No. of Recommendations: 22
I stumbled on this post of mine from almost exactly two years ago
Sort of following on from the bearish slant to Mr Klarman's recent comments--...
It mentions the "Big 7" of (AAPL MSFT GOOG AMZN NVDA TSLA META) observing that
* they then had a weighted average earnings yield equating to a P/E of 36.96, i.e. earnings of $2.71 per $100 of market cap
* if P/E were to fall gradually to an average of 19 over 5-10 years, and earnings growth rate constant, earnings for the group would have to rise inflation +18.9%/year to provide a return of inflation+6.5%, my hurdle for "OK".
* holding that rate for a decade was deemed highly unlikely
Just a follow up, calculated the same way:
* They are now trading at a weighted average earnings yield equating to a P/E of 32.95, i.e. earnings of $3.04 per $100 of market cap, and therefore a hair cheaper on current earnings than they were two years ago.
* They are all up in price (even Tesla), by a weighted average of 74% and simple average of 94%. (without NVDA it would have been 49% and 60% respectively)
Since the price is up a ton (more than doubled) and the notional P/E is down, the earnings have certainly grown at more than the rate required as an average..indeed, earnings growth could be flat for 3-4 four years and they'd still be on track.
Not that I would buy them now and bet on more of the same, but it certainly would have been pleasant to have owned them for the last couple of years. Champagne for those who did.
One possible bullish view:
* High net margins and high corporate profits as a percentage of GDP are basically the direct flip side of a big deficit in the government sector.
* There is no prospect of a big drop in the US government sector deficit that I can see, so
* Corporate profits may stay super high for many years to come?
Jim
