The five largest stocks in the US equity market are now Technology stocks, and together they make up more than $2.75 TRILLION in market cap. (While Amazon.com’s official sector categorization is Consumer Discretionary, we consider it Tech first and foremost.)
Below is a list of the 25 largest S&P 500 stocks (through 4/25/17). The top five are highlighted in yellow — Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT), Amazon.com (AMZN), and Facebook (FB). It wasn’t long ago that Exxon Mobil (XOM) was the largest stock in the world, and prior to that, it was General Electric (GE). Now XOM ranks 7th and GE ranks 11th. Brick-and-mortar behemoth Wal-Mart (WMT) also used to rank in the top three, but it has slipped all the way down to 15th with a market cap that’s just over half the size of online competitor Amazon.com.
We thought we’d take a look at historical valuations for the five largest stocks in the S&P 500 using trailing 12-month P/E ratios.
As shown below, Apple used to trade much more like a “growth” stock prior to the Financial Crisis. During the current bull market, though, Apple’s average P/E has been 15 — which is more in-line with where a value stock trades. At 17.25x trailing 12-month earnings at the moment, Apple’s valuation is above its bull market average but not excessively so.
Alphabet’s (formerly Google) earnings have been growing nicely since the start of 2016, as its P/E is down even though its price is up sharply. Alphabet’s average trailing 12-month P/E over the last 10 years has been 28.83, and its P/E right now is just above that at 31.4.
Microsoft’s trailing 12-month P/E has been rising sharply along with its stock price over the last seven years. While the stock was considered “dead money” for much of the 2000s after its 1990s heyday, its re-invention in the cloud computing space has turned it back into a “growth” stock that now trades with a higher valuation. While stocks like Alphabet and Apple currently have P/Es that are just a blip above their 10-year averages, MSFT’s current P/E is double its 10-year average (32.7 now vs. 10-year average. of 16.1).
Amazon.com (AMZN) is a stock that has never traded based on the typical valuation metrics that investors like to use. Those investors that have traded the stock based on valuation are ones who have made negative bets on it — to the detriment of their portfolios. Even still, below we show AMZN’s trailing 12-month P/E ratio over the last 10 years. (The P/E was either above 1,000 or negative when you see it disappear on the chart.) Laughably, AMZN’s current trailing 12-month P/E of 183.83 is well below its 10-year average of 250+.
Finally, Facebook’s (FB) trailing 12-month P/E ratio has been drifting lower and lower since the start of 2016. Given that its stock price has been trending higher and higher over this time frame, that means earnings (the “E” in P/E) have been growing even faster than price. Since it IPOd in 2012, Facebook’s average trailing P/E ratio has steadily trended lower to its current level of 44.7.