"The market's too expensive. The market's dangerously elevated. You just wait, you will see how ugly this thing can get."
Sure, I get the litany. But the more I think about certain calls, certain stocks, certain valuations, the more I recognize that we really have to destroy the term "market" in that litany, because the valuations for many big-cap stocks just aren't that expensive.
Or to put it another way, there's Amazon (AMZN) , there's Netflix (NFLX) -- downgraded today by UBS in a rare bit of discord among the analysts -- and there's pretty much everyone else. I think those two, and the endlessly talked about Tesla (TSLA) , are really obscuring what's going on here.
Notice, first of all, I didn't say FAANG stocks -- Facebook (FB) , Amazon, Apple (AAPL) , Netflix and Alphabet/Google (GOOG) , (GOOGL) -- are obscuring valuations. That would be wrong. It was easy to see how Facebook could have fallen off a cliff if people actually were worried about privacy when they seek to promote themselves -- which is oxymoronic when you think about it. Why not? The mainstream press had a field day with the company.
Just yesterday, on a day when tariffs dominated the news, the business section of the New York Times led with Facebook being fined $660,000 -- the largest fine that some agency none of us really cares about can slap them with. I mean, hello?
The fact is, though, that Facebook is selling for 22x next year's earnings estimates. The only thing that all of this investigating -- and we know it isn't over -- has done is shrunk the P/E multiple. Not the earnings.
Same goes for Alphabet. I think that the possibility of government regulation plus the opaque nature of all the other businesses except for core Google makes the company hard to value. Meantime, we have decided that all we care about is how much it costs Google to get clicks, not how lucrative it is. Sum total? We are paying 24x next year's earnings. But, wait a second, perhaps we should try to figure out what it sells for minus the $101 billion in cash it has?
Apple sells at 14x next fiscal year's earnings. That was fine when the company was a pure cellphone story with a PC and tablet kicker. But the Apple we all know now is the one we pay money to every month -- as we do to Netflix and Spotify (SPOT) and Costco (COST) and Amazon. That's a sticky stream, one we will never kick. That multiple is outrageous. Outrageously wrong given its nearly $300 billion cash hoard.
It's not just FAANG names. This morning Goldman Sachs goes from a sell to a hold on Johnson & Johnson (JNJ) . When I saw the P/E multiple on the stock -- 15x next year's estimates, and be mindful we are in July, getting close to all that matters -- I was shocked. This is a premier American company with the best balance sheet in the world and amazing management.
How in the world is that expensive?
You see Disney (DIS) at 14x earnings? That's what you get because of cord cutting. But what if they get Fox? Is that all cord cutting?
And I don't even want to go there with Micron Technology (MU) at 4x earnings. Darn the Chinese, full speed ahead?
I think we are at a strange time. I believe that the vast majority of pundits think the market is outrageously expensive. But do they take into account JP Morgan's (JPM) stock selling at 11x earnings even as it consistently grows? Do they realize that Citigroup (C) , with a 10x multiple, can buy back 10% of its shares? Do they even want to know that, already, people are forgetting what Wells Fargo (WFC) did, yet it sells at 12x earnings.
It's all a little nutty.
To me, the only way the market's truly expensive is if you decided that 2019 is going to be a nasty, horrendous year where there's a full-stop to all businesses a la 2008 -- 10 years ago. The 2019 catastrophe comes when the Fed takes short rates to 3% -- rendering both growth and dividend protection moot?
Perhaps, that's where the disconnect really lies. Maybe we are all conditioned by 2008 to find the market expensive. Maybe we are all conditioned by historical thought that when the Fed raises rates endlessly, it crushes stocks as it did when the it raised rates 17 times -- right into a serious downturn that it laughed about, or didn't see coming.
I am making the case that perhaps we should just value the market as it is, with a lot of cheap stocks and some expensive ones. When you do that, you don't fear the Fed or the tape. It's a nice, more benign way to look at things.