Welcome everyone, thank you for joining.
We have a good video to get in today.
I think you're going to like this one.
We're going to be breaking down, big Tech, Microsoft, Apple,
Google, Amazon and Facebook. These five companies dominate
the market they really do. They dominate their respective
markets. They're basically all monopolies
in my opinion. I think every one of them all
five are undervalued to different extents, but they all
have very different strategies and how they're growing their
business, how they're taking money and reinvesting it,
they're all doing very Different strategies.
And in this video, I want to break down their different
strategies and how to view these different companies as
Investments. So we're also going to be
looking in particular at Amazon. This is a company that I've
really liked over the past couple of years, even though
it's traded flat. In fact, I'm in the red by 500
bucks. So just a little bit, but I
continue to add more and more to this holding because I think
Amazon is undervalued. I think the company is growing
quickly, and I think that the PE Ratio the main determinant of
the Vision of a company Amazon's being 53, is misleading for this
company because a P/E ratios, most helpful for a company that
is optimized for profits. And Amazon has not optimized for
profits like Microsoft has, or apple has.
So we'll be going over all of big Tech and why I like all of
these companies and contrasting their strategies but I'll also
be spending a little bit more time on Amazon.
Now, one quick note, before we jump in, I recently just did a
three part 3 of our Series on Amazon for the patreon.
Yeah, so this is an exclusive series for patreon members, but
you can check it out and watch the three-part series for free
by joining the free trial. There's a link in the
description, it does not charge you up front so you can check
that out if you're interested. I think it's worth it.
If you're interested in this company, all right, now let's go
ahead and Jump Right In. This is the story fund right
now, it doesn't look pretty. We're still down six thousand
dollars, but last week we were down 12 thousand dollars.
So we've made up some of the losses but we still have a ways
to go. Now I do something different
with my portfolio in my channel. I Just showing we're making
money. I show this good or bad with
complete transparency, even if we're in the red, even if we're
losing money, currently I'm still going to continue to show
updates. So if you want to follow along
for free and see updates on a real portfolio, every single
week all through 2022, you can subscribe to the channel and
follow along for free. Now, if we compare this against
the S&P 500, this is what it looks like back in November is
where the cloud company sold off like crazy, it's where Facebook
and PayPal and Netflix old down like crazy, and that hurt the
performance of the portfolio. Folio, and we're currently
trailing the S&P 500 by around 12%.
Now, a lot of people, look at this, and they make huge
conclusions, like the past couple of weeks we've been
behind the S&P 500. So All Is Lost, right?
The companies that were buying aren't doing well, that's not
exactly what this means. I want to highlight one quote
from Warren Buffett's, latest Berkshire.
Hathaway shareholder letter, he says, whatever our form of
ownership. Our goal is to have meaningful
investments in businesses with both durable economic advantages
and First class. Seos, please note particularly
that we own stocks based upon our expectations about their
long-term business performance, and not, because we view them as
vehicles for timely Market moves, a lot of people have
different views in the market. They say, well, we're behind
over the past couple of months, right?
The performance has some good, but that is Market fluctuations
because of interest rates Rising, a lot of the market has
shifted from growth companies to Value company's financials
energy and consumer defensive. Chinese that's market trading
that's not how I'm investing. I'm investing in the future.
Prospects of these companies and Warren Buffett goes on to say
that point is crucial. Charlie and I are not stock
Pickers. We are business Pickers.
So Warren Buffett makes a special effort to say, we're not
Market timers. We're not looking for short-term
Market plays. We're investing in quality
businesses, that we think will hold up very well, and they have
a lot of durability. So, I understand that right now,
the market timer play would be to jump into Commodities and
defense companies because there's a Interwar and energy
companies because oil prices are going up and I could try to time
those plays. That's not the type of investing
I'm doing. I do fundamental analysis on
companies that I think will have incredibly strong future
perspective growth, and I invest heavily in those companies.
It might not work out in the next six months, but over the
next four or five years, I think it will work out.
Now, having said that, let's go ahead and take a look at my
portfolio and why I continue to have so much money invested in
big Tech, why I like, these companies so much even at their
current valuations in first? Place we have Amazon.
I have 22,000 dollars of value in this company.
Then we have igv is my third largest holding eight percent of
this ETF is in Microsoft. So I actually have a decent
amount of this 20,000 in Microsoft then we have Google
seventeen thousand seven hundred dollars of value in Google.
Then we have seven thousand dollars in Microsoft and we even
have fifty nine hundred dollars in apple in this portfolio and
we have another $775 in Facebook.
