Value stocks have outperformed growth stocks so far this year. Value stocks are generally considered “cheap” and are good value for the money. Hence as the US economy is in recovery mode value stocks have roared back from the depths of last year’s pandemic nightmare. While there hundreds of value stocks in the US market, one wouldn’t consider the mega cap tech stocks as value stocks. So I was intrigued when I came across a story at FirstLinks that argued that mega cap tech stocks are today’s best value stocks and made the case for investment in them.
Of the six mega cap stocks, four are US-based and are shown below:
Facebook has a market cap of over $980.0 billion and the P/E is over 30. Amazon has double the market cap at over $1.90 Trillion and the P/E is about 70. Microsoft’s market cap is $2.1 Trillion and Alphabet’s is over $1.70 Trillion. Only Microsoft pays a dividend.
Andrew Macken, the author of the FirstLinks piece mentions three reasons why these stocks are cheap. Of those the following is interesting:
3. Current valuations are too conservative
The final reason that mega-tech stocks are great value is their attractive valuations. Our analysis shows that the expectations baked into the current stock prices of our big-tech names are far too conservative.
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In the case of three dominant US cloud providers, Amazon, Microsoft and Alphabet, for example, their implied collective annual cloud revenues by 2030 are in the order of just $650 billion higher than current levels, according to consensus estimates. This is a tiny fraction of the $8 trillion increment that Microsoft CEO Nadella expects to accrue to the tech space over the next decade. If Nadella’s forecast above is even remotely accurate, then these cloud providers will see much higher revenues (and earnings) in 2030 than what is currently being implied by consensus estimates.
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Next, consider Tencent and Alibaba, the latter of which has of course suffered greatly from the Jack Ma saga, with the billionaire Alibaba founder’s fintech Ant Group IPO pulled at the last minute and with Ma reportedly under serious pressure from Chinese regulators and Government. In both cases, despite owning some of the most valuable data ecosystems in China and South-East Asia – including being the two dominant cloud providers on the Mainland – their respective stock prices imply very conservative sets of expectations. Said another way, if revenue growth for these businesses were to fall from healthy-double-digits, to just single-digits by 2025, an investor today would still make money, based on Montaka’s analysis.
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And finally, the biggest head-scratcher of them all is Facebook, which is priced at a forward earnings multiple of just 14x. Some of the businesses trading at a higher multiple than this today include Australia’s Wesfarmers, Scentre Group, and plumbing parts supplier, Reece. At the current stock price, the market is effectively giving investors all of the upside from eCommerce, the monetisation of the creator economy, WhatsApp, Messenger and Reels, as well as Facebook’s growth in VR/AR for free!
Source: Why mega-tech growth are the best ‘value’ stocks in the market, FirstLinks
The entire article is worth a read.
Based on many of the assumptions the author makes even a 10.0 Trillion market cap for these companies sounds conservative indeed….
Disclosure: No Positions
