Amazon.com Inc, Netflix Inc and technology companies poised to benefit from United States corporate tax cuts are attracting attention on Wall Street after their shares shrugged off recent market turbulence.
On 21 February 2018, Amazon increased over 2% and hit USD1,500 for the first time, while Netflix increased over 2% and nearly hit its own record high.
Investors are confident about the health of the U.S. economy, even after major indexes fell into correction territory at the beginning of the month, are doubling down on already well-known companies expected to post above-average earnings growth. Many of those are businesses poised to benefit from customers and companies with more money to spend and invest as a consequences U.S. tax cuts enacted this year.
Among such stocks, Amazon rose 2.7% since the end of January and Netflix rose 4.9%, both outperforming the S&P 500’s 3.3% decline.
According to Thomson Reuters, analysts on average expect Amazon to increase its adjusted, non-GAAP earnings per share by 82% this year. Netflix’s earnings per share are expected to more than three times.
This compares with expectations for S&P 500 aggregate earnings to expand by an unusually strong 19.1% in 2018, helped by a tax cuts and a stronger economy.
Based on data, Amazon and Netflix appear exceptionally costly compared with most stocks in terms of their earning valuations. At present, Amazon traded at 155 times earnings expected over the next 12 months, while Netflix traded at 94 times expected earnings.
Investors remain optimistic about the technology field. After leading last year’s stock market rally, the S&P 500 information technology index in 2018 is in a neck-and-neck lead with consumer discretionary, both about 4.9% higher year to date. Amazon is the most heavily weighted stock in the consumer discretionary index and accounted for much of its gain.
Following earnings growth of 20.5% for 2017, the S&P information technology field is expected by analysts to grow its earning by another 17.1% this year.