Tuesday, December 6, 2011

Investing: Yes, They Can

Negative thinking is in fashion these days. Part of it is the skepticism against stocks with a very high market capitalization, the so-called mega-caps with over $100 billion of market capitalization. For instance the financial information website MarketWatch asks are "behemoth stocks too big to succeed" (marketwatch.com) and the blog "the reformed Broker" has a guest post with the title "Mega Cap Growth Is An Oxymoron" (thereformedbroker.com).  The blog, which focuses on the technology giants Apple, Facebook & Google, claims that “mega cap growth is not sustainable". Other blogs, for instance abnormalreturns.com seem to share this argument.

I guess these comments go to far. Of course, you cannot expect growth rates of 100% and more like some startups show. But just a tiny fraction of the startups grow so fast and you know only in hindsight if they deliver or not. I believe that even big companies like Apple, Google and Facebook could have a solid & sustainable average growth rate of at least 20% a year which could double their market value every fourth year or so.

These companies focus now on the markets of U.S. and Europe, with just around 600 million people together. In the coming years they could tap the rest of the world, which has more than 6 billion people. The technical progress continuously reduces the cost of chips, smartphones, tablets and other internet-connected devices and makes them affordable for a lot of people, even in the emerging markets. A fast rising middle class in the BRIC-economies (Brazil, Russia, India & China) and other big countries like Turkey, Korea, Mexico or Indonesia will create huge and expanding markets.

I am in the camp of investor and blog writer James Altucher, who believes that Apple could grow to a market capitalization of $2-$3 trillion (but doesn`t say when finance.yahoo ). The reason: The company`s share in its key markets--smart-phones, tablets, and Macs - is still very low. And: Apple could tap new markets, like TV and whatever. I think companies like Apple, Facebook & Google could stay in a high growth mode as long as they stay cool and keep the competition at bay.

There also is plenty of money in the financial markets, sleeping in money market funds or commodities, which could be invested in mega-caps.

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