The stock market has been whipsawed by immense volatility since the beginning of the year, due primarily to concerns over high inflation and the Federal Reserve’s plans to raise interest rates several times this year. Although an improving labor market, strong GDP growth, and impressive corporate earnings indicate a steady economic recovery this year, market volatility will likely persist until the Fed’s actions are clearer.
Against this backdrop, investors should seek investment opportunities in mega-cap stocks because they tend to offer relatively stable returns and help dodge the market fluctuations. In fact, their market dominance should help them benefit hugely from the economic recovery this year. However, despite their recent declines, not all mega-cap stocks may be good bets now.
Despite declining more than 5% in price year-to-date, popular mega-cap stocks Amazon.com, Inc. (AMZN), Tesla, Inc. (TSLA), The Home Depot, Inc. (HD), and NIKE, Inc. (NKE) look overvalued. These companies’ long-term growth prospects may not translate into sufficient upside in the near term to justify their heir stocks’ current valuations.
Amazon.com, Inc. (AMZN)
With a market capitalization of $1.64 trillion, AMZN in Seattle, Wash., is a multinational technology company that is an online retailer of consumer products and subscriptions, and operator of Amazon Web Services (AWS), one of the biggest cloud platforms in the digital computing space. The company offers storage, database, analytics, machine learning, fulfillment, advertising, publishing, and digital content subscriptions. It also offers personalized shopping services, web-based credit card payment, and direct shipping.
On Feb. 3, 2022, Best Buy Co., Inc. (BBY), a multinational consumer electronics retailer, selected AMZN’s Amazon Web Services, Inc. (AWS) as its preferred cloud provider for cloud infrastructure services and its strategic partner for developing cloud engineering talent. The collaboration should help BBY further apply cloud technology across its retail operations and deliver better customer experiences. This should help AMZN maintain a long-term partnership with BBY.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, AMZN’s operating income came in at $3.46 billion, representing a 49.7% year-over-year decline. The company had $36.22 billion in cash and cash equivalents as of December 31, 2021, down 14% from the end of fiscal 2020.
The $9.45 consensus EPS estimate for its fiscal 2022 first quarter, ending March 31, 2022, represents a 40.2% decline from the prior-year period. The stock has declined 5.3% in price year-to-date to close yesterday’s trading session at $3228.27.
In terms of forward EV/Sales, AMZN is currently trading at 3.05x, which is 137.2% higher than the 1.29x industry average. And in terms of forward Price/Book, AMZN is currently trading at 8.93x, which is 202.8% higher than the 2.95x industry average.
AMZN’s weak prospects are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
AMZN has a D grade for Value and Growth. To see additional POWR Ratings for AMZN’s Stability, Sentiment, Quality, and Momentum, click here. Of the 77 stocks in the F-rated Internet industry, AMZN is ranked #24.
Tesla, Inc. (TSLA)
As the U.S.’ largest producer of electric vehicles, TSLA designs, develops, manufactures, leases, and sells high-performance EVs and electric powertrain components. The Austin, Tex., company also offers services related to its sustainable energy products internationally. The company operates in two segments—Automotive and Energy Generation and Storage. It develops energy storage products, commercial facilities, and utility sites and owns its sales and service network. It has $952.90 billion in market capitalization.
In the 2021 fourth quarter, TSLA produced more than 305,000 vehicles and delivered more than 308,000 vehicles. TSLA produced 13,109 Model S/X vehicles in the fourth quarter, compared to 8,941 vehicles in the third quarter. And 292,731 Model 3/Y vehicles were produced in the fourth quarter, versus 228,882 vehicles in the third quarter.
As of Dec. 31, 2021, TSLA had $17.58 billion in cash and cash equivalents, down 9.3% from the end of fiscal 2020. The stock has declined 14.1% in price year-to-date to end yesterday’s trading session at $922. TSLA’s 11.30x forward EV/Sales is 779% higher than the 1.29x industry average. And in terms of forward Price/Book, TSLA is currently trading at 23.09x, which is 682.6% higher than the 2.95x industry average.
TSLA’s POWR Ratings reflect this bleak outlook. The stock has a D grade for Value and Stability. Click here to see the additional ratings for TSLA’s Sentiment, Quality, Momentum, and Growth. Among the 69 stocks in the F-rated Auto & Vehicle Manufacturers industry, TSLA is ranked #30.
Click here to checkout our Electric Vehicle Industry Report for 2022
The Home Depot, Inc. (HD)
HD operates is a home improvement retailer that sells various building materials, home improvement products, decor products, lawn and garden products and provides installation, tool and equipment rental, and home maintenance services. The Atlanta, Ga.-based company sells its products through brick-and-mortar stores and online and serves do-it-yourself and professional customers. It has a market capitalization of $377.43 billion.
On Oct. 6, 2021, HD teamed up with popular retailer Walmart Inc. (WMT) to expand home improvement customers’ same-day and next-day delivery capabilities. With WMT’s Walmart GoLocal, HD is looking forward to making fast and reliable local delivery available in both rural and suburban areas for the same-day or next-day, and to providing the most convenient shopping experience.
HD had $5.07 billion in cash and equivalents as of Oct. 31, 2021, down 65.4% from the prior-year period. Analysts expect its EPS to be $3.64 for its fiscal year 2023 first quarter, ending April 30, 2022, representing a 6.6% decline from the prior-year period. The $36.09 billion consensus revenue estimate for the same quarter represents a 3.8% year-over-year decline. HD has declined 13.9% in price year-to-date and ended yesterday’s trading session at $361.44.
HD’s 2.77x forward EV/Sales is 115.8% higher than the 1.29x industry average. In terms of forward Price/Book, HD is currently trading at 2530.81x, which is 85672.4% higher than the 2.95x industry average.
HD’s weak fundamentals are reflected in its POWR Ratings. The stock has a D grade for Value. Click here to see the additional ratings for HD (Quality, Growth, Stability, Sentiment, and Momentum). HD is ranked #25 of 61 stocks in the B-rated Home Improvement & Goods industry.
NIKE, Inc. (NKE)
NKE in Beaverton, Ore., designs and markets athletic footwear, apparel, equipment, and accessories for men, women, and children worldwide. The company sells its products to retail stores worldwide through its own stores, subsidiaries, and distributors. It has a market capitalization of $226.96 billion.
On Dec. 13, 2021, NKE acquired RTFKT, an innovative brand that utilizes next-generation technology to create unique sneakers and digital artefacts. This acquisition should help NKE expand its digital footprint and capabilities and serve athletes and creators at the intersection of sport, creativity, gaming, and culture.
NKE had $10.75 billion in cash and equivalents as of Nov. 30, 2021. The $0.72 consensus EPS estimate for its fiscal 2022 third quarter, ending Feb. 28, 2022, represents a 20% decline from the prior-year period.
The stock has declined 12.9% year-to-date and closed yesterday’s trading session at $143.53. In terms of forward EV/Sales, NKE is currently trading at 4.83x, which is 275.7% higher than the 1.29x industry average. And in terms of forward Price/Book, NKE is currently trading at 16.74x, which is 467.4% higher than the 2.95x industry average.
NKE’s POWR Ratings are consistent with this bleak outlook. The stock has a D grade for Value and Growth. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for NKE’s Stability, Sentiment, Quality, and Momentum here. NKE is ranked #20 of 35 stocks in the B-rated Athletics & Recreation industry
AMZN shares were trading at $3,229.68 per share on Wednesday afternoon, up $1.41 (+0.04%). Year-to-date, AMZN has declined -3.14%, versus a -3.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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