SAN FRANCISCO — With performance numbers for tech stocks now in the books for 2015, and the tech valuation tables now reshuffled, several trends have emerged that investors would do well to avoid fighting in the first half of 2016.
In the just-ended year, investors poured money into Amazon and Alphabet (formerly Google) and, to a lesser-but-still-impressive degree, into Facebook and Microsoft.
For pure stock-price appreciation, Netflix (NFLX) and Tencent Holdings were also among the best.
The 139% surge in Netflix shares put it among the 25 most valuable tech firms for the first time.
Apple’s (AAPL) valuation, meanwhile, slipped 4.5% over the past year, even though the company added billions of dollars in cash to its balance sheet.
Although Alphabet holds $130 billion less in cash than Apple (as of their third-quarter financial reports), Alphabet (GOOGL) is now valued at just $70 billion less.
The fourth quarter confirmed a trend we first signaled here: that the stand-alone operations of Google-parent Alphabet – excluding all cash — are now valued more richly by the stock market than Apple’s.
Apple’s valuation of $587 billion is down 4.5% from a year ago, while Alphabet’s 49% surge has driven its valuation to $537 billion.
TOP 5 TECH GAINERS IN MARKET VALUE 2015
1. Google/Alphabet, +$185B;
2. Amazon, (tie) +$179B;
3. Microsoft, +$83B;
4. Facebook, +$78B;
5. Tencent Holdings, +$47B
Prediction: Given these trajectories and Apple’s much-slower revenue growth estimates, Alphabet will overtake Apple in valuation by the end of 2016.
At the turn of the year, Alphabet, Amazon and Facebook are the favorites among large-cap growth investors in tech.
One important caveat here: their high price-to-earnings ratios (a subject we’ll revisit in early February, after first-quarter tech earnings) should label them as cautionary for those also concerned with value.
I think tech stocks as a whole are overpriced by 10% — 20%, as measured by the Nasdaq. (Look at a 20-year chart to see why.)
If you agree, all of these names should be bought on 5%-10% dips only, not when the broader market is testing both near-term and historic highs, as it is at the start of 2016.
That includes income investors, who should own Apple, since it’s paying a dividend and is expected to post year-over-year revenue growth in the mid- to high-single digits for its fiscal year ending in September.
Having said all that, aggressive tech investors who believe the market has already discounted any pessimism should also be buying Netflix and Tencent — on dips.
Shareholders at those two companies enjoyed gains that put them in the top five, as measured by stock-price appreciation only:
Top 5 stock-price gains
1. Netflix, +140%
2. Amazon (AMZN), 120%
3. Alphabet (Google) +49%;
4. Tencent, +37%
5. Facebook, +36%
Netflix stands to benefit as more entertainment goes digital, a thesis that investors bought with two fists this past year.
Tencent’s gains are interesting because they came the same year that $40 billion came out of Alibaba’s post-IPO bubble.
Both companies compete in the Chinese Internet market.
Alibaba (BABA) shares fell 21%, putting it nearly atop the board of laggards.
The biggest laggard of the year, however, was Qualcomm (QCOM), which lost roughly one-third of its value after it began having issues in China.
Worst laggards among biggest cap tech stocks, 2015
John Shinal has covered tech and financial markets for more than 15 years at Bloomberg, BusinessWeek,The San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.
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