MKM: Tech Mega-Caps Are Relatively Cheap (GOOG) (AMZN) (FB) (AAPL) (GOOGL)
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MKM partners analyst, Rob Sanderson, believes the tech mega-cap cohort has performed well over the last three months, led by Facebook (NASDAQ: FB) and Apple (NASDAQ: AAPL) with Alphabet (NASDAQ: GOOGL) being a laggard.
The group is now trading at an average multiple 6.2x above the S&P500 compared to a five-year historic premium of 9.3x. He expects the stocks to continue to outperform as long as the earnings growth stories remain intact.
Despite this, the relative multiple of Alphabet (NASDAQ: GOOG) and Amazon.com (NASDAQ: AMZN) have come down over the past 3-months. GOOGL’s relative P/E has declined significantly (down over 20%) as positive EPS revisions were mainly tax-related and weaker margin has weighed on the stock. AAPL’s historic P/E discount to the market has narrowed somewhat, but is still pretty much in-line with the five-year average.
The analyst stated "There is a perception that strong runs in several tech mega-caps have caused the group to become more expensive this year. The reality however is that P/E multiples continue to come down relative to the market multiple. As the companies in general are addressing many of the best secular growth stories available to investor today's, we expect healthy stock performance will continue so long as broad market health is sustained."
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