- Amazon, Tesla, and Apple make up some of the “Elite Eight,” a group of stocks that have collectively seen their market cap surge from $1 trillion to $8 trillion in 8 years, according to Ned Davis Research.
- Now, despite their strong sales and earnings growth, the group of mega-cap titans “looks like a bubble,” Ned Davis Research said in a note on Monday.
- The group of stocks are priced for perfection, represent an overcrowded trade, and might suffer from the law of diminishing returns as their growth rates slow down, Ned Davis Research said.
- Here are the “Elite Eight” stocks and why they look like they’re in a bubble, according to Ned Davis Research.
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Eight stocks that have seen their collective market value surge to $8 trillion from $1 trillion in eight years make up the “Elite Eight,” according to Ned Davis Research.
These stocks have proven resilient during the COVID-19 pandemic, and have continuously enjoyed rising revenues and profits over the years. The collective group generates revenue of more than $1 trillion and profits of $176 billion, according to NDR.
But these stocks might be priced for perfection, represent an overcrowded trade, and could suffer from the law of diminishing returns as their growth rates slow, NDR said in a note on Monday.
The “Elite Eight” stocks are: Apple, Amazon, Alphabet, Facebook, Tesla, Nvidia, Microsoft, and Netflix.
And now, after a dominant rise in 2020 as investors rewarded technology names, the collective eight stocks "look like a bubble," NDR said.
NDR compared a composite of the eight stocks to a historic bubble composite index that's composed of the average peaks of the 1929 Dow Jones industrial average, the 1980 Gold Spot, the 1989 Nikkei 225 index, and the 2000 NASDAQ Composite index.
Bubble charts, whether of the tulip bubble of 1637 or the bitcoin bubble of 2017, tend to look similar regardless of the asset in question because the prices are largely driven by human behavior (fear and greed) rather than rational thinking, and human behavior doesn't change.
Failure for the "Elite Eight" composite index to surpass its September highs in October could be a sign of exhaustion, according to NDR.
And while the composite index of the eight stocks has surged 72% over the past year, their earnings and sales were only up 10% and 12%, respectively.
"My concern is that once companies get too big, the law of diminishing returns can set in where it is harder to put up
big percent gains in sales and earnings," NDR said.
With the eight stocks selling at collective multiples of 44.6x earnings and 7.5x sales, "a lot of good news is priced in despite their impressive stories," NDR concluded.
