 'addicted customer-base consumer discretionary'."
Among Smead's top picks are shares of Disney, Cabela's and Comcast.
Smead added that big lenders would also benefit from the U.S. economic recovery. "We also own the large banks. We think that large banks are a fantastic play on the recovery in housing. Because they own a lot of foreclosed homes, and their balance sheets get marked up because of it."
- By CNBC's Katrina Bishop, follow her on Twitter @KatrinaBishop
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