Dear Reader,
In my opinion the top 5 mega capitalization US technology stocks Apple, Amazon, Microsoft, Alphabet(Google) and Facebook are overvalued by 30% to 40% currently. Smaller technology companies like Snap(Snapchat), Pinterest, Tesla, Roku, Netflix etc. are overvalued by 50% to 80%.
The market capitalizations of the aforementioned companies simply imply too much future growth of revenue and earnings. Yes, the cloud services market is huge already and growing fast. Digital transformation is in full swing. But a similar thing happened to Microsoft during the dot-com boom. Microsoft's market capitalization got way ahead of fundamentals, crashed and did not grow in the next 15 years compared with the dot-com high level.
Now we see a similar thing. Investors' money flows are getting the market valuations of technology companies way ahead of fundamentals. Yes, one day revenues and profits for many of the current hot technology companies might realize their current market valuations, but not as things stand currently.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
6 comments:
Compared to what? If we compared them to gold - yes, they are overvalued. If we compared them to US dollar - I would rather hold stocks than dollars.
Could it be that the new normal is high PE ratios? Is the 1965 stock market comparable to 2020 stock market?
Compared to commodities tech stocks are overvalued. I think commodities and farmland are the big topic of the next decade.
If we take the argument of Hugh Hendry that central banks around the world are buying US stocks not because the love them and want to profit, but rather to weaken their national currencies, then we should think what would happen in the presence of a weak US dollar.
Then they will start buying more dollars with their currency and dump US treasuries.
But the Fed cannot allow the 10Y treasury yield to go above inflation rate, so they monetize the debt by buying it.
The investor remembers how the Swiss Frank threw the tower of the EUR/CHF peg, after the European Bond Crisis, where ECB printed a lot of Euros.
Only a few countries can let their currencies appreciate against the declining US dollar. All other countries cannot handle either strong dollar or very weak dollar, because it can harm their economies.
When I look at the farm land and how ridiculously cheap commodities are, I am thinking - what if there is no recovery in the next 7 years and we are not at the end but in the beginning of a big depression? What happened in the Great Depression?
Food was the most important element.
I think it will not take too long until the crowd figures this out and I am very bullish on farm land and commodities, especially food items like wheat, corn, meat.
They are correlated to crude oil, so crude oil price will go higher significantly in the next few years.
Mind you, some of the same narrative was used to explain the valuations of many technology stocks during the dot-com bubble 1999-2001!
In the past there were smaller banks and few big ones.Small banks lend to small businesses. Big banks hold more securities and derivatives.Now we had mergers and probably more to come. Therefore less real economy, more financial bubbles. The impoverished mom and pops have gathered around the free of charge stock platforms to spend the last dime they have. This relates to the lack of lending for retail and for the irrational exuberance on the stock market.
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