An interesting article on how the total domination in a sector of the economy plays out for the shareholders of the leading company involved :
http://smeadcap.com/smead-strategies/smead-blog/entries/2017…
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Excellent article, freecapital.
I’m invested in both AMZN and NFLX and it gives me some pause, as NFLX has grown into one of my largest holdings.
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From 2000 to 2016 their profits grew from $.86 per share to an $2.75 per share. The stock hit $60 in 2000 and trades at $62.60 on the 19th of January, 2017. Microsoft went through the grand divorce in the year 2000 by falling from $60 per share on March the 10th of 2000 to $20.75 on December 20th.
This was the part that stood out to me. MSFT’s earnings only roughly tripled. AMZN’s (and NFLX’s) earnings are expected to increase by factors of 10-20, maybe even more. And it’s not even supposed to take 16 years.
I’m not saying this will necessarily happen. I’m saying the article is comparing apples to oranges.
Bear
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Excellent article. However there’s one thing that gives me pause, where the author writes …
You can see from the chart above that the grand divorce for Disney, Johnson and Johnson, Coca Cola and General Electric occurred in the bear market of 1973-1974. These companies have succeeded for decades since and have never gone back to the high P/E ratios of the Nifty Fifty Era.
This is incorrect. Coca-Cola (at the very least) sported a higher PE in 1998. If I look at older Value Line summaries that include 1998, the average annualized PE ratio was 51.3, which corresponds well with my memory of the stock at that time. Given that the rest of the article appears well researched this seems a moderate oversight at best and potentially calls into doubt the quality of the research.