Apple and co reach US$ 10 tri. Is it time to go back to betting on the big techs?

Shares by the FAAMG (Facebook, Apple, Amazon, Microsoft, and Google) continue to attract investors and appreciate even in the face of challenges such as the siege of regulation
The five biggest technology companies in the United States, the famous big techs, reached an approximate market value of 10 trillion dollars (about 55 trillion reais) in the last few days. A value is higher than the Gross Domestic Product (GDP) of Brazil, Germany, and Japan combined.

Currently Wall Street is worth 21 times the profit expected next year, the P/E 2022. As a comparison effect, the Ibovespa has a Price/Profit of 8.5 times.

Why are investors more attracted to the American market?

The answer is simple: because on the “menu” available to investors, there are “big dogs” that currently do not exist on the stock exchanges in Europe or even in Japan. Much less in Brazil.

The five big techs are the famous FAAMG, that is, the most capitalized companies in the handbag of New York (the added value has retreated to below 10 trillion dollars with the falls in the last days):

Apple: 2.46 trillion dollars
Microsoft: 2.23 trillion dollars
Google (holding Alphabet): 1.93 trillion dollars
Amazon: 1.76 trillion dollars
Facebook: 1.05 trillion dollars
In March 2020, when the coronavirus pandemic pulled capital markets around the world to their lows and volatility soared with the Vix index by 85 points, the big five techs were worth $4 trillion.

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By the beginning of 2021, that figure had skyrocketed to $7.5 trillion. Now they have surpassed the 10 trillion dollars psychological level.

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These are impressive numbers, but they are gaining strength, quarter after quarter, thanks to profits and revenues. And this happens even though there is a consensus among analysts that prices are expensive compared to historical averages and that they were inevitably inflated by the abundant liquidity that central banks (the Federal Reserve in the first place) have been pouring into the markets since the beginning of the crisis of the new coronavirus.

FAAMG is part of the category of actions classified as “growth”, that is, of high growth, which benefits from a macro context of low-interest rates, such as the current one. These are stocks that are less exposed to the economic cycle, unlike “value” stocks, that is, stocks that maintain a certain stable value over time, but that pays dividends consistently.

According to specialists, this second characteristic may be decisive at this stage when the United States seems close to the so-called “three peaks theory”.

The United States appears to have reached maximum levels of:

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1) Monetary expansion (no surprise that many Fed members are talking about a gradual reduction);
2) Fiscal expansion
3) Economic growth (Goldman Sachs reduced its 2021 GDP estimates from 6% to 5.7%).

Connecting the dots and adding to them the uncertainties related to the Delta variant (last week Covid’s cases increased 300% from Labor Day week in the US), the picture on Wall Street looks at least uncertain.

This is also because the S&P 500 has already registered 54 historic highs since the beginning of this year.

And this is where stocks like the “big five”, which account for about 50% of the performance of the Nasdaq 100 and about a quarter of the S&P 500, have become the focus of managers.

These companies are seen by investors as a kind of safe haven when uncertainty about the ability of other companies more exposed to the macroeconomic cycle to express interesting growth rates increases.

When the market starts to discount the three-peak scenario, big tech stocks become the best buoy to hold onto. And this increases the liquidity of these papers.

At the end of the year, investors are faced, therefore, with a cruel question: it is better to choose stocks with lower prices whose potential depends on the trend of the macroeconomic cycle (in this case, they are usually value stocks ) or buy stocks with prices very high, with stretched valuations, but capable of maintaining high growth rates even in moments of loss of momentum in the cycle, what could the current scenario look like considering the dynamics of the three peaks?

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The choice is increasingly falling on the second option. This is because, in the event of a macro slowdown, the multiples that the “value” stocks are trading with are destined to contract, as they would tend to discount the lower growth profiles.

On the other hand, the “growth” shares ( growth shares ) would keep the multiples unchanged, benefiting from this transfer driven by the need to position themselves in shares with visibility of future earnings.

Savvy investors know this well. Everything can change suddenly. The actions of FAAMG are not without risk.

Its multiple highs can be questioned at any time. Or rather, as soon as Jerome Powell, chairman of the Fed, starts to give more precise signals about the timing of reducing stimulus and raising interest rates.

For this reason, it is increasingly important to look at the market from the perspective of a “bond investor”, that is, the investor in treasury bonds that continuously analyzes the evolution of rates on the curve and the evolution of the macrocycle.

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