MW The companies where investors have the highest hopes and dreams have some predictable, and surprising, results

By Steve Goldstein

Palantir has the highest valuation versus the next three years of earnings of any S&P 500 with a positive book value

Restaurant chains are among the companies in which investors have the highest expectations once book value and projected earnings over the next three years are discounted.

There's an interesting research note out of the U.K., arguing that local investors are missing opportunities at home that foreigners are seizing.

Borrowing from a methodology devised by Bloomberg columnist Cameron Crise, Panmure Liberum strategists led by Joachim Klement quantified how much of stock-market valuation is based on "hopes and dreams" - that is, above the stated book value of assets plus the projected earnings over the next three years.

It shows that about two-thirds of the S&P 500's market cap is based on "hopes and dreams" rather than the near-term profits that are likely to materialize, versus just 12.5% for U.K. midcaps.

The hopes-and-dreams methodology shows that something has changed over the last decade and a half - and that U.S. valuations look particularly stretched.

It's not a terribly difficult calculation, so MarketWatch ran a screen on just the components of the S&P 500, using FactSet data. (Owing to incomplete data, Texas Pacific Land Corp. $(TPL)$, Loews Corp. (L) and Erie Indemnity Co. $(ERIE)$ were excluded from the analysis.)

First, there are companies, most notably Domino's Pizza Inc. $(DPZ)$, that have a negative book value. In Domino's case, that's due to its extensive use of debt as well as a big stock-buyback program. The restaurant chain - whose shareholder returns over the last two decades are nearly double that of the S&P 500 - is something of a poster child for the idea that high debt isn't always a bad thing.

   Company                                                     Hopes-and-dreams ratio 
   Domino's Pizza *                                            112% 
   SBA Communications *                                        110% 
   Yum Brands *                                                105% 
   Boeing *                                                    99% 
   TransDigm *                                                 99% 
   Otis Worldwide *                                            98% 
   Starbucks *                                                 98% 
   VeriSign *                                                  97% 
   Palantir Technologies                                       97% 
   Hilton Worldwide *                                          96% 
   * - denotes negative book value. Data: FactSet/MarketWatch 

If you screen out the companies with negative book value, then the award for the company where investors are placing the most hopes and dreams goes to Palantir Technologies Inc. (PLTR), where some 97% of market value is based on earnings hopes far, far into the future.

Yes, the Elon Musk effect is also visible - Live Nation Entertainment Inc. (LYV), CrowdStrike Holdings Inc. (CRWD), Axon Enterprise Inc. (AXON), Verisk Analytics Inc. (VRSK), Tesla Inc. $(TSLA)$ and Idexx Laboratories Inc. $(IDXX)$ each have positive book value as well as hopes-and-dreams ratios above 90%.

A few other big techs are priced on hopes and dreams. The difference between Apple Inc. $(AAPL)$, with 88%, and Nvidia Corp. (NVDA), with 87%, is basically a rounding error, with the pair wrapping Costco Wholesale Corp. $(COST)$.

On the other end of the spectrum, pharmaceutical Viatris Inc. (VTRS) and health insurer Centene Corp. $(CNC)$ have so much book value per share that the market isn't pricing in any hope or dream for those companies whatsoever. In fact, Paramount Skydance Corp. (PSKY), Kraft Heinz Co. $(KHC)$ (which on Tuesday said it was breaking up after a disappointing merger), Molson Coors Beverage Co. $(TAP)$ and General Motors Co. $(GM)$ also are among the ranks of companies whose stock price is below their book value - perhaps an indicator of value but potentially a sign that management has not aggressively written down assets as much as they should.

The markets

After a 0.7% drop for the S&P 500 SPX on Tuesday, U.S. stock futures (ES00) (YM00) (NQ00) were pointing to a mixed start. Gold (GC00) surpassed the $3,600 mark for the first time.

   Key asset performance                                                Last       5d      1m     YTD      1y 
   S&P 500                                                              6415.54    -0.37%  1.35%  9.08%    13.58% 
   Nasdaq Composite                                                     21,279.63  -0.79%  1.07%  10.20%   20.13% 
   10-year Treasury                                                     4.282      4.30    5.00   -29.40   52.30 
   Gold                                                                 3603.4     5.65%   5.10%  36.53%   42.10% 
   Oil                                                                  64.37      0.80%   0.16%  -10.44%  -7.05% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

A federal judge rejected the Justice Department's demand that Google sell its Chrome browser, a decision that boosted Alphabet Inc.'s $(GOOGL)$ stock as well as that of Apple Inc. (AAPL), which is allowed to maintain the current arrangement in which it receives an estimated $20 billion each year.

Zscaler Inc. shares (ZS) rose as the cybersecurity company's sales outlook surpassed expectations.

Companies due to report results include Macy's Inc. (M), and after the close, Salesforce Inc. (CRM) and American Eagle Outfitters Inc. $(AEO)$.

Automakers will be releasing monthly sales data; job openings data is due at 10 a.m. Eastern; and the latest Fed Beige Book report is coming at 2 p.m.

St. Louis Fed President Alberto Musalem is due to speak at 9 a.m., while Minneapolis Fed President Neel Kashkari is participating in a question-and-answer session due to start at 1:30 p.m.

Best of the web

What was known about America's billionaires - 1,135 and counting.

U.S. banks could hide troubled loans under new reporting rules.

Xi's parade shows off energy weapons, robot dogs and new missiles.

The chart

We're suckers for a good bubble chart, so here's one courtesy of Deutsche Bank strategists led by Jim Reid, who pointed out that telecom stocks haven't passed their 2000 peak 25 years later, even though the underlying technology has boomed and transformed the world. Coincidentally - or not - Nvidia has just suffered through its first four-session losing streak since March.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia Corp. 
   TSLA    Tesla Inc. 
   GME     GameStop Corp. 
   AAPL    Apple Inc. 
   NIO     Nio Inc. 
   GOOGL   Alphabet Inc. 
   OPEN    Opendoor Technologies Inc. 
   PLTR    Palantir Technologies Inc. 
   AMD     Advanced Micro Devices Inc. 
   TSM     Taiwan Semiconductor Manufacturing Co. Ltd. 

Random reads

The wrong Polish CEO is getting attacked over a stolen hat at the U.S. Open.

The Guinness World Record - for the number of Guinness World Record books.

-Steve Goldstein

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

September 03, 2025 07:04 ET (11:04 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.