The 5 Tech Stocks Titan and Recency Bias.
The five biggest Tech companies (measured by market capitalization) are Apple (AAPL:US), Microsoft (MSFT:US), Alphabet (GOOGL:US), Amazon (AMZN:US), and Meta (META:US).
Over the past 5 years, their share price had multiplied more than triple fold, and each market cap had surpassed the trillion dollar mark. However, there are investors who neglect those and only focus on the current event. Being part of the bear market movement had dropped these Titans share prices. For example, Meta was traded at $378 on 9/9/2021, and as of 1/9/2022, it slump to $165- lower than its share price on the same date, 5 years ago.
So, What is Recency Bias?
Recency Bias in investment is a behavioral aspect of an investor, where cognitive bias makes economical/financial call conclusions based on recent events. This cognitive bias tends to put too much emphasis on the latest events, so losses over the previous few months are prominent in the investment decisions making process.
A thorough investor tends to look from every corner. Not only focusing on the present but also on both the past and future. There are several factors that can help in making effective stock call. Smart investors look in detail at the company’s progress throughout the years and make comparisons with current and over the decade company performance and their future planning. With this kind of analysis, the 2022 might be a bear market that swipes most investor fortune but the decline is definitely a clear purchasing opportunity.
The main characteristic of a great stock for both the short and long term is the ability to adapt. In this case, all of them stay strong in their core idea and later branch out to accommodate trend needs. Google main as a search-based engine, personal computing for Apple, and an online shopping platform for Amazon. All of them later moved into other sectors without abandoning their original business model.
For example, Apple and Amazon both had to jumped into the streaming bandwagon, along site other streaming giants such as Netflix and Roku. Apple with offers the whole ecosystem of Apple products with subscriptions of Apple TV, Apple Music, Apple Podcast, and Amazon with its Amazon Prime. When talking about streaming services, the notable mention has to be Google’s best player. YouTube. YouTube, even though it is blocked in China, has become a huge global advertising vehicle, with 2.6 billion users alongside its subscription to YouTube Premium. These are also to guarantee consistent cash flow.
They also adopted a highly profitable business model of cloud computing where which lets users store massive amounts of data remotely and securely, accessible anywhere in the world such as OneDrive from Microsoft and Google Drive from Google, and iCloud from Apple. Cloud computing is such a great and profitable business as of Q2 2022, Microsoft’s Intelligent Cloud revenue makes 39% of total sales for the company while Alphabet’s cloud revenues increase 35%. Not only that but making Google Suit and Microsoft Office on the go which the service is accessible and shared among the organization to suit the current working style adds to the spice.
Meta, on the other hand, is not just a social networking site but also a major advertising platform. 97% of Meta’s total revenue comes from advertising sales both on Facebook and Instagram. The company might trail off the hook and slip from being the fifth-largest U.S. stock and now ranks 11th, Meta Platforms (META) due to increased competition such as TikTok and their major capital rolling into Metaverse. Meta Platforms spent $10 billion to start building the metaverse in 2021 alone. Being one of a leader in advertising, Meta might win big on the possibility of running advertisements on its virtual reality platform
Profit is another crucial factor in selecting stocks. Profit can either be the potential for a price increase, the company’s potential in making a profit that will later turn into a dividend or the company’s ability in making profitable business that will lead to the share price increase. In any words, it is important.
A direct profit measurement is operating margin, that is, profits divided by revenues. For all U.S. industries, the average figure is about 11%, but the 5 Tech Giant – Apple with 29.78%, Microsoft with 42%, Meta with nearly 39.65%, Alphabet with 30.55%, while Amazon is mainly a retailer, so it margins are lower with a single digit, but its cloud business has an operating margin of about 30%. It’s sufficient to say that these companies are profit-making generator, even when the Fed raises interest rates to combat inflation that lead to slower economic condition.
Bottom Line, The stocks are on discount.
These stocks are cheap. It might not as cheap as the last 5 years, but based on YTD alone, becoming partners in some of the best businesses in the world is a great deal.
YTD stocks price valuation, Microsoft had dropped 22.41%, Apple slipped 13.21%, Amazon dropped 24.99%, Alphabet crashed 24.31% and most of all, Meta share price dropped 55.94%. Despite a recent bounce, they are still less expensive. It completely changed the way we connect with other people and the advertising world.
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