JamesBrey
Almost three quarters of the top 10 stocks’ current valuations come from expectations for future earnings growth, according to research by DataTrek.
Between 60% and 90% of the current valuations for the U.S. big tech stocks are based on future growth expectations, compared to about 55% for the S&P 500 (SP500), a DataTrek Morning Briefing report said.
To illustrate this: the percentage of stock price based on current value for General Motors (GM) is 209%; for Ford (F) is 140%; for the S&P 500 (SP500) is 45%; and for Tesla (NASDAQ:TSLA) is 9%.
That means that General Motors (GM) and Ford (F) trade at discounts to their current value.
“The market believes current earnings are unsustainable and, based on their history, that’s entirely fair,” wrote Nicholas Colas, co-founder of DataTrek in the report. “Once these companies prove they can generate meaningful profits in a downturn, their valuations will improve.”
But when it comes to Tesla (TSLA), this shows that 91% of its valuation is based on future earnings, and Colas called it a “faith-based stock, rather than one whose valuation is grounded in the near-term fundamentals.”
As Robotaxi Day is coming up next month (Aug. 8), “if Tesla (TSLA) shows a turn-key autonomous vehicle and provides a specific near-term timeframe for its rollout, then markets will likely impute even greater future value than today,” but “if the details provided are hazy, then the stock will be at risk of another drop.”
DataTrek provided insight on the other top S&P 500 (SP500) names:
- Microsoft (MSFT) – % of stock price based on current value: 23%; present value (EPS/10%): $109
- Apple (AAPL) – % of stock price based on current value: 26%; present value (EPS/10%): $60.90
- Nvidia (NVDA) – % of stock price based on current value: 19%; present value (EPS/10%): $25
- Alphabet (GOOG) – % of stock price based on current value: 39%; present value (EPS/10%): $75.60
- Amazon (AMZN) – % of stock price based on current value: 21%; present value (EPS/10%): $42.20
- Meta Platforms (META) – % of stock price based on current value: 35%; present value (EPS/10%): $186.60
- Broadcom (AVGO) – % of stock price based on current value: 25%; present value (EPS/10%): $439.30
- Eli Lilly (LLY) – % of stock price based on current value: 13%; present value (EPS/10%): $123.70
- Berkshire Hathaway (BRK.B) – % of stock price based on current value: 47%; present value (EPS/10%): $177.70