These value investors believe that you can not gain an advantage by looking
at big cap stocks followed by thousands of analysts.
Not exact matches
Here's one way to look
at it: The three
biggest stocks in the S&P 500 by market capitalization — Apple, Amazon and Alphabet — have a market
cap of $ 2.3 trillion.
Dollar Bill plans a
big short position on a pharmaceutical company
stock, but not everyone
at Axe
Cap approves.
In the process of scanning the investment landscape to find value amidst the all time highs for the indices, I've noticed that a number of
big cap tech
stocks are priced
at low valuations relative to their earnings and free cash flow, measured on an absolute basis and relative to their own historical valuations.
Value
stocks» outperformance is even more pronounced for small and mid
cap companies, because they tend to trade
at even
bigger discounts due to illiquidity and lack of analyst coverage, as well as being able to achieve higher growth rates than larger companies.
With thousands of analyst covering the
big cap stocks like MRK (Merck) and KO (Coke), you would not be getting more value by buying Merck
at a P / E of 8 vs Coke
at a 20 P / E.
And
at many of them insiders are paid too much and eat up a significant amount of shareholder money (whereas with large
cap stocks this usually isn't a
big deal).
Norm Rothery looks
at big returns from small -
cap stocks.
DF: I think S&P 500 could become a lot
bigger because if you look
at the percentage of
stocks owned by ETFs tracking the S&P 500 it's still a tiny percent of the total market
cap of the individual securities.