Ama­zon, Al­pha­bet set to join ‘$1,000 Stock Club’

Mile­stone marker has lit­tle bear­ing on fu­ture per­for­mance

The Hamilton Spectator - - BUSINESS - ADAM SHELL USA To­day

Wall Street’s ex­clu­sive “$1,000 Stock Club” could soon be wel­com­ing two new mem­bers.

The stock prices of on­line re­tailer Ama­ and Google par­ent Al­pha­bet are within a few bucks of $1,000, the lat­est sign that big, dom­i­nant tech com­pa­nies are driv­ing the U.S. market higher.

At their peak Fri­day, Ama­zon shares hov­ered around $999, while In­ter­net search giant Al­pha­bet topped $996. (Google first crossed the $1,000 thresh­old in 2013.)

So should Main Street in­vestors cheer when a com­pany passes the $1,000 mile­stone, or worry?

Many Wall Street pros say the fig­ure is just a marker that catches peo­ple’s at­ten­tion and has lit­tle bear­ing on the fu­ture per­for­mance of ei­ther the com­pa­nies or market. But these fast-ris­ing stock prices do raise some yel­low flags, even for peo­ple with index funds di­ver­si­fied across the broad U.S. econ­omy.

For sure, top­ping a share price of $1,000 is a “tro­phy” for com­pa­nies and a clear “sign of suc­cess, dom­i­na­tion and growth,” says Dan Seiver, pro­fes­sor of eco­nom­ics at Cal Poly, San Luis Obispo, in Cal­i­for­nia.

Only seven U.S. stocks are trad­ing above that mile­stone, ac­cord­ing to S&P Dow Jones In­dices, but three gen­er­ate very lit­tle trad­ing ac­tiv­ity. War­ren Buf­fett’s Berk­shire Hath­away is the high­est-priced stock at $248,540 as of Fri­day’s close.

Mar­kets in the United States were closed for the Memo­rial Day hol­i­day.

Ama­zon, which is up more than 30 per cent this year and 1,500 per cent since the cur­rent bull market for stocks be­gan in 2009, is rid­ing its suc­cess as a dom­i­nant force in shop­ping and as a key player in ar­ti­fi­cial in­tel­li­gence, where it is best known for its Echo device.

Ama­zon is also huge in the fast­grow­ing “cloud” com­put­ing busi­ness.

Al­pha­bet’s Google is the biggest player in the on­line ad search space.

One po­ten­tial neg­a­tive is that Ama­zon’s and Al­pha­bet’s com­mand­ing po­si­tions are the lat­est signs that the U.S. stock market is be­ing driven by a few big stocks, which makes it vul­ner­a­ble if they fall out of favour and their shares turn lower.

Ma­jor stock in­dexes like the Stan­dard & Poor’s 500 and Nas­daq are weighted by a com­pany’s market value. That means the more valu­able the com­pany, the big­ger the ef­fect it has on the index, both up and down.

The five biggest stocks in the S&P 500 (Ama­zon ranks No. 2 and Al­pha­bet is No. 5) have ac­counted for nearly one-third of the large-com­pany index’s eight per cent gain this year, says Howard Sil­verblatt, se­nior index an­a­lyst at S&P Dow Jones In­dices.

“It tells you how much nar­rower the market has be­come and how much in­flu­ence (Ama­zon and Al­pha­bet) have on the stock in­dexes,” says Gary Kalt­baum, pres­i­dent of Kalt­baum Cap­i­tal Man­age­ment.

“If this trend con­tin­ues, it could be a cause for con­cern, as “even­tu­ally the market (takes down) the big dogs.”

Michael Farr, pres­i­dent of money-man­age­ment firm Farr Miller & Washington, warns that in­vestors buy­ing “pas­sive” funds that track in­dexes like the S&P 500 might have more ex­po­sure to tech than they think.

“The in­vest­ment im­pli­ca­tions of this trend are pro­found,” Farr says. “In­vestors who think they’re get­ting broad ex­po­sure through the pur­chase of an ETF that tracks the S&P 500 may not know that they are heav­ily con­cen­trated in a few stocks.”

A market led by a small group of highly val­ued com­pa­nies, he adds, could be a sign of an “ag­ing” bull market.

“Par­tic­i­pa­tion by a broader base of stocks in a wide range of in­dus­tries shows con­vic­tion in the eco­nomic out­look,” Farr ex­plains, “as well as the abil­ity of U.S. com­pa­nies to grow earn­ings.”

When a stock gets very high, it’s also less af­ford­able for in­di­vid­ual in­vestors.

“It makes the stock a lit­tle less ac­ces­si­ble in the eye of the re­tail in­vestor,” says Lindsey Bell, market strate­gist at CFRA, a Wall Street re­search firm. When a com­pany gets as ex­pen­sive as Ama­zon, she be­lieves it should con­sider split­ting its stock to make it more af­ford­able, as Ama­zon did three times in the late 1990s.

And Ap­ple, for ex­am­ple, in June 2014, did a 7-for-1 stock split which in­creased its pool of shares by seven times and re­duced each share’s price from roughly $645 to $92.


The Ama­zon Books store in New York City on open­ing day last Thurs­day.

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