What If Stocks Aren’t Expensive?

Hear me out [Click to view in browser](. Dear Reader, We have some BIG UPDATES for all you Markets and Minds subscribers. [And you need to take action now to make sure you don't miss out!]( Our newsletter got a complete makeover. We overhauled the format and layout of the newsletter, making it easier to read and simpler to follow. And gave it a nifty new title - THE JUICE [But you won't receive this newsletter unless you sign up HERE.]( Because pretty soon, Markets and Minds will disappear FOREVER! Proprietary Data Insights Financial Pros Top Large Cap Tech Stock Searches This Month Rank Name Searches #1 Apple 448 #2 Nvidia 362 #3 AMD 237 #4 Alibaba 210 #5 Facebook 210 Separate Tech Companies [These Aren T The Droids You Re Looking For GIFs | Tenor] In our main story, we point out that high-growth tech companies appear expensive across most measures even when you look into the future. But, not all tech companies should be treated the same way. For instance, Apple (AAPL) is a big tech growth company. But, it still carries a twelve-month price-to-earnings ratio of 26x. That’s not cheap. But it’s not terribly expensive either. Take a look at this brief list of high-growth tech companies’ price-to-earnings ratios from the Nasdaq 100: Heck, Twitter (TWTR) and Snapchat (SNAP) don’t even turn a profit. Amazon (AMZN) would be the only outlier we’d consider since it has a history of leniency from the market. Otherwise, we are cautious on these high P/E ratio names as rates are set to increase. Sponsored [Invest in the kitchen of the future before Nov. 18]( Miso's AI-powered kitchen assistants can increase quick service restaurant (QSR) profit margins by 3x. Having already raised $38M in capital & partnered with 10 of the top 25 QSR brands, you can invest in Miso's delicious potential before Nov. 18. [Read More]( Stock Market What If Stocks Aren’t Expensive? Key Takeaways - Price-to-earnings ratios that look backward don’t capture a high-growth economy. - Small caps and financials actually look undervalued. - Big tech companies built on high growth with low profits will suffer when interest rates increase. [Steal GIFs | Tenor] Well respected journalist and financial author John Authers sent out the following article this morning: [Really, Truly, Holistically, the Stock Market Is Expensive.]( His article makes a well-reasoned argument. However, we think it contains some serious holes. Stocks Are Overpriced...For Now There’s little doubt that stocks aren’t at frothy levels. Authers shows the following capital asset pricing models based on Case-Schiller and consultant Jacques Cesar. Yes, stocks are expensive looking at the earnings from the last 12 months. We won’t argue that point. But they aren’t as expensive when you look forward one year. Take a look at the following forward price-to-earnings models for the different market cap sizes in the S&P indexes. Large-cap stocks still appear expensive, but much less so. However, mid-cap stocks are reasonably priced and small-caps look like a downright bargain. Markets don’t just price what is the price what will be. That makes historical valuation metrics less useful when an economy goes from a standstill to full blast. Not All Are Equal Based on the data above, we could infer that large cap companies should see relative price declines while small caps should see increases. That’s actually quite likely. What many people don’t realize is the composition of major indexes. Take a look at the composition of the S&P 500. Notice how technology makes up ~35.5% while financials are only ~13.5%. Now take a look at the S&P 600 small cap index. Financials make up 25% of the index while technology is down at 14.3%. Currently, financials are seen as value plays. And given the expected rate increases from the Federal Reserve, they stand to make more money in the coming years. That’s exactly why we see the different forward earnings estimates above. The Bottom Line: Big tech companies with heavy debt and future growth should see stock prices drop as rates increase. That’s not to say Apple, Amazon, or Microsoft are necessarily in that category. But second-tier social media companies are definitely going to struggle. On the flip side, banks, especially regional ones, look delicious. News & Insights Freshly Squeezed - [10 Best Cybersecurity Stocks Under $10]( - [The Rise of SaaS Based Businesses Is Giving Investors Massive Returns]( - [Gold Reaches 15-Month Flag Ape]( [Make sure to sign up for The Juice to keep receiving our premier investment newsletter.]( # [submit to reddit]( [submit to reddit]( [submit to reddit]( To ensure delivery of all emails, [whitelist us](. Update your email preferences or unsubscribe [here](. 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