My Top 3 Predictions for 2022
What Comes After Big Tech’s Big Decade?
As a kid growing up in Pittsburgh, I held two truths to be self-evident about the world I would live in as an adult.
First, the Soviet Union would dominate the U.S. militarily.
Second, Japan would dominate the U.S. economically.
Now both of these notions seem anachronistic – almost silly.
The Soviet Union has long been wiped off the map. And Japan’s aspirations of global economic dominance morphed into a steady economic decline.
Today’s conventional wisdom is all about how Big Tech will continue to dominate our lives. But history tells us that we are as likely to be wrong about Big Tech as we were about the Soviet Union and Japan.
Revisiting the World’s Most Valuable Companies
Looking at the shifting list of the world’s most valuable companies offers an important historical perspective.
1989 marked the peak of Japan’s mania. Japanese banks ruled the ranks of the global top 10.
Six of the 10 most valuable companies in the world were Japanese .
Exxon Mobil (NYSE: XOM) was the highest-ranking U.S. company, coming in at No. 5. Other U.S. companies in the top 10 included longtime blue chips like General Electric (NYSE: GE), International Business Machines (NYSE: IBM) and AT&T (NYSE: T).
A decade later, at the peak of the dot-com bubble in 1999, technology stocks topped the world rankings.
Microsoft (Nasdaq: MSFT) was the world’s most valuable company. Cisco (Nasdaq: CSCO) was set to become the world’s first trillion-dollar company . A single Japanese company – Nippon Telegraph & Telephone Corp. (OTC: NTTYY) – remained on the list at No. 10.
Fast-forward to 2009, and the technology sector had retreated.
Microsoft was the only tech company on the list. Japanese companies were nowhere to be found.
China had replaced Japan as the new global economic juggernaut. The world’s most valuable company was Chinese oil giant PetroChina (NYSE: PTR). Four of the top seven companies in the world were Chinese .
The Big Decade for Big Tech
The change in rankings of the top 10 most valuable global companies during the 2010s was dramatic .
In early 2021, six of the top 10 are U.S. technology companies. Two more are Chinese tech companies, Tencent Holdings Ltd. (OTC: TCEHY) and Alibaba (NYSE: BABA).
With eight of the top 10 companies residing in the technology sector, tech now dominates even more than it did during the dot-com boom.
Big Tech’s dominance for U.S. investors is even greater.
The five most valuable companies in the S&P 500 Index are Apple (Nasdaq: AAPL), Microsoft, Amazon (Nasdaq: AMZN), Alphabet (Nasdaq: GOOG) and Facebook (Nasdaq: FB).
These five U.S. tech giants now account for an incredible 31% of the S&P 500 and are worth roughly $9.9 trillion combined .
Big Tech has both dominated and disrupted our daily lives like never before.
Amazon disrupted Walmart (NYSE: WMT). Netflix (Nasdaq: NFLX) disrupted Hollywood. Twitter (NYSE: TWTR) disrupted the mainstream media. Facebook even tried to disrupt the U.S. government by issuing its own currency.
Big Tech seems to go from strength to strength. Seemingly impervious to crises, its position was only cemented by the pandemic.
Meanwhile, Big Tech gobbles up promising rivals even before they get to the starting gate. Facebook acquired WhatsApp and Instagram before they became a threat. Google has made more than 120 acquisitions in the last 10 years, including household names like YouTube.
The Future Global Top 10?
It’s hard to imagine a world where Big Tech does not dwarf other sectors. Yet history indicates that its era, too, will pass.
After all, Japan was as powerful in 1989 as Big Tech is today. The dot-com boom of 1999 turned out to be a textbook case of a financial mania. And since 2009, colossal Chinese banks have been lapped by both American and Chinese tech companies.
I cannot predict which companies will rank among the top 10 most valuable companies 10 years from now.
Only one thing is certain: The list will look very different from today’s.
With that caveat, here are my top three predictions for 2022.
No. 1: Don’t bet against Microsoft.
Over the past 20 years, only one company has consistently ranked among the world’s top 10.
Microsoft was the top dog in 1999. With a market cap of just over $1.8 trillion, it remains among the top three today.
If there is a one-decision stock among today’s global top 10, Microsoft is it.
No. 2: Energy stocks will rebound.
Exxon Mobil ranked among the world’s most valuable companies until about five years ago.
Today, traditional energy stocks are as cheap as any sector has ever been at any time .
SentimenTrader points out that 470 of the 663 energy stocks listed in the U.S. trade under $5. More than 390 stocks are trading below $2.
In the past 20-plus years, no other energy bust has seen more than 65% of these firms with a share price under $5.
The four other times when more than 55% of energy companies were trading below $5, the Energy Select Sector SPDR Fund (NYSE: XLE) was up an average of 47% a year later. And the ETF was up by averages of 82% and 99.7% within the next 24 and 36 months, respectively.
No. 3: COVID-19 recovery stocks will double (again).
As Baron Rothschild advised about investing in the stock market during times of crisis: “Buy when there is blood in the streets.”
The COVID-19 pandemic of 2020 certainly qualifies as such.
One rule of thumb I use is to look for stocks that are down by at least 90%.
Let’s look at the mathematics of why investing in stocks trading at a massive discount can be so powerful.
Say you buy a $2 stock that the market once valued at $100. You are buying it at a 98% discount. Suppose things get onlyslightly better – and the stock moves up to $10, a 90% discount. If you bought at $2 and the stock is trading at $10, the stock price has gone up fivefold.
Buying cruise lines, airlines, casinos and hotels back in April offered just those kinds of opportunities.
And I expect these stocks to double yet again.
Updated 8/25/21