Stocks A to Z / Stocks U / U.S. Bancorp (USB)
No. of Recommendations: 1
What was AAPL’s PE (even ‘back of the napkin’ roughly) when Warren began buying heavily?
And if the data is handy…what was it when he slowed down?
Appreciated.
No. of Recommendations: 19
The big buying by Mr B started in Q4 2016. P/E was around 13, trailing earnings per (split adjusted) share around $2.10
Slowdown around Q3/Q4 2018 at P/E around 20.
Big selling Q1-Q3 2024 at P/E varying from 25-35, earnings around $6.20.
Comparing end period to start period, earnings up by a factor of around 3, multiples by a factor of around 2.3, return around a factor of 7 plus dividends. (ignoring the various purchase and sales in between)
Jim
No. of Recommendations: 3
Wow…terrific, Jim. Thanks.
My reason for asking is OT as I’ve been keeping my eye GOOG present PE in relation to its historical valuation.
Mr B’s patience and ‘pouncing’ timing is just incredible.
m
No. of Recommendations: 4
What I find extremely impressive was how Mr. B was able to sell into
strength with two major positions AAPL and BAC. There was talk on this
board and the "financial" press how WEB was basically trapped with the
oversized positions and any selling on his part would crater AAPL and BAC.
In fact both AAPL and BAC kept on going up and the "financial" press was
commenting that WEB left a lot of money on the table.
Patience, Discipline and Opportunity they remain as always the secret sauce.
No. of Recommendations: 1
My reason for asking is OT as I’ve been keeping my eye GOOG present PE in relation to its historical valuation.
It certainly doesn't trade for less than 20 times trailing earnings very often.
Very briefly in the credit crunch. Some stretches in 2011-2012. A while late 2022 to very early 2023. That's about it for the last 20 years.
Though one might want to wear a seatbelt during any potential turbulence, I find it very hard to imagine a bad long term outcome from here.
Note, GOOGL is worth a hair more than GOOG but costs a hair less.
Jim
No. of Recommendations: 2
Google is likely to report EPS > $2.00 next quarter, which would be $8.16 TTM, at $155 / share you get a PE ratio of 19 - at the very low end of the range in the past few years.
tecmo
...
No. of Recommendations: 1
at $155 / share you get a PE ratio of 19 - at the very low end of the range in the past few years.
And at 19, there is no particular reason to plan on further multiple compression as a headwind. They could stay in the high teens forever, in effect, given what I perceive as the high quality resilience (others may disagree). That's the frequently forgotten factor when investing in high growth firms at their "usual" multiples, the "usual" is never permanent : )
Jim
No. of Recommendations: 1
<And at 19, there is no particular reason to plan on further multiple compression as a headwind.>
'multiple compression as a headwind'?
So you are inferring investor psychology? Simplify or explain further? This is an interesting concept if i'm understanding.
Only if you have spare time and feel inclined.
Appreciated.
m
No. of Recommendations: 32
'multiple compression as a headwind'?
...
So you are inferring investor psychology? Simplify or explain further? This is an interesting concept if i'm understanding.
No, not psychology.
It's just based on the observation that high P/E ratios never last forever, for very rational reasons. Pretty much any firm will trade at a multiple in the teens on owner earnings sooner or later, since any multiple above that is prepaying for unusually high future growth rates. No firm has that kind of growth forever, so the growth rate fades and the premium multiples fade. On very rare occasions it's a really long time before the multiple sags, but it's generally inevitable. This means a big headwind: the price can be falling even if the earnings are still growing. It's a one time hit which ends when the multiples get down to a "normal" range, which I surmise Alphabet seems to be entering now. At 19 times recent earnings, the price does not seem to include any assumption of unusually high future growth rates.
Thus my comment: buyers today are not prepaying for unusually high future growth--(solid, but nothing special)--so there is no "extra high" multiple, so there is no price drop coming because the multiples are destined to fall.
Contrast that with (say) Microsoft at 30 times earnings today. People are prepaying for at least another 50-75% in growth in earnings power per share that hasn't happened yet. They might be right--let's say they are. That means that even if those earnings do arrive, the price would be flat from now till then unless at the end of that process the growth even further into the future is still perceived to be unusually good and therefore deserving of a multiple over 20 for another finite time period.
It's certainly true that high future growth rates are worth a huge premium. P/E ratios *should* be higher. But it's also true that statistically the average investor prepays a little bit too much for a rosy future. In the last 39 years, US stocks purchased at P/E over 30 underperformed those bought at P/E under 30 by 4.76%/year.
Jim
No. of Recommendations: 1
Article today questioning GOOG's staying power.
"Melius’s Ben Reitzes asked Monday whether Google is the next Kodak.
