For most companies, the 2019 coronavirus disease pandemic (COVID-19) represents one of the most disturbing events through which it has passed. But for the largest companies in the market, it represents an opportunity to grow even more.
Despite the historical volatility of the stock market, heavy technology Nasdaq compound It has reached more than two dozen record highs in 2020, with Apple, Microsoft, Amazonand Alphabet, the parent company of Google and YouTube, leading the way. All four companies are part of the psychologically important $ 1 trillion market capitalization club.
The question is, which company will be the next to join them? Although it might be a while, without any other public company having a market capitalization greater than $ 690 billion right now, the following four stocks are, in my opinion, the most likely to hit a $ 1 trillion valuation below .
Image source: Getty Images.
Facebook: current market capitalization of $ 690 billion
The company most likely to ascend to the trillion-dollar state is the social media giant Facebook (NASDAQ: FB). Yes, it certainly helps that Facebook only has $ 310 billion before reaching a $ 1 trillion valuation. However, there is more than just proximity.
One of the reasons Facebook is a rock in the social media space is because of its ability to attract users. At the end of the first quarter, Facebook had 2.6 billion monthly active users (MAU), and just under 3 billion MAU when taking into account all of its own sites, including Instagram and WhatsApp. These numbers are staggering, and advertisers will leverage whatever it takes to reach a target audience. This gives Facebook incredible pricing power in virtually any economic environment.
Perhaps even more surprising is the fact that Facebook has not even monetized some of its most valuable assets. Although it has been generating mountains of ad revenue on Facebook and Instagram, the company has not even scratched the surface in terms of monetizing Facebook Messenger and WhatsApp. Once Facebook opens the floodgates to monetize its other popular platforms, you should have little trouble reaching a $ 1 trillion market cap.
Image source: Getty Images.
Visa: current market capitalization of $ 429 billion
The second most likely company to reach a $ 1 trillion valuation is the payment processing giant. Visa (NYSE: V). To reach this psychological market cap, Visa’s stock price would need to rise 133%. By context, Visa’s share price increased 996% over the 10-year period, making a 133% gain well within reach.
Arguably the biggest catalyst in Visa’s quest to hit $ 1 trillion will be its dominance in the US market. Currently, Visa controls more than half of the volume of purchases of the credit card network in the United States, which is perfect considering that 70% of the gross domestic product of this country depends on consumption. If the United States shoots out of the coronavirus recession, Visa will be in good shape to take advantage of the rebound.
It is worth noting that the COVID-19 pandemic could be a long-term victory for Visa. Since cash is currently considered to be a possible source of the spread of germs, the coronavirus could accelerate the movement toward the use of more plastic.
Also, don’t forget that Visa is purely a payment processor and not a lender. While this prevents the business from generating interest income during periods of rapid economic expansion, it also does not have direct consequences if loan delinquency increases during an economic contraction or recession. This is a great reason why Visa’s profit margin is over 50%.
A jubilant Warren Buffett at the Berkshire Hathaway shareholders’ meeting. Image source: The Motley Fool.
Berkshire Hathaway: current market capitalization of $ 464 billion
Next, I think Warren Buffett’s conglomerate Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) it could have a path to a $ 1 trillion valuation. Although Buffett has underperformed S&P 500 Over the past decade, it has brought Berkshire to an average annual return of 20.3% over the past 55 years. At this rate of return, Berkshire could reach a valuation of $ 1 trillion in less than four years.
The two blows against Berkshire Hathaway are that it is not a high-growth company like Facebook or Visa and, at least in the short term, it will be affected by the poor performance of bank stocks. Buffett’s favorite industry to invest in is banks, and they have been hit by lower interest rates and higher provisions for bad loans linked to the coronavirus pandemic.
But that doesn’t mean Berkshire Hathaway can’t beat Facebook or Visa at the trillion-dollar club. Warren Buffett still has a knack for picking winners. Apple, for example, has generated more than $ 60 billion in unrealized earnings, not including dividends, in approximately four years for Berkshire Hathaway. With his company with a record $ 137 billion in cash as of the end of March 2020, Buffett has the firepower to make more game-changing investments.
Similarly, Buffett and his team may go on the offensive with acquisitions. The deal to acquire Dominion EnergyThe $ 9.7 billion natural gas storage and transmission assets could be just the beginning of an acquisition and accelerated growth for Berkshire Hathaway.
A Tesla Model S plugged in and charging. Image source: Tesla.
Tesla: current market capitalization of $ 278 billion
Fourth and finally, the wild card of the group, Tesla (NASDAQ: TSLA). Electric vehicle (EV) maker Tesla would need its share price to rise approximately 260% to reach the trillion-dollar status. Sounds ridiculous, but so does the $ 500 share price in Tesla just six months ago. As of last weekend, it closed above $ 1,500 per share.
The biggest catalyst working for Tesla right now is “FOMO,” or “fear or get lost.” Although a bubble appears to have formed in the electric vehicle industry, history has shown that it is impossible to predict when these bubbles will disappear. Therefore, raising the stakes against Tesla on the short side (and the subsequent short squeeze) could be just what raises this company to a $ 1 trillion valuation. Whether it stays above $ 1 trillion for a significant period of time is another story.
Beyond talking about bubbles and FOMO, Tesla has successfully built an automotive company from scratch to reach the point of mass production. It is the first new car company to do that in more than five decades. Electric vehicles are undoubtedly the future of the auto industry, and the expectation is that the mass-production advantage of Tesla’s first engine will allow it to maintain superior brand appeal, especially among the wealthier clientele.
If we talk only on the basis of forward-looking fundamentals, I would tell you that Tesla has little chance of hitting $ 1 trillion before Facebook, Visa and Berkshire Hathaway. But Tesla’s rapid sales growth and production expansion, coupled with an epic little squeeze, could be the solution.
