Large Tech Stocks

robertbanking

Thank you very much for all your further replies, you are all wonderful here. Its clear now the distinction between Amazon and smaller stocks like Shopify, with the higher risk reward ratio. However like you rightly share adindas how high could the growth of Amazon be in the future, it has to stop somewhere and then we could see a fall in the share price. 

george4064 amazing advice to Google the company name and DCF there is some software that calculates the intrinsic value of numerous stocks. I think the intrinsic value of Amazon was showing at just over 2000 USD a share.

Regarding fundamental analysis after researching a companies business model, management and competitors, i usually just review the balance sheet for increasing profits year over year. I review the debt ratio and check how well investments back into the company are performing, the profit margin. Can anyone very kindly please share what they look for in the analysis of the financials, i am not an accountant, but still hopefully have a good understanding of various figures. If anyone could please share what they analyse in a companies accounts to help them make a decision on stocks i would be forever grateful.

Thanks everyone again, you have been more than helpful, thanks so much. I owe you all, very amazing people, i have got lots of research to help me with my investing. 

sebtomato

GazzaBloom said:

sebtomato said:

 If you want lower risk then go with an index fund.

Issue with index funds is that they have Apple, Microsoft, Amazon etc. also as a large proportion of their investment, because those are large cap.

Of course, investing in a fund instead a single company is always better to reduce risk.

Amazon is doing fine, but their profits come from AWS (cloud). All they need is a cyber attack or some long outage, and the stock can drop massively in a short time.

What is that an issue? I agree that the majority of global or US index funds will feature these stocks and it's hard to avoid them but I'm not sure why you would want to.

Apple and Microsoft also feature as a holding in the default multi-asset default managed pension funds of at least Aviva & Standard Life, probably many of the other large UK pension providers as well.

Most people buy funds instead of individual stocks to diversify (rightly), but when you look at the components of those funds, the proportion of those large tech companies is quite large now. So not so much diversification, if the tech sector crashes. 

Microsoft for instance is largely overvalued currently

sebtomato

adindas said: Keep in mind a trillion UK GDP is just around 2.708 trillion .

What does that mean???

adindas

sebtomato said:

adindas said: Keep in mind a trillion UK GDP is just around 2.708 trillion .

What does that mean???

Sorry It should say what a trillion dollar actually mean, as a comparison UK GDP is just around $2.708 trillion

BrockStoker

robertbanking said:

the reason i asked about Amazon is it appears to have sustained its share price after the pandemic, whereas other stocks like Peloton have not.

I'm sure you realize, but just for the record, I think it's worth mentioning that just because Amazon weathered this pandemic well does not mean it will necessarily weather the next storm that comes along. That said, I wouldn't bet against it.

As others have said, it's probably better to buy a fund that holds the FANG stocks, at least till you can grasp how companies like the FANGs operate. I hold both SPDR S&P 500 UCITS ETF and Polar Capital Technology Trust. The SPDR S&P 500 ETF has been my best performing fund over the last year, and is not far off all time highs, so probably not a good entry point, but PCT might still be a reasonable entry point.

coastline

robertbanking said:

Regarding fundamental analysis after researching a companies business model, management and competitors, i usually just review the balance sheet for increasing profits year over year. I review the debt ratio and check how well investments back into the company are performing, the profit margin. Can anyone very kindly please share what they look for in the analysis of the financials, i am not an accountant, but still hopefully have a good understanding of various figures. If anyone could please share what they analyse in a companies accounts to help them make a decision on stocks i would be forever grateful.

You need to be looking to the future as the market always thinks ahead. Forward earnings are usually available on most financial websites.
Take the SP 500 for example. A year ago if you'd only looked at the trailing P/E ratio of 35 you'd have though it was very expensive. Today it sits at 22. 

FO5GKaPXEAI3a-Z (900×652) (twimg.com)

Forward earnings are forecast better still on a P/E of 19. If you look at 2015 they were showing at P/E of 17 in 2015 seven years ago. Many have said the US markets are expensive for years yet the index is way ahead since that year. Always look ahead.

FO4SNMwXEAsjRXj (900×654) (twimg.com)

Even simple forecast data can give you an idea .

Tesco PLC (TSCO:LSE) Share price, analysis, charts, news, dividends, EPS forecasts, annual reports and RNS - Investors Chronicle

I'd also be comparing your stock against it's sector . Sticking with Tesco although it's a US sector there's similarities with consumer staples.

TSCO.L | SharpChart | StockCharts.com

XLP | SharpChart | StockCharts.com

Decent summary here updated daily. Index and sectors are there to compare your chosen tech stock.

Market Summary | StockCharts.com

robertbanking

Thank you very much for your reply coastline that is greatly appreciated. Some really interesting facts you have shared.

