Apple and the Rest of Big Tech Look More Like ‘Value Stocks.’ It Just Doesn’t Matter Much Right Now.
The shadow of a man is cast on the wall of an Apple store as he uses his mobile phone in Beijing
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Big Tech stocks aren’t so highflying anymore. In fact, they’re now looking more like value stocks, not growth, at least from the perspective of Fundstrat’s Tom Lee.
While once the group that drove the market higher, big-cap tech stocks have been leading it lower. Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Nvidia (NVDA) are all down more than 10% from their all-time highs. Facebook
-parent Meta Platforms (FB), meanwhile, has lost just over half its value after having posted disappointing earnings and issued an outlook that shows significantly slowing revenue growth. Netflix (NFLX) has lost more than two-thirds of its value after having posted two earnings reports that revealed slowing growth—and subscriber losses. That slowing growth at large for Big Tech companies is starting to be reflected in their valuations. The group of seven stocks now has an average forward price/earnings multiple of about 27 times. That’s still above the S&P 500’s aggregate forward earnings multiple of just over 18 times, but all the stocks are also trading at lower multiples than their five-year averages. Facebook and Netflix , specifically, are trading at multiples slightly below the S&P 500’s.
That makes plenty of sense for those two stocks. As analysts have moved their earnings estimates lower for those two, reflecting decelerating growth. Netflix is expected to see earnings compound at a roughly 15% rate over the three years after 2022, according to FactSet. That’s slower than the 84% growth seen in 2021. Facebook is expected to see earnings compound at a 17% clip for the three years after this year. That’s about half the growth rate seen in 2021.
It isn’t just slower growth that makes these tech stocks look less like growth names. They now have a lot of cash they could return to shareholders, a common characteristic of many value stocks. Average cash as a percentage of market capitalizations for the seven stocks is about 6.3%, according to Fundstrat data. Meta Platforms now has cash that amounts to almost 10% of its market cap, the highest of the group. The company doesn’t currently pay a dividend, but if it paid out a third of its expected 2023 earnings in dividends it would have a payout of $5.33 a share, or a 3% yield. That’s better than the yield on the 10-year Treasury note.
“There is a “lot of ‘value’ now in FANG [Big Tech],” writes Fundstrat’s Lee.
The market, however, doesn’t seem to realize that, at least not yet. The seven stocks are down 2% or more on Tuesday as investors get ready to see what Microsoft and Alphabet
earnings say about their businesses.
Maybe that can convince the market that there’s value to be in Big Tech stocks.
