By Andy Gordon I’ve seen this movie before…
Wall Street is once again looking to tech stocks to backstop the next leg of the market’s extended bull run.
So far this year, the “Big Five” Silicon Valley giants haven’t disappointed…
Alphabet (Nasdaq: GOOG) is hitting record highs and is up 21% for the year.
Apple (Nasdaq: AAPL) has done the best, up more than 31%.
Facebook (Nasdaq: FB) has surged up the charts 27%.
Amazon (Nasdaq: AMZN) is on its heels at 26%.
The worst of the bunch, Microsoft (Nasdaq: MSFT), has crept up more than 9%, still better than the S&P 500’s 7%-plus climb.
Insiders have noticed.
“Tech is, by far, the most exciting sector. They’re performing above expectations,” says Daniel Morgan, portfolio manager at Synovus Trust.
Yes, they are. Still, the bull is in its ninth year. Might it be too late to get into these tech stocks?
Sam Stovall, chief investment strategist at CFRA Research, says, “Despite its age and rich valuation, this bull market does not appear to us to be ready to throw in the towel.”
Morgan and Stovall may well be right. Frankly, I’d rather not take the chance. I’ve discovered a much better way to invest in Silicon Valley tech stocks.
What Happened to IPO Day
I have none other than Facebook to thank for my discovery.
It began with a little research into its stock performance.
Facebook’s shares dove soon after its IPO. But then it corrected course. Investors who got the timing right had a shot at 302% gains.
You’re probably thinking, that’s not bad. But to me, it just seemed OK, given Facebook’s massive global growth.
So I looked at another world conqueror: Alphabet. Since IPO, its shares have increased 1,700%. That was better, but I still felt a little underwhelmed.
So I looked at the other tech giants…
Getting IPO shares in Microsoft would have netted you 92,000%. Amazon would have made you 81,000%. And Apple would have handed you 51,000%.
Now that’s more like it.
I thought there had to be a reason why these three companies did orders of magnitude better than Facebook and Alphabet. I dug into dozens of variables and metrics. When at last I found the root cause, I couldn’t believe it.
It was amazingly simple… practically staring me in the face…
The market cap of these companies explained everything!
Microsoft, Amazon and Apple IPO’d at caps of roughly $500 million, $438 million and $1.2 billion, respectively. But that was all back in the 1980s and ‘90s.
Facebook IPO’d at $68 billion. That’s 56 times the size of Apple at IPO. Alphabet’s market cap was $23 billion when it IPO’d.
It took a while, but the lesson I learned was worth it…
When tech companies wait to IPO and let their market values rise into the tens of billions, even the earliest investors don’t make out nearly as well as they used to.
This has particular relevance to today’s tech companies.
When will Uber IPO? Who knows? In its 10th year and sporting a valuation of $68 billion, it doesn’t really matter. Public market investors have already missed the boat.
How about Chinese …read more
Source:: Investment You
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