Market risks are concerning; America’s top 10 firms command $21 trillion in market value. For conservative investors, what constitutes a reasonable P/E ratio? Many of today’s equity funds have concentrated their investors’ holdings in these richly valued stocks, which carry an average P/E of 35.
The 10 Largest US Companies on January 7, 2025
| Symbol | Name | Market Cap ($ billion) |
Revenue ($ billion) |
Net Income ($ billion) |
P/S | P/E | FRR | FRR v2 |
| GOOGL | Alphabet | $2,410 | $339.9 | $94.3 | 7.09 | 25.6 | 61 | 25 |
| AMZN | Amazon | $2,393 | $620.1 | $49.9 | 3.86 | 48.0 | 71 | 59 |
| AAPL | Apple | $3,703 | $391.0 | $93.7 | 9.47 | 39.5 | 79 | -53 |
| BRK.A | Berkshire Hathaway | $973 | $453.0 | $106.9 | 2.15 | 9.1 | 17 | 93 |
| AVGO | Broadcom | $1,108 | $51.6 | $5.9 | 21.49 | 188.0 | 100 | -166 |
| META | Meta Platforms | $1,591 | $156.2 | $55.5 | 10.18 | 28.6 | 82 | 12 |
| MSFT | Microsoft | $3,181 | $254.2 | $90.5 | 12.51 | 35.1 | 84 | -30 |
| NVDA | NVIDIA | $3,660 | $113.3 | $63.1 | 32.31 | 58.0 | 93 | 24 |
| TSLA | Tesla | $1,319 | $97.2 | $12.7 | 13.58 | 103.9 | 95 | 46 |
| WMT | Walmart | $734 | $673.8 | $19.7 | 1.09 | 37.3 | 54 | -52 |
| Sum | $21,073 | $3,150.2 | $592.1 | 6.69 | 35.59 | 74 | -4 |
| Name | Market Cap ($ billion) |
Revenue ($ billion) |
Net Income ($ billion) |
P/S | P/E | FRR | FRR v2 |
| 10 Largest Companies with P/E > 100 |
$3,697 | $323 | $10.2 | 11.45 | 363.1 | 94 | -47 |
| 50 Companies, Market Cap > $50 Billion, with Highest P/E Ratios |
$1,890 | $186.3 | $13.9 | 10.15 | 135.9 | 90 | -99 |
| 1,452 Companies with Market Cap > $100 Million and P/E > 100 or Negative |
$8,846 | $2,709 | $310.0 | 3.26 | -28.5 | 79 | -84 |
Consider this: 50 mega-cap companies sport P/Es above 135, totaling $1.9 trillion in market value. Add to that 1,452 companies with P/Es exceeding 100, many without earnings. Does this represent prudent investment territory?
History offers lessons: During both the 2000-2002 and 2007-2008 market crashes, stocks with the steepest declines typically had the highest P/E ratios beforehand.
The S&P 500’s historical P/E patterns over 50 years are telling: P/Es fell below 10 roughly 15% of the time and exceeded 30 about 15% of the time. The performance difference is stark – when P/Es were below 10, subsequent 3-year returns averaged 42%, versus just 13% when P/Es topped 30. The 5-year return gap was even wider: 81% versus 10%.
At least two major risks loom: Rising interest rates typically pressure stock valuations downward, and recessions historically trigger major declines. ERS helps advisors protect their clients assets and grow them safely. Are you prepared for a major decline? Call ERS for strategies built on data science.