So that's it? That's the end of the selloff in the big-growth Nasdaq names? That's all she wrote? Many of them and their ilk sure seem to have, at last, developed some pep in their step.
For the past couple of weeks, the Dow Jones average has captivated people as it lunged through the 22,000 level as if it were child's play. At the same time, the highly visible FANG-style names have been under pressure with lots of people, once again, theorizing that it's game over for the so-called overvalued companies.
Unfortunately, the narrative for the decline, the story line, is always the same. When the Nasdaq hit its peak in March 2000, not only did the money flow out of the Nasdaq, but it went to the same plain New York Stock Exchange-listed companies that have garnered blue-chip status. I'm talking about the Procter & Gambles (PG) , the Mercks (MRK) , the Coca-Colas (KO) , the same staid old stocks that people know to revert to when the tide goes out and the hyper-growth stocks are revealed to be frothy, expensive and a bit of a fad.
I absolutely love historical analogies and patterns in the stock market. I have a very good memory for certain situations, and when they reappear with a new cast of characters I can spot them rather easily.
But history doesn't always repeat itself. In fact, there are times when history simply tells you what happened and informs you in a different way than it should.
That's the tale of 2000. Not the tale of 2017.
This morning when I saw the reversal of money back into the high fliers and out of the staid growth stocks, I decided to google "top, Nasdaq, 2000." What comes up? The list of stocks that crashed and burned at the turn of the century and how they were overvalued, of course, but also a couple of intrepid articles, including one prescient one from CNN Money written on March 10, 2015, the 15th anniversary of the top, that bucked the conventional wisdom. This article suggested that maybe stocks weren't as overvalued as they were back then even as the Nasdaq had just taken out the 5000 level for the first time since the year 2000.
I found the analysis exceedingly rational. I also believe that it was probably scoffed at when it was written because we are always told by our financial betters that the four most dangerous words in the lexicon are "this time is different."
In other words, anyone who thinks or, in 2015, thought that we wouldn't crash soon was thought to be a fool, whistling past a mass grave because it's never different, it's always bound to repeat itself.
So, I decided to go back to see how FANG was doing at that 15th anniversary when the piece was written -- FANG being the quintessential go-go stocks of our era, according to the establishment intelligentsia -- and see what would have happened if you had jumped ship as so many said you should have at that time.
First up is the stock of Facebook (FB) , trading at $81. It's now at $171. You would have left 90 bucks on the table. More important, though, we need to measure how expensive Facebook's stock really was back then.
Fortunately, this exercise is easy. At the time, of course, Facebook's stock looked expensive. It has always looked expensive. But was it? Remember, when you examine growth stocks, you do not look at near-term earnings because that's not going to capture their strength. I like to go out a year and a half to two years. And what would you have discovered Facebook was "selling at," meaning what was its price-to-earnings multiple, the universal apples-to-apples comparison? How about 16 times earnings if the estimates for this year turn out to be real, which, frankly, I think are low-ball numbers anyway. Yep, Facebook's stock was a bargain.
How about many of those stocks at Nasdaq's peak in March of 2000? Lots of the largest companies in the index didn't exist two years later. Tough to compare those. Others had earnings that fell off a cliff because they had been related to what was hoped to be an internet boom that didn't happen until about 10 years later.
How about the letter A, Amazon (AMZN) ? You would have sold Amazon's stock at $369 if you believed it was dangerous to think that time was different. The stock's now at $989. This one's trickier. Amazon's not judged on an earnings basis, as I wrote in an earlier piece. But what you would be missing back then was that Amazon was developing this incredible Amazon Web Services cloud business that it rents out to others. Many of the smartest people I deal with say AWS, as it is known, could be worth at least 40% of the total net worth of the company given its growth and prospects. Hmm, what's 40% of Amazon worth now? How about $395 a share. That business alone is worth more than what the stock was selling for back then.
Again, the N, Netflix (NFLX) , is problematic. It's always been valued as a subscription growth story. Back then it had 65 million subscribers, of which 42 million were domestic and 23 million international. There had been a feeling back then that the growth of Netflix was stalling, something that was subsequently dispelled with the next quarter, which saw the stock jump about 20 points from $62 to $81 and change.
More important, not only did subscriber growth continue, the company managed to do something almost no one believed possible: conquer international as more than 50% of the current 103 million subscribers are overseas.
Finally, there is Google (GOOGL) , which is now Alphabet. Back then it was at $555. Now it's at $944, and in keeping with its recent underperformance, it's not acting like it belongs in the acronym, which it actually no longer does, given that it changed its name. Still, let's perform the same exercise. Given the 2017 numbers we should use, both the estimates and what's in the can, the stock's at 16 times earnings. That's dirt cheap. (Facebook and Alphabet are part of TheStreet's Action Alerts PLUS portfolio.)
Not only did FANG's earnings not fall off a cliff, for the most part they accelerated.
OK, so you say, maybe these are exceptions. How about Nvidia (NVDA) , the stock that clearly wants to supplant the N in FANG. Lots of people think this is the most outrageously valued stock in the market, something accentuated by the fact that it took out its all-time high today. Same exercise. Nvidia was selling at six times earnings. This maker of semiconductors used in artificial intelligence, machine learning and gaming was one of the great bargains of all time.
Still, what matters is we have to stop thinking of these kinds of stocks as dangerous mines to step on that could detonate upon contact and instead recognize that, at least the last time so many said to sell, they turned out to be either cheap on an earnings basis or on a metric that the market had adopted as a better measure of things to come.
As long as you remember that history doesn't have to repeat itself, you might want to buy one of these high-octane stocks on the next dip. Otherwise you are missing an opportunity that has been a cause celebre for so many people to embalm and bury every time their stocks go down.