The global equity route that began on Monday has turned into an enormous two-day sell-off, amidst fears that the coronavirus that emerged in rural China is becoming a global contagion.
In percentage terms, the tech-heavy Nasdaq’s fall of almost 4% on Monday and another almost 3% on Tuesday is in line with the other major U.S. indices. But the heavy two days of selling seem somehow highlighted by the massive loss of market cap represented by tech declines. Consider that the nearly 8% decline in Apple shares in the last day and a half represents a loss of roughly $109 billion.
Given that tech’s valuations are generally conspicuously high in good times, it’s worth a look at where some top names in tech stand after this rout, and whether any are measurably cheaper and worth picking up.
Using the Standard & Poor’s 500 Index as a benchmark, and using price to earnings as the common measure, techs generally maintain their premium to the broader market. The S&P is trading at about 17 times projected earnings per share for this year.
Let’s start with tech giants Apple, Alphabet, Facebook, Amazon, and Microsoft.
Apple, at a closing price Tuesday of $288.08, has erased its gains since the end of 2019, but it’s still rather pricey by historical standards, trading at 21 times the $13.60 the company may earn in the year ending this September. Given the sharp run-up since September, the sell-off has made Apple cheaper but not dramatically so. Keep in mind that Apple has a substantial cash pile, so that its adjusted valuation actually puts it below the S&P’s valuation.
Alphabet, down from about 27 times forward earnings as of last week to 25 times, is another one that’s well above the benchmark. Using 2021’s estimate places the valuation at a less-demanding 22 times forward estimates.
Amazon remains in nose-bleed territory, at 68 times forward earnings, and Microsoft, too, remains among the most expensive of the group. Even after shaving $14 from the share price since the beginning of last Friday’s session, it still trades for 30 times projected earnings. Going out to next year’s estimate makes it slightly cheaper at 27 times.
Facebook is actually the most interesting-looking prospect, with its decline bringing it to just under 20 times projected earnings for this year. Among the top names, it has the highest growth rate, with revenue projected to rise 21% this year, and profit per share expected to rise almost 23%.
Turning to look at some other tech stocks, the nearly 11% fall in Advanced Micro Devices since Friday makes for what appears an extremely tempting buy at Tuesday’s close of $47.57. These kinds of outsized declines in pricey names feels intuitively like the only time one gets a shot at owning something that keeps going up and up the rest of the year. AMD's shares have erased their gains for the year. However, the chipmaker is still quite pricey, at 41 times projected earnings using this year’s estimate, and 30 times 2021’s estimate. Yes, it’s cheaper than it was, but bear in mind it’s still well above plenty of other tech peers.
The same goes for Tesla, which is still up an incredible 90% in less than two months despite an 11% sell-off in the last two sessions. Tesla has gone from 100 times forward earnings to 92.9 times, still ridiculously expensive.
By contrast, the 9% decline in shares of Nvidia make for an intriguing purchase: at $262.05 per share at Tuesday’s close, it now trades for just 33 times forward earnings, down from almost 37 times last week. Nvidia’s recent blow-our quarterly results suggest the company has plenty of momentum, reflected in the projection for 23% revenue growth in the fiscal year ending January of next year.
Ah, but, a lot can happen in the world. Nvidia, like any other vendor of parts, is vulnerable not only to the global business slowdown prompted by coronavirus. It has the special disadvantage of being in the midst of the ongoing technology trade battle between the U.S. and China. That makes it doubly hard to anticipate how its business will be affected.
Risk is in these prices, despite their reduced valuation. And coming days will show whether is risk is “on,” as they say, for investors, or whether they intend to continue to walk away from this market.