I was fortunate enough to sell out a large Portion this company
before the major draw down and I'll explain why I did that in a
minute. But if we look at the valuations
of these companies, they can look a little scary based off
their PE ratio. For example, we take Amazon this
company has a 52 forward, P/E ratio, looks a little expensive.
Apple looks a lot better, it's out of 27, which still seems
kind of expensive, but, you know, it's Apple, it's a great
company. So maybe investors are just
paying up for this one. We have Microsoft to me.
This is one of the most wide moat businesses in the world,
but it still has a 30 to Forward.
P/E ratio. I still continue to believe that
Microsoft is undervalued. We have meta or Facebook trading
at a 16 forward, P/E ratio. Now, Facebook is not my favorite
company. I don't really love any of their
products that much. I don't care for Instagram that
much or Facebook, but I will say their Core Business is
incredibly cheap at a 16 forward, P/E ratio.
There's not a lot baked into the price here.
Then of course, we have Google, this is a company that I really
do like their products. Obviously, I love YouTube, they
have YouTube music youtube,best, Premium.
They have Google search. They have Android and they're
trying to get into cloud and this business trades at a 23
Ford P/E ratio. So when we just briefly, look
over these companies and their PE ratios, they look like
they're all kind of expensive but I think this all over
States. How expensive these companies
are. I think every one of them is
cheaper than the PE Ratio would imply.
And one of the big reasons that I think that the PE Ratio
actually overstates the expense of these companies making them
look like they're more expensive than they actually are.
Is because of how aggressively all of them reinvest and I want
to go over there. Reinvestment and growth strategy
with Microsoft. It's simple.
First of all, they copy other companies so they see Zoom
building out conference software.
They cieslak, building out chat software and Conference software
and Microsoft builds out teams. Did they think of that
themselves? Know they just copy those
companies and since they already have such a huge network of
companies, they work with their customer.
Acquisition cost is a fraction of these other companies so
Microsoft can copy other companies.
All the time and build out their same software and they can sell
it easier than those companies. That's a big way that they grow,
but Microsoft also reinvest heavily through Acquisitions.
They're constantly buying other companies, they bought
Minecraft, which was a very attractive by it's a cash cow.
Now, they bought LinkedIn. Possibly their best acquisition
ever. It's the only social network
that doesn't have the problems like Russia misinformation and
moderation problems with people being upset because it's a
business social network. But they're growing The ad
Revenue. They're like crazy.
Then they bought GitHub. This is a knowledge base that
they have and it gives them a further insight into the coding
industry. Then they have Activision
Blizzard as their current biggest acquisition, a 70
billion dollar acquisition of a massive gaming company.
That's a cash cow so Microsoft can take this enormous amount of
cash flow. They have continually by
companies left and right, Congress isn't stopping them and
they can copy any other companies in anything that
they're doing and implement it in.
Our core office suite, the growth potential of Microsoft is
still completely untapped, they can continue to grow like crazy
through copying and through buying now.
Next up we have apple Apple's. Reinvestment strategy is much
different than Microsoft's. They do copy features from other
things and implement it into their service.
So that's a similarity. But apple does not do
Acquisitions. They're not going out and buying
Minecraft or Netflix or Tesla or other companies.
That's just not the way that they run their business and they
reinvest rather they do Secret projects.
I do projects in secret for multiple years, not talking
about them, not advertising them, but they pour a ton of
money into these secret projects.
And if those projects are good enough to see the light of day,
to be able to actually go to a customer, they'll finally reveal
it, but they will only do that when they're confident, that it
will be a success. That's the only time Apple
actually reveals a project. And that's the reason that so
many things Apple does are successful, is because they work
on a lot of stuff and they'll only reveal it if they have a
Amount of confidence that it will be successful.
And we know a couple big directives are working on right
now in secret they're working on AR and VR, they're working on
the Apple car and they're working on Healthcare.
These are some of the things we know that they're working on.
Now, one of the rumored updates we have from Apple and their VR
headset, is the device has reportedly completed.
Second phase, engineering, validation test to ensure that
the Prototype units, meet apples design goals, and
specifications. Did you times added that the
headset is? Added to Depew by the end of
2020 to. So we could see an AR VR headset
from Apple debut by the end of this year.
So even though apples trading at, like a 27 PE ratio part of
the reason why is because they're putting so much money
into these projects. They're working on cars and
Healthcare AR and VR. They're pouring a lot of money
into this stuff that they could, otherwise be giving back to
shareholders through dividends or share BuyBacks.
So they would actually become more profitable if they weren't
pouring so much more money into these Aspen's.
But Apple thinks they'll create more value down the road with
these Investments. The next up, we have Google
Google, does long shot bets, but I'm not investing in Google
because of their long shot bed. So I actually think that there
are the weakest in terms of their reinvestment into these
long shot bets, most of their long shot.