So for instance if a stock has a forward p/e ratio of 8, what does this kindly mean in summary please? I understand the simple forecast data is also very useful. However in trying to calculate forward earnings, how is this done please, as i understand future earnings cannot be guaranteed? Are you looking at the business model, how much is being invested into marketing for instance, how are these forward earnings generated please, if you kindly had any thoughts i would be thankful. 

I hope you have the best weekend ever and appreciate all your posts. I have read many books on investing, but you have provided alot of clarity around some important issues. Thank you very much you wonderful people here.   

coastline

robertbanking said:

Thank you very much for your reply coastline that is greatly appreciated. Some really interesting facts you have shared.

So for instance if a stock has a forward p/e ratio of 8, what does this kindly mean in summary please? I understand the simple forecast data is also very useful. However in trying to calculate forward earnings, how is this done please, as i understand future earnings cannot be guaranteed? Are you looking at the business model, how much is being invested into marketing for instance, how are these forward earnings generated please, if you kindly had any thoughts i would be thankful. 

I hope you have the best weekend ever and appreciate all your posts. I have read many books on investing, but you have provided alot of clarity around some important issues. Thank you very much you wonderful people here.   

The main points I've made are all related to the future . You've studied as much as you can from the accounts and media reports then you need to know what the analysts think about the companies prospects . A P/E value is one of many guides and you've mentioned a few other tools in previous posts. Looking at a P/E value of 8 it could mean a few things. The stock and its sector might trade in that region. The likes of big oils and mining stocks spring to mind. P/E of 8 might mean it's unloved due to poor forecasts so investors won't push the stock higher until better times. Maybe it's just overlooked and due a rerating ? The market itself might be down so all stocks are down. It's a long list. Basically a growth stock tends to be valued with a higher P/E ratio say 30. But what if growth slows then chances are the stock will fall in valuation and there's a fair way to fall from 30 to even 20. That's a third off the share price. This is why I've highlighted forward earnings. Stock picking is difficult and you can get hurt very quickly.
Look at the history of the market there's wild swings in valuation.

S&P 500 PE Ratio (multpl.com)

adindas

robertbanking said:

Regarding fundamental analysis after researching a companies business model, management and competitors, i usually just review the balance sheet for increasing profits year over year. I review the debt ratio and check how well investments back into the company are performing, the profit margin. Can anyone very kindly please share what they look for in the analysis of the financials, i am not an accountant, but still hopefully have a good understanding of various figures. If anyone could please share what they analyse in a companies accounts to help them make a decision on stocks i would be forever grateful.

Analysing A stock Fundamental and Valuation of a company is unfortunately not simple. But it could be learnt for people who want to spend time to learn it bit by bit.

I mentioned it in this thread.

https://forums.moneysavingexpert.com/discussion/comment/79072231#Comment_79072231

Summary of Fundamental Analysis are provided in here

https://www.investopedia.com/terms/f/fundamentals.asp

In general you will need to get the company most recent Balance sheet and financial statement,  industry trends and market releases to see if a stock is under or overvalued. But the more importantly is calculating various Ratios and compare it with their peers (and or industry/sector Average). Fortunately most of these ratios have been done for popular stocks from various stock analysis sites. But many of them where hiding  behind the paywall.

Keep in mind although P/E is important, not blindly look at this number, but it will need to be compared it with their peers, industry average.

Also some companies/stocks do not have P/E ratio or very high P/E as they are currently unprofitable. If you just look at P/E ratio you would have missed a lot of opportunities like Tesla (TSLA), start up growth companies. Similarly with BABA (Alibaba), financially and fundamentally sounds but geopolitics make the difference.

Other important ratio which have not been mentioned on investopedia is PEG, P/S ratio especially for growth companies which are relying on growth to grow business like an octopus.

Also more importantly to look the business they are doing when comparing with their peers so you do not compare Apple and Orange .A few companies are a pool or an ecosystem of a business so they cover many sectors in the business.

Also look at what Wall streets Analyst Price Target.

If you just want to skim before deciding spending a lot of time investigating them or do DDs/DYOR, etc, you could get an impression from a single score that include aggregate of multiple criteria such as

Piotroski F-Score

Altman Z-Score

Beneish M-score
Sharpe Ratio

Treynor Ratio

Jensen's Alpha

Also  these aggregate figures / scores are in many cases hiding behind the paywall.

sebtomato

BrockStoker said:

I'm sure you realize, but just for the record, I think it's worth mentioning that just because Amazon weathered this pandemic well does not mean it will necessarily weather the next storm that comes along. That said, I wouldn't bet against it.

I am not sure you realize, but Amazon doesn't make its profit from retail, so nothing to do with the pandemic. They make the majority of their profits from AWS (cloud).