Turnaround Investing Blog

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Amazon = US GDP 1970

As you’ve probably heard, earlier this week Amazon (AMZN) reached $1 trillion in market capitalization, joining Apple (APPL) in a highly exclusive club.

But what, really, is a trillion dollars? At The Turnaround Letter, we’re big fans of comparing numbers to gain some perspective. So, here’s what $1 trillion is equivalent to:

  • The size of the entire U.S. economy, as measured by GDP, in 19701
  • The combined market cap of the smallest 100 companies in the S&P 500 index2
  • The total value of New York City property3
  • The expected U.S. federal government budget deficit for fiscal year 20194
  • The combined market caps of Bank of America, Wells Fargo, and JP Morgan, the three largest banks in terms of market cap in the United States.2
  • The total amount of loans on the balance sheet of JP Morgan, the nation’s largest bank by asset size.5

For additional perspective, here is how $1 trillion compares to some other benchmarks:

  • Market cap of the entire global stock market at year-end 2017: $80 trillion6
  • Value of all of the gold ever mined: $8.1 trillion7
  • The entire national output of Spain: about $1.3 trillion8
  • Fidelity Investments has total assets under management of about $2.5 trillion.9

The roughly 2% decline in both companies’ share prices over the past few days, which on a percentage basis doesn’t seem very meaningful, translates to about $20 billion. This is what $20 billion compares to:

  • The entire market cap of companies like eBay, General Mills and Halliburton2
  • The #200-ranked company in the S&P 500 index in terms of market cap2

Jeff Bezos, founder and chairman of Amazon, owns about 78.9 million AMZN shares, or just over 16% of its total shares outstanding. His $160 billion in personal share holdings:

  • Ranks his holdings in the #33 spot in the S&P 500 in terms of market cap, about the same as entire companies like Coca-Cola, Citigroup and Disney and Netflix2
  • Equals the value of the entire housing stock of Columbus, Ohio.10

Investors clearly have been enthralled with both stories. Amazon’s share price gains in particular have been stunning. Its shares are up 67% year-to-date and up 530% since the start of 2014 (a 63% annualized increase).

We aren’t bold enough to predict whether Amazon and Apple shares will continue their meteoric surges, or if they are in a bubble that is just now reaching a maximum state of inflation.  It appears to us that Amazon’s growth prospects, for now, are open-ended, particularly with their highly profitable Amazon Web Services (AWS) business which provides cloud-based data services. Apple, however, is likely approaching some limit to their ability to sell ever-more volumes of new hardware and services.

Amazon’s shares currently sport remarkably high price/earnings multiples of 111x this year’s expected earnings and 51x expected earnings in 2020 (which factors in the likely sharp growth in profits over the next two years). Apple is more modestly priced at 19.0x this year’s earnings and 14.9x estimated 2020 earnings.

Setting aside for a moment their investment prospects, let’s admire the truly remarkable milestone that these two companies have reached.

  1. U.S. Bureau of Economic Analysis, Department of Commerce. Current U.S. GDP is about $20.4 trillion today.
  2. Based on holdings of the S&P 500 SPDR ETF, State Street Global Advisors.
  3. New York City Department of Finance annual preliminary property tax assessment for 2017.
  4. White House Office of Management and Budget projections.
  5. JP Morgan, 2Q18 reports.
  6. Goldman Sachs estimate for December 31, 2017.
  7. World Gold Council, Wall Street Journal.
  8. International Monetary Fund, in US$, for 2017.
  9. Fidelity Investments website, “Total assets managed” on March 31, 2018.
  10. Zillow, year-end 2017 estimate.

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Amazon = US GDP 1970

Amazon joined Apple in reaching a $1 trillion market capitalization. $1 trillion is about the same as the total value of New York City property and the total value of loans at JP Morgan, the nation’s largest bank in terms of assets. Jeff Bezos’ $160 billion stake would place him (personally) as the #33 largest company in the S&P 500 in terms of market cap, next to Coca-Cola, Disney and Netflix. We aren’t bold enough to predict whether the shares will continue upwards or if they are in a bubble reaching maximum inflation. Setting aside for a moment their investment prospects, let’s admire the truly remarkable milestone that these two companies have reached. Read More.

EV/EBITDA: What Is It & Why Are We Using It More?

In reading recent editions of The Turnaround Letter, you have probably noticed that we are increasingly using EV/EBITDA as a valuation measure, rather than the better-known price/earnings multiple.  We thought it might be useful to describe this measure and why we like it.

Read More.

Turnaround Letter Stock Pick Named Top Performer of 2017

 

stock market advicex

 

What Last Year's Top Stock Pickers Are Buying in 2018

 

This Forbes write-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.

 

George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."