Bets get scrapped most don't work out.
It's kind of like throwing spaghetti against the wall and
seeing what sticks? Right.
That's kind of the approach Google takes.
It's okay. Maybe something will work out in
the future. But the reason that I invest in
Google is because of their Core Business.
They have a very strong core
business with YouTube. You're seeing massive YouTube,
premium subscription growth YouTube.
Music is now being competitive with apple music and Spotify.
They have YouTube TV. They're also of course, the
owner of Android and they have Google cloud, which they're
trying to grow trying to compete with Amazon.
So Google has an incredibly strong core business but their
whole advertising Network and all the different things are
growing. But they're long shot bets from
what I've seen, they go on for years and they're usually not
that fruitful. So I'm not investing in Google.
Because of their long shot beds and the company trades at a low
20 s PE ratio. So even if none of their lung
shot bets turnout, I still think the company's undervalued just
based off of their Core Business.
Then we have Facebook Facebook. I actually think has the
riskiest reinvestment strategy. It's led by Mark Zuckerberg and
it's basically one directive. The big thing that they're doing
to grow the company and the future of it is the metaverse.
So they have a more concentrated bet than Any of the other big
tech companies on one directive which is a meta verse the other
ways that they're trying to grow.
Their Core Business is by basically engagement having
people. Stay on their platform for
longer, monetizing them for longer.
That's a big competitive industry.
They're competing with Tick-Tock and Netflix and YouTube and
anything else that takes your time away, Facebook's competing
with them. But in terms of the reinvestment
strategy, it is the most concentrated.
Everything is based off of One Thing, Mark Zuckerberg is
working on which is the metaverse.
So in my opinion, I think that this is actually a more risky
bet. Either it will work out big and
the company will go up multiples because they loan a huge part of
the future metaverse or it will just be a flop.
It'll be something like the Amazon Fire Phone, right?
It'll be something like the Microsoft phone or Apple's multi
charging pad. You know, some of these things
don't work out like expected. So Facebook can't make the
metaverse latch onto Society in the way that he envisions that
will be a big problem for Facebook.
So again, I think that this concentrated bets a bit more
risky than the other big Tech bets.
And that's the reason that I took a lot of the gains and
Facebook a couple months ago. Now, having said that Facebook
has traded down to such a ridiculously low, P/E ratio, the
even if the metaverse doesn't work out, I think they'll
continue to offer good value, just based on their Core
Business. Now, next up, we have Amazon
Amazon's reinvestment strategy is dramatically different than
Facebook's while Facebook has these concentrated bets where
they're putting everything into the metaverse and that's Mark
Zuckerberg is focused on Amazon. Never bet the farm on any one
thing they build out. Lots of small investments in
projects and then as they start to grow, they put more and more
focus on it and more effort on it.
That's how they grew AWS. That's how they grew their
Logistics. That's how they grew.
Alexa and all the smart home devices and that's what they did
with Amazon Prime video. They didn't start any of these
with twenty billion dollar initial Investments.
They just grew them from a small, starting point to now a
major business and they're doing the same thing with music and
physical retail, they continue to just look at different
potential projects, fund them with some growth, and the
continue to invest in them as they continue to show success.
So when I look at Amazon's reinvestment strategy, the way
that they run their business and try to grow it and try to
reinvest, I find it much more preferable to Facebook's because
again I think it's far less risky.
I think Amazon has a much higher chance of having a lot of these
projects work out and be fruitful than Facebook's.
So, that's the comparison I'd make.
Now, having said that Again, I think all these companies are
undervalued. I like the reinvestment strategy
from Microsoft app on Amazon, the most and Facebook's trading
at a very cheap price, even its Core Business.
Compared to its earnings is incredibly cheap.
So I think all these companies are undervalued but I think
Amazon has the most potential currently to surprise to the
upside. Now while we look at the P/E
ratios of big Tech and it can seem a little expensive because
they're in the mid-20s. I want to compare that basket of
companies. We just talked about to another
basket of companies. This is consumer defensives
companies that investors right now are piling money into.
We have McDonald's Corporation, the real estate and food company
that's trading at a twenty four point five for PE ratio keep in
mind. That's right there in line with
Apple. So McDonald's is as expensive as
apple with its current price to earnings ratio and it's actually
it's a little bit cheaper than Microsoft, but it's actually
more expensive than Facebook and more expensive than Google.
So McDonald's is At a higher price to earnings ratio than
Apple, Facebook, and Google. Now, what is McDonald's doing in
terms of their long shot, bets, in terms of building out
infrastructure for the future is McDonald's, releasing an AR and
VR headset later this year. That might revolutionize the
world right? Like some Apple devices really
end up doing. I don't think so.
