The Business Times

Tesla loses valuation race to Berkshire as growth stocks sputter

Published Wed, Nov 9, 2022 · 07:09 AM

AFTER a US$360 billion rout, Tesla has just been supplanted by old-economy stalwart Berkshire Hathaway as the fifth-biggest company in the S&P 500 Index.

The Elon Musk-led electric-vehicle maker’s shares closed with a market valuation of US$604 billion on Tuesday (Nov 8), versus nearly US$645 billion for Warren Buffett’s conglomerate, underscoring this year’s great economic upheaval as former high-flying technology stocks plunge anew while industrial companies outperform.

A former member of the US$1 trillion capitalisation club as recently as this April, Tesla has succumbed to a fresh drawdown since September. Thank a hawkish Federal Reserve that’s sending growth stocks ever lower - and the backlash caused by Musk’s mercurial acquisition of social media giant Twitter.

“Berkshire has branded itself as an American bedrock, a place to hide when one is uncertain about the future,” said Catherine Faddis, chief investment officer of Grace Capital.

The US stock market is witnessing the end of an era when richly priced tech companies with aggressive future growth plans could do no wrong. Rising interest rates are spurring investors to bid up value firms that offer stable cash flows in the here and now, while the relative resilience of the industrial and consumption cycle is proving a boon for steady and stable businesses.

The Dow Jones Industrial Average is far outperforming both the benchmark S&P 500 Index and the technology-heavy Nasdaq 100 Index, while Tesla’s 46 per cent slide this year compares with a just a 2 per cent drop for Berkshire.

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Meanwhile the four big technology companies - Apple, Microsoft, Google-parent Alphabet and Amazon.com - have all fallen at least 20 per cent so far in 2022.

Faddis also notes that Berkshire is hard to value in the current economic climate, given its holdings in growth companies like Apple and Microsoft, in addition to value stocks like American Express. The conglomerate also holds positions in privately held entities that are involved in everything from insurance and railroads to electric utilities.

“This is a great representation of slow and steady wins the race in the current environment,” said Arthur Hogan, chief market strategist at B Riley Wealth. “Value has underperformed growth for the better part of a decade, but the tide has certainly shifted this year and likely will continue into next year.” BLOOMBERG

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