What is MAMAA?
For the uninitiated, MAMAA is an acronym for the top five tech stocks listed in the US. Together, they have a total market capitalisation of around US$10 Trillion and carry an approximate 21% weight in the S&P 500 index.
The five tech stocks that form the MAMAA acronym are Meta Platforms (Meta), Alphabet, Microsoft, Amazon, and Apple. This acronym was coined as a replacement for FAANG after Facebook changed its name to Meta Platforms.
MAMAA stocks performance in 2021
MAMAA as a group has done relatively well in 2021, as seen in Chart 1 above.
Individually, Alphabet had a terrific year, with shares up 73% year to date. This is followed by Microsoft, which gained 55%. Meanwhile, Apple, Meta, and Amazon’s shares rallied 37%, 28%, and 10%, respectively.
In comparison to major US indices
With reference to Chart 2 below, four out of five MAMAA stocks outperformed the three major US indices, namely Dow Jones, S&P 500, and the Nasdaq.
The only stock that underperformed was Amazon.
This can be attributed to how Amazon gained 76% in 2020, outperforming Microsoft, Meta, and Alphabet, which climbed 41%, 33%, and 31%, respectively. The top performer of these five stocks for 2020 was Apple, with an 81% price change.
The effect of the COVID-19 pandemic
These five stocks benefited from the multiple secular tech industry tailwinds because of the COVID-19 pandemic. For instance, there is solid demand for cloud computing, of which Microsoft and Amazon have a significant market share. They are the top 2 providers for this service globally.
Institutional demand for collaboration software and computer devices have also enabled Microsoft to record significant revenue growth in 2021.
Changes in consumer behavior
Changing consumer preferences and behaviour were also beneficial to this group of stocks. Meta and Alphabet recorded increased ad spending revenue across most of their platforms. This was led by global consumer confidence, thereby encouraging corporates to increase ad spending to capture the opportunities at hand.
Additionally, the stay-at-home effect of the COVID-19 pandemic led to higher time spent on platforms such as Facebook, Instagram and YouTube, further driving ad revenues.
There is also strong demand for consumer electronics such as the 5G-supported iPhone. This proved advantageous for Apple despite supply-chain constraints and chip shortages.
Would MAMAA stocks continue to outperform in 2022?
2022 could be another robust year for these MAMAA stocks as the growth prospects around cloud, cyber security, 5G, and the metaverse will help underpin further revenue growth.
Here’s the outlook for MAMAA stocks in 2022 and some risks you should keep an eye out for.
Potential catalysts
Pent-up demand from supply chain backlogs and the improvement of the COVID-19 pandemic situation could be additional catalysts for these tech stocks, thereby leading to a multi-year supercycle.
Share prices would also be supported by the strong balance sheet of these stocks. After all, they have historically carried out significant levels of share buybacks.
Any major acquisitions or spin-offs of profitable platforms such as Alphabet’s YouTube or Amazon’s Web Services could fuel market interest and lead to higher share prices.
Possible risks
The possible risks for these companies are largely of recurring themes and issues.
This includes lawsuits involving anti-monopoly and service disruption, potentially leading to severe penalties. The reopening theme could also lead to lower utilisation of the various tech offerings.
From a macroeconomic perspective, the key downside stems from a central bank’s monetary policy actions. This includes potential rate hikes compressing valuations and monetary tapering, which indirectly removes liquidity from the equities market.
The US is also due for mid-term elections in November 2022 and markets have typically exhibited elevated volatility in the months leading up to an election. This is due to the uncertainty brought about by the candidates’ odds of victory.
Valuation of MAMAA stocks
| Company | Price/LTM sales | Price/Book | Price/Earnings | Price/Earnings Growth |
| Meta Platforms | 8.3 | 6.6 | 23.1 | 0.39 |
| Alphabet | 8.2 | 5.6 | 27.6 | 0.27 |
| Microsoft | 14.3 | 13.6 | 37.0 | 0.83 |
| Amazon | 3.8 | 19.7 | 66.1 | 1.34 |
| Apple | 7.9 | 34.5 | 30.5 | 0.43 |
We can see that Amazon appears to be valued cheaply, with a P/LTM sales valuation of 3.8x. Meanwhile, Meta has a relatively low P/E ratio of only 23.1x.
The favourable market expectations also result in a Price/Earnings Growth(PEG) of less than 1.0x for all MAMAA stocks except Amazon.
The PEG ratio is calculated by dividing a stock’s price-to-earnings (P/E) ratio by the growth rate of its earnings. It is used to determine a stock’s value while also factoring in a company’s expected earnings growth. It is also believed to provide a more complete picture than the more standard P/E ratio as it builds in an element of market expectation which could prove lofty should expectations not pan out.
Let’s take Meta as an example. Based on the current P/E ratio of 23x, a PEG ratio of 1.0x means that the market’s expectation of EPS growth is about 23%. A ratio of 1.5x would then imply an expected EPS growth of 11.5%, and a ratio of 0.5x indicates an expected EPS growth of 46%.
P.S. if you wish to learn how you can valuate companies on your own, this free value investing guide helps you get started
Should you own MAMAA stocks in 2022?
Overall, the MAMAA stocks have done well in 2021. Their market continues to beat historical performance due to secular tailwinds benefiting them individually.
2022 is likely to be another strong year with growth prospects in various segments such as cloud and the metaverse. Share buybacks and capital transactions could also further boost share valuations. Concurrently, the perennial downside risks include litigation against the big tech companies and a strong reopening after the COVID-19 pandemic.
There are also liquidity and valuation risks from central banks who have begun to adopt a slight contractionary monetary policy after two years of expansionary policies.
However, valuations seem reasonable, especially with the low PEG ratios for most of the MAMAA stocks. Should the companies deliver on the market’s earnings growth expectations, there will be significant upside.
Regardless, it is important to take note of political developments and the months leading up to the US mid-term elections, which have historically seen higher market volatility.
