Microsoft (MSFT +0.66%) had long been blasted as being a stale technology company that "missed mobile" and couldn't innovate. While long-suffering shareholders for the past 10 years dealt with a frustratingly range-bound stock in owning Microsoft, shareholders of names like Apple and Google (GOOG +2.53%) have been very richly rewarded over that timeframe. However, something interesting has been happening in the markets over the past few weeks -- is Microsoft getting Google's money, or is something bigger going on?
What's been happening?
Over the past month, shares of Google are down 7.23%. Over that same period, shares of Microsoft are up a respectable 6.2%. Now, one could reasonably say that these moves aren't related -- it's just that Microsoft is breaking out to multi-year highs and Google is seeing a healthy pullback after such a massive run. While the direct Microsoft/Google inverse correlation may not exist, the past month has seen a general bias toward value rather than growth.
The following chart is split into two columns. On the left, we have the one-month returns of a number of household "value" technology stocks (all with price-to-earnings ratios under 15), and on the right, we have the 1-month returns of a number of household "growth" names. The trend is, for lack of a better word, interesting:
|
Value Tech |
1-Month Returns |
Growth Tech |
1-Month Returns |
|---|---|---|---|
|
IBM |
3.92% |
|
(20.48%) |
|
Apple |
4.34% |
|
(12.82%) |
|
Microsoft |
6.19% |
|
(7.23%) |
|
Intel |
2.3% |
ARM Holdings |
(1.87%) |
|
Hewlett-Packard |
8.19% |
3D Systems |
(24.8%) |
Notice a trend? The high-growth names that have done so well over the past year are starting to pretty severely underperform. What's going on here? Why is growth suddenly out of vogue and why is value now in?
Could it be buyer exhaustion?
Keep in mind that while the "growth" names in the right column have underperformed over the short term, they're still wildly outperforming almost all of their value brethren. Facebook is still up a whopping 172% from its 52-week low, and 3D Systems is still up 81% over the past year. While value name HP has performed quite well, up 40% over the past year, and while Microsoft has been a surprisingly potent performer, up 40.85% over the past year, the growth names have done better.
Could this be a case of buyer exhaustion? No matter how many companies Facebook manages to buy with its stock, there's still no escaping the fact that at its peak, Facebook's market capitalization nearly topped $200 billion on about $1.68 billion in trailing-12-month net income. At what point have all of the investors who are going to invest, invested? At what point do the valuations start to look ridiculous even with the most optimistic of assumptions?
When the growth names are all bid up, focus turns to value
The reason it's so interesting to look at value versus growth is to try to get a sense of what's going on here. Is it really a coincidence that as the valuations on the high-growth names become stretched that investors may be interested in taking their gains and putting those winnings into something a bit less risky to preserve that capital? Could that explain what's happening here?
Foolish takeaway
I'm not trying to disparage the "growth" names I've mentioned. When they're hot, they're hot, and they'll make investors much more money than most value-oriented names could hope to. However, when it's time for a stock like Facebook, Google, or Twitter to take a breather, that money has to go somewhere, and that somewhere appears to be value-oriented tech names.
