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Value investing involves far more than a simple financial metric such as price-to-book value or price/earnings ratio, contends an opinion piece in Forbes. Many analysts would not include such stocks as Johnson & Johnson, Walt Disney or Meta as value—though all three of those stocks are in the Russell 1000 Value index.
Growth should be considered while determining the investment merits of a company, including forward-looking projections for sales and earnings, as well as brand loyalty, competitiveness, product expansion potential, and how skillful the company’s management is. Using those metrics, the article highlights Alphabet, Apple and Microsoft as being undervalued—though they are significant members of the Russell 1000 Growth index, accounting for 29% of that benchmark.
Indeed, Alphabet—the parent of Google—has seen its search business sustain an enormous influx of cash, and as the company curbs spending profitability will continue to grow. The company is priced at 19 times forward earnings projections—a very reasonable price given that there is close to $100 billion of net cash on the balance sheet. Meanwhile, Apple continues to generate new products and services, though the company has struggled with supply-chain issues and materials shortages. Its shares are down over 6% so far this year, and though its P/E ratio is lower than in the past, it still carries almost $23 billion in operating cash flow and gave back more than $28 billion to its shareholders. Owners of Apple shares should remain patient, as the company is certain to grow in the coming years. Microsoft has also been battered in 2022, down more than 15% since the end of last year, but switching to a subscription-based model has had a positive impact on the company, and growth in Azure, Xbox, and LinkedIn all remain steady. And management has suggested that both revenue and operating income will grow by double digits next year.
The current market has made these three big companies growth and value investments. And “who wouldn’t want attractively valued stocks with very good long-term growth potential?” the article asks in conclusion.