Will We Hold It Wednesday – Nasdaq 8,000 Edition

nasdaq composite history chart8,000 on the Nasdaq Composite!

5,150 was the top in 2,000 before the great crash took it back to 1,200, a 76% drop which took many years to recover from.  In fact, we only got back to 5,000 in 2016 but here we are, less than 3 years later, up another 3,000 (60%) and no, I don't think this time is like 1999 when people were throwing money at terrible stocks but there are still plenty of stocks people are throwing unrealistic amounts of money at and there WILL be a reckoning – one day.

We did consolidate for about a year at the 5,000 line, which means roughly half the people trading thought stocks should be higher and half thought they should be lower but then Trump got elected and promises were made (not kept, just made) and we've been off to the races ever since. 

If we want to determine whether 8,000 is too much for the Composite, we should look at the top 10 holdings, which make up a whopping 40% of the indexes weight while the other 2,629 components fight for the other 60%.  The simple question we can ask here is are these companies worth 60% more than they were in 2016 and, to do that, we can simply look at earnings and revenues because we should expect some real changes, right?

  • While Apple (AAPL) gets a lot of attention as it nears $1Tn in valuation, Microsoft (MSFT) has quietely gotten there without the drama and is "worth" $927Bn at $120.  Revenues have gone from $92Bn to $118Bn (up 28%) while profits in 2016 were $20.5Bn and, last year, they were $16.5Bn but that was due to write-offs and they should do better than $34Bn in 2019 and that's up 70% so yes, MSFT is worth much more than in 2016 but I'm not sure I want to pay $1,000Bn for "just" $34Bn in earnings (p/e 29.5) so I would give this one a B- grade.  
  • AAPL, of course, is my favorite company on the planet and $200/share is $943Bn in market cap but AAPL earned $59.5Bn last year (tax advantaged) and should make $53Bn this year for a p/e of 17.8 –


continue reading