Kyle Anderson: The tech-centric Nasdaq Composite has fallen 2.6% since July 21, causing many investors to ask us, “Are we in a tech bubble?”
What’s prompting the fear is the Nasdaq’s impressive 12-month run prior to this recent drop.
From July 2014 to July 2015, the Nasdaq climbed 18.7%. During the same time, the Dow Jones Industrial Average climbed just 7.4%.
The S&P 500 was up just 8.5%.
On July 20, the Nasdaq hit a record high of 5,231.94. Then, investors started worrying that tech stocks had become overvalued, and the downward pressure on the index began.
But according to Money Morning Defense & Tech Specialist Michael A. Robinson, this is not a tech bubble.
In fact, he says you can find tech stocks to buyright now that are cheapcompared to the market…
“This is one thing that just about no one is talking about these days: Tech stocks are bargain priced,” Robinson said.
As Robinson points out, the Nasdaq costs only 12% more than the S&P 500. The Nasdaq 100 trades at 19.9 times forward earnings, while the Standard & Poor’s 500 Index trades at 17.8 times forward earnings.
However, in the last six months, the Nasdaq has more than doubled the return of the S&P 500, 12.1% to 5.2%.
“For just 12% more in cost, you get 133% better performance,” Robinson said.
But you need to analyze more than just forward earnings when discussing a tech bubble. And Robinson has found this other major reason why this is not a tech bubble we’re seeing right now.
IPOs Shed Light on the Tech Bubble Myth
According to Robinson, one of the biggest clues that this isn’t a tech bubble is the companies holding IPOs.
“Having worked with startups in Silicon Valley during the ‘dot-bomb’ implosion, I know what a real tech bubble looks like,” Robinson said. “We’re talking about companies going public in just six months from their founding and stocks traded at insane multiples to their earnings… and many that didn’t even have any sales.”
“Today, it’s just the reverse of that. Startups are opting to stay private far longer,” he continued. “They’re taking seven to 10 years before their initial public offering, meaning they become ‘real’ companies with meaningful sales and strong earnings growth before they even consider selling shares to public investors.”
What’s more, the Nasdaq’s recent performance hasn’t been all that bad.