Big Tech isn’t going away any time soon, but this week revealed some essential truths about just where the trillion-dollar giants are going and how investors need to think about these companies from this point.
First and foremost, real growth at all these companies is slowing to a crawl. Blame the law of big numbers.
Apple (AAPL), for example, was punished today because there’s nothing in the latest quarterly report to help Wall Street believe that earnings per share will climb more than 2% in the coming year.
Don’t forget, AAPL routinely buys back a lot of stock, artificially inflating the “per share” numbers. In pure terms, it looks like profit will drop as much as 2% across 2022 . . . which is not exactly the high-growth narrative that made a lot of people fall in love with this company.
Alphabet (GOOG) also looks a little tired. Earnings weren’t bad, but at best we might see 4% growth here next year. Positive, but nothing to get excited about.
Amazon (AMZN) is a superficially better scenario, but the stakes are higher. If you’re paying 75X earnings for a company that’s only raising the bottom line 10% in the coming year, you’re either incredibly patient or simply in a euphoric frame of mind.
Patience means holding onto AMZN for another four or five years before this rate of earnings growth makes its current valuation reasonable. Even then, that narrative assumes that the stock won’t move between now and 2025 . . . hardly grounds for confidence in he meantime.
And as for euphoria, I might hold on for a better outcome but I am not urging my subscribers to buy at this point. Wait for a dip or come back later.
So that’s three of the big five, the “FAAMG” group. We all still love Microsoft (MSFT), the “M” in that acronym. Earnings were great and guidance supports double-digit growth for the foreseeable future.
Facebook (FB) has outlived the charm of its namesake social network, which is slowing down fast as young people gravitate toward other apps or abstain entirely from online chatter.
Mark Zuckerberg keeps facing controversies and internal data leaks. The recent outage was catastrophic enough for the company, revealing serious problems in its operations.
That’s not how to manage a trillion-dollar enterprise. And I think it’s in the background of why Zuckerberg decided to rebrand away from “Facebook” toward a new name and ticker symbol: Meta (MVRS).
Get real. While Google’s parent rebranded as Alphabet, we all know that company is still a search engine and some long-range “moon shot” research programs.
Meta will remain the Facebook we know, only with a little less of its reputation tied to that particular site if current debate around its practices continues. Maybe Instagram and WhatsApp will step forward.
Virtual reality, on the other hand, seems like a pipe dream at this point. There’s very little business case for the technology. Others have tried and failed.
Naming the entire company after that experimental technology is like naming an iceberg after its tip. It’s just words.
But words can’t hide the fact that the company is struggling to deliver more than 4% earnings growth in the new year, no matter what it’s called. There’s not a lot of new profit coming here.
If anything, all of these companies except AMZN and MSFT are growing roughly as fast as the overall U.S. economy . . . if not a few points slower. And AMZN is priced for utopia.
We have to keep them all on our radar because they’re gigantic companies. All of them scraped billions of new money out of the market this week, even though many of them raised more questions than cheers with their quarterly numbers.
MSFT was the big winner. Stick with the “M” in the “FAAMG.” The “G” also climbed in relief.
The “A” names aren’t worth my time. And “F” is going away in a little more than a month, giving us another “M” to work with.
Say hello to “MAMGA?” Sure. But it’s a lot easier to just buy Microsoft and let the others drift until we see growth come back.
Then there’s Tesla (TSLA). I’m not a huge fan of the stock, but it’s a trillion-dollar titan in its own right now.
MAMGAT? Or will Mark Zuckerberg’s “little” $900 billion company drop off the back of the list, like Netflix (NFLX) did when investors stopped talking about “FANG” stocks?
I think Zuckerberg is close to a turning point. It’s probably a ceiling, at least for the next few years. Remember Google Glass? Remember all those other virtual reality platforms?
Wall Street doesn’t either. He might shock us, but we might not need two “M” in the bulge bracket for long.
Either way, we look below the headlines, day after day. That’s what it takes to keep the real money flowing.
Cannabis Corner: Two Bright Spots In A Gloomy Year
While the market mood has come a long way back from the slump we saw in September, Big Cannabis has yet to rebound with any force.
People on Wall Street just aren’t thinking hard about these stocks right now. At this point, the “green wave” has already swept through North America and usage has plateaued.
It’s a high plateau, don’t get me wrong. The last survey I saw suggested that 55 million Americans bought legal cannabis in the past year and 65% of them imbibe at least once a month.
That’s a long way from the number of active tobacco smokers, even though tobacco continues to fade from the generational spotlight year by year.
However, if you’re looking for exponential expansion, you won’t find it here any more. Over the last three years of disruption and dramatic shifts in consumer behavior, cannabis use hasn’t even climbed at an annualized rate of 10% . . . hardly enough to get excited.
And in the absence of massive headline growth, the companies currently in the space need to take market share from each other in order to give shareholders what we want. They need to compete.
Competition costs money. Chasing new supply contracts drives prices down, at least in the short term as aggressive sales practices resort to discounting in order to win business.
Unless you have a real differentiating factor, it’s a zero-sum game: a mutual race to the bottom. Good for consumers, terrible for producers.
Until we see those differentiated products emerge, we’ll see the broad cannabis group race to the bottom just like this year. It’s been a terrible year for Big Cannabis, casting a shadow over the entire industry.
My proprietary cannabis indexes down 27% YTD. Not fun at all.
And the two stocks that have defied the trend each have something unique in their favor. Organigram (OGI) excels on quality and is working on cannabis-derived pharmaceutical products.
Those products will be patent protected, defying the race to the bottom. And then there’s Tilray (TLRY), now the biggest supplier in many market segments and arguably the highest-quality name among the major cultivators.
They’ve got scale on their side and an inside track on the medicinal market. Clearly it’s won them fans on Wall Street.
Until we see real action elsewhere in the group, these are the only two names you really need to look at. Everything else is embroidery around the edges . . . at least for now.
GreenTech Opportunities: The Green Construction Boom
I just did a channel check on a few home builders around the country. They say they’re still booked for months to come.
The boom is not going over any cliff, at least as far as they can see. Contracting activity may be maturing a little as the initial wave of post-COVID migration out of the cities crests . . . but it isn’t stopping.
And as the builders plot out another busy year ahead, pressure on individual contracts will remain intense. They’re in demand.
The projects they choose to work on are the ones that can make the highest bid or capture their professional interest. In both scenarios, that means something green . . . advanced HVAC, more efficient heating, solar, geothermal pumps, you get the picture.
If you want a single stock to get exposure to that world, I suggest Johnson Controls (JCI). This is what they do, for companies, government agencies and other large property owners.
And if you just want to add a little green real estate to your portfolio, there’s already an entire ETF for that: Invesco MSCI Green Building (GBLD).
Is it the last word in environmental real estate? No. But I appreciate the way it takes a global focus, investing 67% of its assets in non-U.S. REITs that would be difficult to buy over here.
These are mostly companies in Japan, Hong Kong and Singapore, with a slice of Europe. Remarkably, mainland China is almost absent . . . so you don’t need to worry about that.
GBLD pays 2.9% a year in dividends if you buy in here. That’s not bad at all. And from what I hear in the construction industry, it’s the future.