“We have focused on ‘the simple’ with Alphabet since our launch in mid-2023 — and that view is predicated on the view that Google is losing the next generation of ‘searchers’ to ChatGPT,” he wrote in a note to clients.
...
“Metaphorically speaking, OpenAI’s home page is arguably this generation’s ‘digital camera,’” he wrote. “The loyal ad buyers for Google ads are arguably the loyal ‘photofinishers’ who may prove to be fickle if the ads see diminishing returns.”
...
In addition, Alphabet now has a branding problem. Google is a verb, but its Gemini artificial-intelligence offering isn’t. ChatGPT, however, has “verb” status with younger users, who Reitzes wrote will say things like that they “ChatGPT’d” their papers for school.https://archive.is/RtgBj
No. of Recommendations: 8
Comparing Alphabet to Kodak strikes me as a buy Alphabet signal (I already added to my position on Friday).
I recall the first thread on the GOOG board, back in 2022, was about ChatGPT, with Manlobbi adding a helpful response that still holds up:
https://www.shrewdm.com/MB?pid=9900154&wholeThread...If we look at the the revenue streams, we get a very non-Kodak like picture. From FY 2022 to FY 2024, in round numbers: Youtube ads are up from $29 billion to 36 billion; cloud revenue is up from 26 to 43 billion; Search advertising isn't dead yet -- 162 billion to 198 billion; and other bets are up from $1.07 to 1.65. Speaking of other bets: Waymo recently announced its up to 200, 000 paid rides per week (TSLA still at zero lifetime), and there are other "other bets" that might bear fruit. Last I saw, Alphabet has seven products with 2 billion plus users (Search, Gmail, Maps, Youtube, Android, Chrome, and Play Store).
If we start to go through all the whys as to why Alphabet isn't easily replaced, and why all these diverse efforts will help preserve its place as an advertising hegemon, it starts to look like grounds for an antitrust suit.
No. of Recommendations: 0
And at 19, there is no particular reason to plan on further multiple compression as a headwind. They could stay in the high teens forever, in effect, given what I perceive as the high quality resilience (others may disagree).
They're primarily an advertising company. And with a recession coming, advertising will slow. Furthermore, I just saw a stat that AI "search" has just passed google search. Now Google has an AI too, but so do so many others. So that can't be good for google. That's a tailwind to me.
No. of Recommendations: 21
They're primarily an advertising company. And with a recession coming, advertising will slow. Furthermore, I just saw a stat that AI "search" has just passed google search. Now Google has an AI too, but so do so many others. So that can't be good for google. That's a tailwind to me.
(I presume you meant headwind=bad, not tailwind=good)
Sure there will be a cyclical downturn if the economy has one. Almost all businesses are cyclical to some extent or other, but that doesn't mean their values go away. Almost all of the value of any stock is founded on its business results more than a decade in the future. A farm isn't worthless just because winter is coming (unless it's near Winterfell).
Real risks to the future of the business are a more serious topic. Some folks foresee LLM based search supplanting keyword search entirely, and Alphabet having no share of the LLM based search market, hitting 2/3 of their business hard. I think the impact will be primarily a hit to margins, as I don't expect keyword to disappear and I don't expect Alphabet's LLM search efforts to be in vain. Opinions differ, which is fine.
I believe real earnings per share will be materially higher in a few years, and that current multiples seem very fair in relation to the value and the resilience of the earnings streams.
Fun experiment: Youtube is bigger than Netflix, much more profitable, and growing at least as fast. What would it be worth at the multiples that Netflix is getting? Estimates of net margin are around 38%, revenues over $40bn this year, Netflix multiple is 47, so around 3/4 of a trillion? (note, I'm not saying it's really worth that much, just that that's what it might be trading at)
Continuing the what-if, that's a little under 40% of Alphabet's current market cap. What is the implied multiple on the rest of the earnings? Something like 12.5 I think. These days that counts as dead end cash cow territory, not how I would describe search and cloud.
No company is perfect, as every frog has a wart. My main point is that I think this particular frog seems pretty reasonably priced, if you're in the market for any kind of frog at all.
Jim
No. of Recommendations: 2
My main point is that I think this particular frog seems pretty reasonably priced, if you're in the market for any kind of frog at all.
I see a clear path to $10 in EPS in the near future, add in a 20x - 25x multiple on that and you get a nice range for the stock. At $150 I see very little downside in parking money here.
tecmo
...
No. of Recommendations: 1
I've been watching AAPL as well, but for me it would have to go down a bit more...the anti american purchases wave is getting stronger in a lot of countries, and this one is "as american as apple pie".... all my nieces and nephews in euroland wanted a new aapl for going to uni, not sure they think the same way anymore...and it is slightly concerning to me how much AAPL brk still owns....if I'm right...