I don't think McDonald's is doing a whole lot of
reinvestment McDonald's is probably incrementally building
out their business closing stores and underperform, opening
more stores that might perform. I'm better.
That's basically what they're doing.
They might adjust prices a little bit and raise prices, but
is this company, reinvesting anywhere close to the level that
big Tech is the answer is, no, we can look at the Clorox
company trading at a PE ratio of 33.
Again, investors are fleeing big Tech.
They're fleeing Cloud companies and they're rushing to companies
like Clorox. We can again look at big Tech
Amazon's out of 52. So Amazon is more expensive than
the Clorox, company apples cheaper, Microsoft.
Even cheaper, Facebook is cheaper and Google's cheaper
four out of five. Big tech companies are
substantially cheaper on a price to earnings ratio then the
Clorox company. Now maybe I'm missing something
here but it doesn't appear as though.
Clorox is growing like crazy. We can compare the revenue
growth of Clorox to the revenue growth of, let's say Microsoft
one of them sees incremental consistent growth, has a
extremely wide moat and then we have the Clorox company.
It's D flat. It might be going a little bit
over time but what am I missing with this company?
Are they doing any massive reinvestments?
Are they buying Activision Blizzard are they building out a
premium subscription model? You know what is this company
doing? In terms of reinvestment I would
stack up the reinvestment plan of Clorox against any big tech
company and I don't even think it comes close but yet investors
are paying a higher price for this company.
Then almost every single big tech company aside for Amazon.
That's the only one more expensive.
Now, we can cite more examples. We can Look at Kimberly-Clark.
This company trades, at a 22 forward.
P/E ratio, 22 forward. P/E investors are racing into
these companies, they're paying up for these companies.
It had three percent Revenue growth year over year last
quarter three percent. That's what the revenue growth
looks like over the past five years.
Again, we compare that to Facebook.
It's trading at a 16 for PE and had twenty percent Revenue
growth last year. So for 20 percent Revenue growth
with very high margins. You're paying a And for PE, and
with Google you're paying a 23 for PE for 32 percent Revenue
growth and extremely high margins.
But investors for whatever reason prefer this company they
think this is what's going to create future prosperity and
future wealth investing in Kimberly-Clark.
We can also take a look at Coca-Cola a company that's
almost completely stagnant. Not growing at all, and
investors are paying a 25.4 for PE ratio.
It, grew ten percent quarter over quarter last year.
But that's only because of the reopening because restaurants
reopened overall, the company's not growing Coca Cola is mostly
a stagnant company. And if you look at the earnings
per share, it's been this way for the past, almost 10 years,
the earnings per share have gone up almost none over the past 10
years but yet Coca-Cola is a company that investors are
paying a 25.5 forward. P/E ratio for this company
that's not building up the metaverse.
They're not building out YouTube premium.
They're not building out AR and VR headsets in the Apple car.
So they're not buying Activision Blizzard, in fact, they do very
little in the way of reinvestment.
It's trading at a higher price to earnings ratio than alphabet,
then Facebook and around the same PE ratio as Apple.
That's what investors are pricing this at.
So, when I compare these two groups of companies, on the one
hand, we have big Tech, we have Microsoft and Apple, Amazon,
Google and Facebook, and then in the other basket, we have these
type of companies. We have McDonald's the Clorox
company Kimberly-Clark and Coca-Cola.
If you compare the E ratio is to each other.
They're trading for around the same big Tech is selling for
around the same price as these companies.
And in my opinion, when I look at them over the next five years
and which ones are going to have bigger earnings and create more
value for shareholders. I think without question big
Tech will outperform this group of companies without question.
I don't even have any doubt in my mind that that will happen.
Big Tex earnings right now are artificially lowered based on
their heavy reinvestment, they're doing unlike
Kimberly-Clark and Coca-Cola, every big tech company is doing
Well, amounts of investments into future projects that will
probably create a lot more value for shareholders.
So I do comparative analysis of big Tech and their earnings
potential, the projects, they're working on.
And the moats are the business, how stable they are in durable?
They are. I continually think they're
undervalued compared to the Alternatives companies that
investors are rushing into oil companies commodity companies
and consumer defenses. I don't think that's where
you're going to get long-term wealth.
It might be a good trade, that might be a good trade over the
next couple of months, but that's not the way that I'm
investing. Investing for the long term for
the future and I see more value in these big tech companies that
I do in many of the Alternatives.
So I hope that gives some insight of why continually by
Amazon and these other companies.
Again if you want to see the three-part Series on Amazon,
there's a link in the description of joined the
patreon. I think if you try it out, you
really like it. But that's all for now.
I'll see you in the next one.