Readers of my column know that the market is the third most expensive in history. There are a number of actions that support truly transcendent evaluation. In fact, many of the so-called “blue chips” are trading at inflated valuations. And while much attention is paid stocks Fang, a group of six stocks of electronic Commerce, which include half of the fan group up to 600% after the worst of the financial crisis.
According to analyst Michael Hartnett at Bank of America Corporation (Ticker NYSE: bac), this e-Commerce stock bubble is the largest bubble in the last 40 years, and quite possibly could be the biggest bubble of all time.
Six Commerce stocks he refers to are Amazon.com ink. (Nasdaq: weekly news), Netflix Inc. (Nasdaq: NYSE: nflx), alphabet Inc. (Nasdaq: at googl), Twitter Inc. (Nasdaq:market), Facebook ink. (Nasdaq: FB) and eBay. (NASDAQ: EBAY).
Take a look at this chart, courtesy of Bank of America Merrill’s global investment strategy Lynch and Bloomberg.
Yes. This looks like a parabolic graph of e-Commerce stocks, if I ever saw it. If you still don’t know a parabolic increase, as it is historically the end of parabolic free falls, just like any other graph on this chart.
Estimates of stocks of e-Commerce
I think there is reason to believe that the alphabet stock is actually fairly valued. Refuse net cash alphabet trades at about 21 times lower than the expectations and is scheduled to grow earnings 20% next year. The valuation of Facebook is still a bit of a stretch, trade at 28 times trailing earnings, while in the next five years the average annual growth in earnings per share is pegged at around 26%.
The remaining stocks of e-Commerce, however, is outrageously overpriced.
Hartnett believes that the impact on reserves should be significantly reduced. Over 620% profit in the last seven years, Hartnett sees the entire technological sector to be overvalued. Removing the technician from S&P 500 index and would take the index from the current level of about 2600 to 2000.
Hartnett also points to the fact that the equipment and supplies e-Commerce to generate almost 25% of domestic earnings per share. Apparently, this level is rarely exceeded, and worse, is often a precursor to the top.
More Reasons Commerce
There are other macro issues that should concern investors in respect of these shares. While Congress might look pretty stupid while Zuckerberg hearings have been increasing calls to do something against regulation with respect to privacy. This can be a kind of an existential event that throws the whole sector into a panic.
The problem is that many stocks in the Internet Commerce also the dynamics of the play. Momentum can shift very quickly and very dramatically in the other direction.
What to do if you hold shares? First question-do you feel that any of them really have long-term potential to grow in their evaluation. If you think so, then you might want to keep the pieces. Otherwise, I would suggest to sell part of their holdings. For example, 25%. Then I would put a stop loss at 25% for various levels of technical support.
I don’t want to believe that everything will turn out just fine. It’s a bubble. He will be appearing.
Lawrence Meyers is the CEO of PDL capital, a specialty lender focusing on consumer loans and a portfolio Manager of liberty for www.thelibertyportfolio.com. He does not have mentioned shares. He has an experience of 23 years in the stock market and has written over 2000 articles about investing. Lawrence Meyers can be reached at [Email protected]