The majority of debates on whether or not there is a market bubble center on the technology industry. However, investors might wish to search elsewhere.
In our call of the day, Stephen Jon Kaplan, the CEO of the True Contrarian blog and newsletter, cautions that those larger American corporations could not be worth purchasing for ten years.
According to Kaplan, the “real sign of the bubble is that there are many ordinary companies that have price-earnings and price-to-sales ratios which are several times their average historic levels.”
In an email reply to MarketWatch, the contrarian investor stated that “companies like Costco, Visa, Mastercard or Walmart are very unlikely to have similar innovations,” despite the fact that Apple and Nvidia have achieved ground-breaking technological advancements.
He points out that although Costco’s (COST) profits have increased by 8% to 9% year since 1983, the company’s price to earnings ratio, which normally ranges from 8 to 12 times, momentarily exceeded 60 times in December and is currently hovering around 55. Costco’s value has also drawn criticism from certain Wall Street experts.
“This is a true sign of a dangerous large-cap U.S. stock bubble, since even if we get a swarm of intergalactic visitors who shop at Costco, its annualized profit growth will not come close to justifying its current price,” Kaplan stated.
Two decades ago, Costco’s stock experienced turbulence, falling more than 57% from its peak of $60.50 a share in 2000 to its 2002 bottom of $25.94. This is often forgotten because companies like Yahoo and Amazon lost much more during that boom. He goes on to say that “boring” businesses like McDonald’s and Coca-Cola fell with IBM during the 1973–1974 Nifty Fifty selloff.
Kaplan worried about a tech bubble last year, but it didn’t happen. However, he has made wise predictions, including advising investors to purchase equities during the 2020 pandemic selloff and issuing a few timely warnings about tech selloffs.
He claims that based on the history of stock market bubbles, he will not be attracted to buy large-cap stocks even if they plummet in 2027 or 2028 and then rise again.
The U.S. stock market saw exceptionally high valuations in 1837, 1873, 1929, 1973, 1999, and 2024 in comparison to their profit growth. The most well-known large-cap U.S. shares experienced an average loss of almost 80% after this each time,” he stated.
These peaks were followed by bottoms each time, and “the big U.S. stocks underperformed most other assets during the next multiyear bull market.” He points out that the ETF that tracks the Nasdaq-100, QQQ QQQ, dropped 83.6% from its intraday peak in March 2000 to its intraday low on October 10, 2002.
The QQQ was still valued less than its peak on March 10, 2000, he claims, up to the end of that cycle on October 31, 2007.
He claims that investing in assets that have lost value recently will benefit investors more.
According to him, he plans to purchase gold and silver mining shares through exchange-traded funds (ETFs) like VanEck Gold Miners ETF GDX and VanEck Junior Gold Miners ETF GDXJ, Brazilian stocks through iShares MSCI Brazil ETF EWZ and iShares MSCI Brazil Small-Cap ETF EWZS, non-internet Chinese stocks ASHR, and small amounts of other emerging-market stocks through Mexico EWW, Vietnam VNM, and Indonesia EIDO. He stated that the timing of those acquisitions might be contingent upon the point at which investors had “given up on all of the above.”
