Tech investors tend to buy companies like Amazon.com, Inc. [NASDAQ:AMZN] and Netflix Inc. [NASDAQ:NFLX], which trade at ridiculous multiples. They hype industry growth and addressable markets, using them to justify high valuations.
It’s very hard coming up with great ideas at will. Finding and understanding a good business is one thing. Then you have to find out whether the stock is worth the price it trades for.
Stock prices have come down a bit. But I wouldn’t call everything and anything a bargain. So we’re back to the age old investing questions, what should you buy?
Now I’m not the first to tell you about this. If you’ve paid any attention to any news source in the last month, this won’t be an awakening for you. You should have, and should buy the current tech dip..
I’m hopeful for more tariffs to come… If you remember in yesterday’s Money Morning, I wrote that taxes — whether that’s income or tariffs — are terrible. So why am I hopeful for more?
Amazon generated US$2.5 billion in profits for the quarter, up 1,186%! According to analysts, Amazon could see more than US$13 billion in profits by the end of 2018.
One way this will change is through the tools we use online. Take for instance your web browser. You probably use Chrome. It is the most widely used web browser on earth.
Were online books so profitable that they were able to fund the conglomerate that is now Amazon? Not really. But it was a platform on which Jeff Bezos built his vision. Making everything convenient and cheaper for customers.
It’s not that hard to see why most of the largest companies in the world are tech. These businesses generate billions in cash, they don’t cost too much to run and they’re reinvesting that cash to dominate existing and new industries. But what’s next?
To be trading at 238-times earnings, you’ve got to have some edge as a company. When it comes to Amazon.com, Inc. [NASDAQ:AMZN], they have multiple.