Updated: Nov 14, 2022
Today I will be covering what's going on with some of the top tech stocks and if it's a good time to buy. There are some interesting things going on, such as upcoming stock splits, potentially discounted stocks, and price levels that pretty much wiped out the past one to two years of returns.
While I've been invested in these mega tech stocks indirectly through S&P 500 and Nasdaq 100 index ETFs, I have yet to hold them directly. After taking a closer look at these stocks today, I will also let you know which stocks I decide to buy directly, so make sure you watch until the very end!
Alphabet or as most people may know as the parent of Google and Youtube has announced a 20 to 1 stock split on July 15th, which is good news for those who have wanted to buy Alphabet shares but weren't able to afford its share price of $2,275 as of May 31st.
A stock split usually happens when a growing and successful company's share price becomes too high. This means that it may deter regular investors from buying the stock as it's perceived to be too expensive. While a stock split doesn't change the fundamentals of the company or make the share any more or less valuable, there comes some positive side effects. For one, there can be more retail investors buying the stock, which could boost the demand for the stock as well as increase trading volume, resulting in better liquidity.
In Alphabet's case, if you have previously owned one stock for $2,275, then after the stock split, you will own 20 stocks for $113.75. There shouldn't be any other changes in your rights to dividends (well Alphabet doesn't pay dividends) or voting rights, etc. However, you may have the added benefit of liquidity as now you can sell a few Alphabet stocks instead of being forced to sell the one Alphabet stock before the stock split.
So this raises the question, should I buy Alphabet stocks? Well, let's take a quick look at its price history and its financials.
Right before the pandemic, Alphabet's price was at is all-time highest at $1,480. Then after dipping to $1068 in March of 2020 along with the most of the stock market, it reach it's all-time peak of almost $3,000. Currently, it's trading at $2,275 per share, in which the gains for the past year had been wiped out and sits at what the stock price was last April of 2021.
The P/E ratio is 20.58, which is slightly lower than the S&P 500, which are all blue chip companies, which is estimated to be 21.09. Lower the P/E ratio, the more undervalued a stock is supposed to be. However, the norm for P/E ratio depends on the industry, with tech companies having an average P/E ratio of 40. Not to mention cash of $133.97B in cash and cash equivalents as of Q1 2022 and total liabilities of $103 Billion, which means they are able to fully pay off their liabilities at any time.
Qualitatively speaking, Alphabet owns Google, the biggest search platform in the world, as well as Youtube, the largest video hosting platform and the 2nd largest search engine, out-ranked only by Google. According to Forbes, Google is ranked as the 11th largest company in the entire world.
Similar to Alphabet, Amazon is also having a 20 to 1 stock split on June 3rd, which, depending on when this video is released, may have already happened. The fundamentals stay the same, the only difference is that the share price of $2,400 as of May 31st will drop to $120 per share. If you already own Amazon stock at $2,400 - you will now have 20 shares at $120 each.
If we are to take a quick look at the quantitative data, right before the pandemic, Amazon's price was at is all-time highest at $2,134. Then after dipping to $1,785 in March of 2020 along with the most of the stock market, it reach it's all-time peak of almost $3,720ish in July of 2021. Currently, it's $2,400 per share, where just a week ago the price was $2,082, up 15%. I'm thinking the sudden increase in price is in anticipation for the upcoming stock split. That being said, the current price levels have dropped almost one-third from its peak and not that different from before the Pandemic.
The P/E ratio is 58.13, which is higher than the S&P 500 average of 21 as well as what is typical of tech stocks. This might be an indication that the stock is overvalued or there is still a lot potential. This is where as an investor, you want to dig into what Amazon is working on and the potential of Amazon's various projects. You can also see that the margins compared to revenue is much smaller compared to that of Alphabet,and that it has less cash. But the financials are not in bad shape and you can also see that the company isn't too leveraged with debt to equity ratio being minimal.
According to Forbes, Amazon is ranked as the 6th largest company in the entire world.
Another stock that has been on my radar is Meta fka Facebook. This is because the stocks have fallen A LOT in the past recent months and it made me wonder why. The CEO, Mark Zuckerberg has decided to pivot the business, which earns mainly advertising income from its social media platforms Facebook and Instagram, to focus on the technology of the future revolving around the metaverse. During the hype of 2021, everything web3, metaverse, and crypto had done extremely well, and the future of Meta looked inviting. However, with the recent downturn of the stock market, Meta's stock performance had been particularly dreary compared to other big tech companies.
If we are to take a quick look at the quantitative data, right before the pandemic, Facebook's price was at is all-time highest at $222. Then after dipping to $150 in March of 2020 along with the most of the stock market, it reach it's all-time peak of almost $379ish in September of 2021. Currently, it's $194 per share, even lower than before Pandemic times.
The P/E ratio is 14.65, which is lower than the S&P 500 average of 21 and the lowest it has ever been for Facebook, which according to Motely Fools is "a steep discount to its five-year mean price-to-earnings multiple of 28, Meta stock appears handsomely valued for long-term investors today." So the numbers look good, what's the problem?
It's hard to know for sure, but here is my take. First, there is the pessimistic outlook on the market and what that means for ad-driven companies. With a downturn in the market, investors believe that people will be less susceptible to ads as there will be less demand. Perhaps, the most critical factor is Meta's huge transformation in its business and the uncertainty that comes with it. With big changes comes investors who are skeptical about the new direction Meta is going and that impacts the short-term performance of the stock. However, if Mark Zuckerberg pulls through, Meta can be a valuable company and at the forefront of Web3 and Metaverse innovations. Not to mention, Meta actually has the resources and the leadership to execute this, as the 34th largest company in the world. It's going to be a long play, but I'm thinking to pick up some stocks along the way while they are under the radar by other investors and when prices dip like this.
If I were to sum everything up, I will be picking up some Alphabet and Meta stocks along the way and also keeping an eye out for the next couple of months. As someone who is on Google, Youtube, Facebook, and Instagram, I have better connection with these companies, and believe in their technology and future plans, as well as the current valuations, which seem like a bargain compared to just one year ago.
That being said, if you bought these stocks at its peak, don't feel bad about the current price levels and hang in there! I'm sure in a few years time, you will be able to see your returns as these big companies are not going anywhere. This is not investing advice, and just my opinion, so please do your own research. Comment below and tell me what you think about these tech stocks!
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