Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Don't expect too much excitement on the last full trading day before the Thanksgiving holiday: Stocks opened little changed this morning, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (^DJI +1.24%) up 0.25% and 0.15%, respectively, at 10:10 a.m. EST.
As such, it's the perfect opportunity to take a longer-term view and reflect on a milestone: Yesterday, the Nasdaq Composite Index closed above 4,000 for the first time in more than 13 years. While that level doesn't have any intrinsic significance, it's worth taking a few minutes to think about how the index has changed since then and what that reflects in terms of technology stocks.
The following table shows the top three companies in the Nasdaq Composite Index by market value as of yesterday's close and on Sept. 7, 2000 -- the prior date on which the index last closed above 4,000:
|
Current* |
Sept. 7, 2000 |
|---|---|
|
Apple $479.9 billion |
Cisco Systems (CSCO 2.94%) $465.3 billion |
|
$353.6 billion |
Intel (INTC +4.36%) $451.7 billion |
|
Microsoft $311.8 billion |
Microsoft (MSFT +0.66%) $368.7 billion |
*As of Nov. 26, 2013.
Only Microsoft remains in the top three today, symbolizing personal computers' decline and the "Wintel" duopoly that supplied the software and processors that ran them. Conversely, the appearance of Apple and Google at the top of today's list illustrate the rise of alternative operating systems (iOS for Apple, Android for Google) and, even more so, that of mobile devices -- mobile handsets and tablets.
Apple's market value was just $20.1 billion the last time the Nasdaq was at 4,000. Incredibly, Google had just celebrated its second birthday on that date and was several years away from going public. Google is undoubtedly one of the greatest growth stories in U.S. corporate history -- arguably the greatest.
Here's how the four stocks that were around back then did, on a price basis, while the Nasdaq did a "back-and-forth":
|
Company |
Price Change Between Nasdaq 4,000 No. 1 and No. 2 |
|---|---|
|
Apple |
1,621% |
|
Microsoft |
6% |
|
Intel |
(65%) |
|
Cisco Systems |
(68%) |
For the three laggards, Microsoft, Intel and Cisco Systems, that ought to have been somewhat predictable -- all three were sporting a combination of $300 billion-plus market capitalizations and price-to-earnings ratios of between 44 (Microsoft) and 154 (Cisco Systems). Of course, everything is obvious in hindsight, you may retort, but here's something that isn't hindsight: Pockets of the technology sector are either in a bubble right now or are close to one.
Take Facebook (FB +1.33%), for example: At $112.6 billion, its market capitalization now is roughly the same as Cisco's and Intel's. However, with the stock valued at 44.5 times the next 12 months' earnings-per-share estimate, it appears investors may be committing the same mistake they made thirteen years ago (although not as egregious). From today's level, superlative returns will be hard to come by and can only correspond to a best-case -- not base-case -- scenario for the social-networking leader. And, as we saw above with "Wintel," even businesses that look impregnable can struggle to adapt as the environment shifts underneath their feet.
