Do you want to make big money from technology stocks?
I mean really big money?
Then write to your congressperson and senators and tell them to support current congressional efforts to break up big technology companies.
No, I havent been smoking any funny stuff.
Yes, I know that Americas biggest tech companies have seen a collective gain of over 5,000% since the great financial crisis.
But history proves that once companies get as big as an Amazon, a Facebook or a Google, their best growth days are behind them.
It also proves that much, much better future gains can be had by letting the individual pieces of these megacompanies operate on their own, free from the logic of conglomeration. Heres why
Most people use the price-to-earnings (P/E) ratio to evaluate a companys valuation.
But P/E is static. It tells us how much youre paying for each dollar of earnings over the last 12 months.
What you really want to know is how fast those earnings are growing relative to the companys valuation.
All else being equal, you always want to buy companies whose earnings are growing faster relative to their valuations than others.
To assess that, we use the PEG ratio.
PEG is a stocks P/E ratio divided by its earnings growth rate. Because the growth rate is the denominator in the ratio, the lower the PEG, the better.
Here are statistics for four companies currently in congressional crosshairs:
Amazon is the only one whose projected PEG ratio wont decline significantly from last year. The other three experienced much faster price growth than their projected earnings growth.
The problem is that investors have front-loaded future earnings so much that the rate of growth of these big boys must slow in the coming years.
Of course, these companies could grow their share prices by innovating as they have done in the past. But thats unlikely.
There are two main reasons other than increasing attention from competition authorities why big companies inevitably produce ever-smaller shareholder gains as time goes by.
Who knows how much money the shareholders of an independent WhatsApp, Waze or AWS would have earned over the last few years?
One indication comes from eBays spinoff of PayPal. Since their breakup in 2015, the price of PayPal has increased by nearly 650%. EBay shares are only up about 150%.
Thats not to say every potential unbundling could produce the same lopsided results.
But I, for one, would love to see what would happen if a captive business unit like AWS or YouTube were free to innovate and create shareholder value as their leaders saw fit.
Ted BaumanEditor, The Bauman Letter
Read the rest here:
- Equity Monday: Welcome to Big Tech hardware week - TechCrunch - October 19th, 2021
- Facebook can be its own country when it gets an army - The Week Magazine - October 19th, 2021
- The Technopolar Moment: How Digital Powers Will Reshape the Global Order - Foreign Affairs Magazine - October 19th, 2021
- The Big Tech Activists Turning the Tables on Silicon Valley - Business Insider - October 19th, 2021
- Big Tech's big challenge to the global order - GZERO Media - October 19th, 2021
- 21st Century mythologies: The rise (and fall?) of Big Tech - Observer Research Foundation - October 19th, 2021
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- Adrian Shahbaz and Allie Funk: Governments are coming for Big Tech. Here's what it could mean for your rights online - TribLIVE - October 19th, 2021
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- As Big Tech Grows in the Pandemic, Seattle Grows With It - The New York Times - October 13th, 2021
- There Is No Bipartisan Consensus on Big Tech - WIRED - October 13th, 2021
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- What went wrong with Big Tech - Business Standard - September 16th, 2021
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- Clash of the Titans: Government vs. Big Tech Over Your Data - The Mac Observer - September 16th, 2021
- Big Tech Is Doing the Right Thing on Cybersecurity - National Review - September 1st, 2021
- Big Tech Wants You to Live in a Virtual World. Prepare for Real Problems. - The Wall Street Journal - September 1st, 2021
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- View: Big Tech's increasing influence in finance is an opportunity for banks, not a threat - Economic Times - September 1st, 2021
- Big Tech wants you to live in a virtual world. Prepare for real problems - Livemint - September 1st, 2021
- Breaking up big tech companies would give an advantage to China |Opinion - Deseret News - September 1st, 2021
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- Rubio Introduces Sec 230 Legislation to Crack Down on Big ... - August 28th, 2021
- Big Tech pledges billions to bolster US cybersecurity defenses - TechCrunch - August 28th, 2021
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- China's Big Tech vows to give back as Xi touts 'common prosperity' - Nikkei Asia - August 28th, 2021
- FTC's Antitrust Complaint Against Facebook Highlights Another Missed Opportunity to Address Big Tech's Anticompetitive Activities Through Patent... - August 28th, 2021
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- Big tech proud as punch about cameos in Joe Biden's security theatre - The Register - August 28th, 2021
- China's Tech Sector Is Too Big To FailThat's Why Beijing Is Cracking Down on It - Heritage.org - August 28th, 2021
- Transformation starts with fixing one big tech problem, former Oracle CFO says - CFO Dive - August 28th, 2021
- Ted Cruz Levies a Big Charge Against Big Tech RedState - August 22nd, 2021
- Issa Slams Bipartisan Big Tech Package for Ignoring ... - August 22nd, 2021
- What the Biden Administration Is Doing to Rein In Big Tech Companies - Barron's - August 22nd, 2021
- Big Tech Is Bending to the Indian Governments Will - WIRED - August 22nd, 2021