Exactly what it says on the tin, from Citi in a note entitled “Living the Dream; Owning the FANTASY”.
In our opinion, the powerful growth stories centered on software, social media and the spread of technology into all aspects of daily living have blossomed and captured investors’ imaginations. The Street has become enamored with what we have dubbed the FANTASY stocks, which have added about $380 billion to the S&P 500’s market cap (ex-Tesla) thus far this year, accounting for roughly 23% of the market cap gain of the index. But, it is not a fair statement since other names like Exxon have dropped meaningfully dragging down the index while Wynn Resorts has pulled it higher. Note that more than half of the S&P 500 constituents have beaten the market year to date and 30% have generated negative returns. Accordingly, there have been far more winners than losers in 2017 thus far.
There is only modest FANTASY distortion on valuation for the broader market, but the potential for a reversal of the sector rotation towards growth over the past few months exists. Figure 3 provides some insight into the valuation and market caps of the FANTASY names, recognizing Tesla is not part of the S&P 500 and that Alphabet is not as highly valued. Furthermore, the market cap weighted P/E of the FANTASY components runs at about 61.7x versus 21.6x for the overall index (using trailing four quarters EPS). The non-FANTASY included multiple might be closer to 20.8x, still not “cheap” per se but a bit less elevated than feared. More critically, tech stocks as a whole are not as outrageously priced versus levels seen back in 2000 (see Figure 4).
That’s Facebook, Amazon, Nvidia, Tesla, Alphabet, Salesforce.com and Yahoo for those who can’t work it out/ those who will want to add more letters in search of a future acronym-signalled top.
More in the usual place.