Perspective is everything in the world of the stock trading. If you cast your memory back to September, the FAANG group of Facebook, Apple, Amazon, Netflix and Google were trading higher as people believed in growth. In October there were thoughts maybe the growth will be slower, if that is the case the companies should be trading at lower prices. The multiple is the Price divided by Earnings or the PE Ratio. In an article by Noel Randewich of Reuters, he asks are the Big Tech companies now a potential bargain? should you buy?
In Apple’s case the world has not rushed out to buy the new iPhone in record numbers because most people do not need the extra features. The shares have slipped in price to trade at two year low of 13 times expected earnings. The drop in price of Apple shares means the company is no longer Wall Street’s most valuable company – at the moment it is Microsoft.
In mid December Netflix wass down 20% since early October, while Facebook and Amazon are down 10%. Google or Alphabet is down 9%.
Each of the above companies have many good reasons for high multiples including cash positions, stock buybacks announced and they are part of the mainstream economy. On the other side of the equation is trade concerns with China, the research and development is done in the United States, the manufacturing is done in China. The lowering of the tax rate on money outside the United States and the corporate tax rate has greatly benefited these companies and next year some sort of normal will be the course of events.
Linking to dividend producing stocks, the best time to buy stocks is when they are down or out of favor, not growing as fast they were thought to be. The companies are profitable and in time the market will continue to reward profitable companies. The FAANG group is not bought solely for the dividend but if you collect one, you can always buy more shares when they go down and you still have very good reasons to own it.T
There are more questions than answers, till the next time – to raising questions.