Which US Tech Titan Is Cheaper (and Better) Than It’s Been In Years?

4th Aug '22 by Megan Boxall

5 comments 2759 reads

Last week I wrote an article on America’s big tech companies in the wake of their second quarter earnings announcements. The conclusion: Apple, Amazon, Alphabet and Microsoft are fabulous businesses (even the latter two which missed their own and brokers’ expectations expectations in their recent numbers) but remain questionable investments with market capitalisations of over $1trn.

The article prompted a thought provoking comment:

So what is a Poor (relatively) Old (absolutely) Investor going to do? Keep his or her Core Portfolio in these highly liquid stocks or in UK small caps with wide spreads, stamp duty, commission friction, dangers of profit warnings, pumping, dumping, and corporate skulduggery?

It’s a tricky question to answer. High quality companies often come with exorbitant valuations and expectations of continued outperformance. If those high expectations are not met, investor disappointment can send the stock into a downward spiral.

The additional fear with the large cap tech stocks is that their bulk has propped up the US market (and in turn the passive investing universe) for so long that any excess selling could initiate a feedback loop which results in passive outflows and further share price misery. And that fear keeps many investors out of these wonderful businesses.

And so, we come back to the question: what is an investor to do?

Ed offered up a solution in the article he wrote last week. Rather than searching for perfect businesses which have excellent fundamentals, are riding the upgrade cycle but are not ridiculously overpriced, he has suggested investors should build a portfolio of stocks which together form an average which ticks all the boxes.

Here are the key statistics from his portfolio of top ranking stocks in the UK diversified across the sectors:

I have generated similar results when applying the same criteria to the US market - the only real disappoint here being the relative lack of yield:

So, in response to investors who worry how to construct a portfolio of wonderful businesses which have genuine momentum and aren’t over priced, the answer is simply to stop trying. Build a well diversified portfolio of decent companies which on average will give you an excellent portfolio.

And yet…

Using simultaneous screening to build a portfolio fails to acknowledge the individual attributes of…

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QARPY

4th Aug '22

£Meta is the answer to your question.

Zipmanpeter

Fantastic article - I own none and never have but have clearly missed out. Now however, I wonder if the biggest risk they face is regulatory - governments wanting some of the action and to avoid suppression of competitors. I see them mutating into regulated "utilities" somehow, with commensurate stable but not stellar returns (which is why they are all trying to diversify). Politics not economics is their biggest risk.

BnB

Megan, I almost responded tartly to your last article when you described Alphabet as expensive. It’s lower priced than its index on an FY23 basis, which, when you consider the possible growth on offer, makes it downright cheap. So I applaud you taking a second, more nuanced look.

As for the quote, you’re welcome ;-)

Anthony127

Megan I concur with your choice of Alphabet.

I bought last year partly because I listened to a very enthusiastic endorsement by Josh Brown on CNBC's Half Time Report .

At this stage in the economic cycle I believe value is the most important attribute to consider and Alphabet does show more value than the other Tech Titans. It will take a while before digital advertising reverts to its mean level but I believe that this is beginning to happen.

I understand Alphabet has given China a wide berth so it is unlikely to be too impacted by any future sanctions or continuing lockdowns whereas I think other Tech Titans may be more affected.

The lack of yield does not bother me as it eliminates the need to pay US withholding tax. In these circumstances I would rather funds are reinvested.

The closest competitor appears to be Microsoft but in their case I believe the potential is already reflected in the price.

proffittpar

5th Aug '22

£TMT Interesting article a lot of US Tech Stocks have fallen significantly. One stock that is Uk listed which has a number of US Tech Stocks amongst it has also fallen considerably in the last year as chart will illustrate. Net Asset Value would appear to be very much higher than current price but hard to evaluate. Simon Thompson has written several articles extolling its virtues and values at higher prices than at present. I hold at loss at present, just wondering if anyone else has any views, would appear to be cheap per Stockopedia and qualifies for John Templeton Bargain Screen (Value Investing)

Which US Tech Titan is cheaper (and better) than it’s been in years?

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Megan Boxall

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