Remember this date: December 13, 2000.
That was the last time the NASDAQ closed above 2,930.
Yesterday, the once-mighty NASDAQ closed at an 11-year high at 2,931.
NASDAQ’s crown jewel, Apple (NASDAQ: AAPL), closed at $502 per share with a market cap of $468 billion, making it the biggest company in the world.
Regeneron Pharmaceuticals (NASDAQ: REGN), a biotech I recommended in my old “Cutting Edge” newsletter back in 1999 for less than $8 a share, also made a new record high yesterday to close at $1,14.65 a share.
What’s happening in the biotechnology sector is an eye-opener.
Here’s a 10-year chart of the iShares NASDAQ Biotechnology Index:
It’s sitting an all-time high.
Think about that for a second…
The biotechnology sector is the most speculative sector in the market.
It’s plagued with high burn rates, a frustrating and expensive FDA approval process, and each drug in development will cost between $500 million to $1 billion from start of clinical trials to final FDA review.
Most drugs in the clinic never get approved…
Yet the sector is hitting new highs.
What does that mean?
I think it means we’re in a new bull market.
Income expert Brit Ryle and I sat in our studio office last evening, crunching numbers and doing chart analysis while drinking a couple National Bohemians.
We focused on Apple.
As big as Apple is, its fundamental growth rates as a percentage is that of a small-cap growth stock.
Check out its revenue growth (in billions):
| 2007 |
2008 | 2009 |
2010 | 2011 |
TTM |
| $24 |
$32.4 |
$42.9 |
$65.2 |
$108 |
$127 |
The year-over-year revenue growth for Apple between 2007 and 2011 is 46%.
Here’s Apple’s net income growth during that period (in billions):
| 2007 |
2008 | 2009 |
2010 |
2011 | TTM |
| $3.49 |
$4.8 |
$8.2 |
$14 |
$25.9 |
$32.9 |
The year-over-year net income growth for Apple between 2007 and 2011 is 66%.
A giant tech company shouldn’t be growing its bottom line 66%… yet it is.
Now, back in the heyday of the tech bull market of the 1980s and 1990s, a growth stock growing earnings of 66% would’ve been awarded a premium by the market for that growth. (Think of it as a major league baseball owner paying his slugger a bonus for hitting 50+ homeruns in a single season.)
You may remember that back during the tech bull, the market would give a stock growing earnings 66% a P/E multiple of 66… at a minimum.
Today, Apple trades at a P/E multiple of 14. Its forward P/E multiple is 10!
And its PEG ratio? A paltry 0.61.
All of this points to a tech giant trading at a severe discount to its internal growth metrics.
Let me put this into perspective: If the market awarded Apple a trailing P/E multiple of 66 on its current EPS of $35.12, it would trade for $2,319 a share.
That would push its market cap to $2.1 trillion.
But here’s the thing: These same fundamental metrics are being seen all over tech land.
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Tech stocks — big and small — are trading at a discount to historical growth metrics.
But I think a major re-rating of this space — and the market overall — is coming…
Take a look at a chart of the NASDAQ:
You’ll notice that the NASDAQ has been forming a double-bottom pattern for the last 12 years.
It now sits at a breakout level. I think that breakout is coming.
And when you throw in the oil and gas boom the United States is experiencing, more disposal income in American hands, and declining unemployment… the stock market rally that’s coming is a powder keg.
Get ready.
The original bull on America,
Brian Hicks
Check us out on YouTube!Brian is a founding member and President of Angel Publishing. He writes about general investment strategies for Wealth Daily and Energy & Capital. For more on Brian, take a look at his editor’s page.
