Tech stocks are worth a lot of money, but some people are worried that it might just be the result of a bubble. Truth is, tech might be the best place to put your money right now.
For a brief moment Tuesday, Apple was the largest company in the world.
Exxon erased earlier losses and retook the lead, but this gives us a chance to ask the question: Is the tech sector in a bubble or is it coming into its own as the most important industry around?
Let’s take a look at the numbers
we’ll compare them to the energy sector, one of the most dominant on Wall Street.
Tech industry capitalization
Using the judgment of the market, the tech industry is every bit as important as energy. Apple and Exxon are nearly identical in size
but it doesn’t stop there.
This article published with permission from InvestmentU.com.
This is partially because the drop in oil prices hit energy stocks hard, while tech stocks stayed surprisingly strong during the downturn in terms of share price sales.
Still, there’s little doubt
the market sees tech as every bit the equal of oil, at least in terms of profitability.
Energy giants are second tier to tech earnings
The energy giants have great earnings
BP brings in $6.33 earnings per share (EPS). Petrobras is strong, with $3.94 EPS, but it’s easily overshadowed by Shell ($8.96), Exxon ($7.61) and Chevron (an astounding $11.45).
As envious as most companies would be of such strong earnings, the energy giants would be second tier to tech.
Oracle ($1.66) and Microsoft ($2.70) are the laggards. But IBM would beat every oil company around by EPS, pulling in $12.28. And Google and Apple
which pull in $27.73 and $25.26, respectively
more than double it.
Part of that’s because Google and Apple have been loath to issue new stock or split, and thus are some of the most expensive companies in the market on a per-share basis. Nonetheless, such earnings are astounding.
And it’s not just a mirage. Apple had nearly $12 billion in gross profits last quarter
off $28.5 billion in sales. That’s a 125% increase from a year ago.
Google pulled in a “measly” $9 billion in sales, with $5.5 billion in gross profit.
Those numbers pale in comparison to the oil giants
Chevron had $21 billion in gross profit last quarter, and Exxon made over $33 billion
but the energy companies would be envious of tech’s growth.
Meanwhile, oil giants tend to have low P/E ratios
the highest amongst companies mentioned is Exxon, with a P/E of 9.41.
Tech companies tend to have high P/Es
Google is over 20, while Oracle is nearly 17. But Apple is 14.81, IBM is 13.90 and Microsoft is 9.47 — nearly identical to Exxon.
In other words, even though tech P/Es are traditionally high, they aren’t really all that crazy today.
That could be because tech is maturing as a sector, and the record-breaking growth seen earlier is a thing of the past. Microsoft
one of the more venerable tech companies, and arguably the most mature
has been behaving more like a blue chip and less like a tech start-up, for years.
Google and Apple, meanwhile, have continued growing fast enough that investors are willing to pay a premium for them.
Tech giants best value on Wall Street
When talking about the big players, there’s no doubt: The tech sector is the real thing. Valuations are justified
there’s no sign of a bubble. Indeed, it’s easy to make the case that the tech giants are some of the best values on Wall Street today.
like LinkedIn with its astronomical IPO
are another matter. We’ll deal with them later.
But for now, know this: You can feel entirely comfortable putting your money to work with the tech giants. In fact, with the business proving so recession-proof, with reasonable P/Es and with huge piggy banks (Apple could buy Bank of America outright today and have cash left over) the tech industry might be the best place to put your money.