Are high valuations a threat to the markets? Could they cause a downturn? EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. Research Analyst Liz Laprade looked at some current trends for stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. prices in our recent webinar,* Looking Beyond the Election to the Recovery’s Future.
Please enjoy the excerpt below and click here for the full webinar replay to hear more.
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Liz Laprade: The FANG+ companies (Facebook, Apple, Netflix, Google and other high-profile tech leaders) have gotten a ton of attention for high valuations this year. You have Apple up 52% year to date, Amazon up 71%, Tesla up 385% [as of October 27, 2020]. But we’re seeing a ton of bifurcation in the markets right now. While some of these tech and discretionary stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. have soared to all-time highs, sectors like energy and financials are at depressed valuations. Energy is down over 50% year-to-date.
There are other parts of the world where valuations are actually really attractive. I personally have always been a big fan of the small- to mid-cap international markets. There you have about 4,000 companies that fall into that category, and they tend to be highly under-followed and under-researched by the street compared to large-cap domestic stocks.
For example, while there are about 47 analysts covering just Amazon alone, there’s on average only about five that cover any given small- to mid-cap international stock. A lot of the international indices are still in the red year-to-date. I think that’s a great place to be looking for unique investment opportunities.
While I can’t say that high valuations will or won’t lead to a downturn, I can say that global markets are not overvalued as a whole, and many sectors and regions are fair-to-under-valued.
*Webinar recorded after the market closed on Wednesday, October 28, 2020.
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