The long-awaited IPO of Saudi Aramco is here and gives investors the first chance to own a piece of the world’s largest oil company. This IPO is historical in that Saudi Aramco becomes the world’s first $2 trillion company. For perspective, very few companies have ever been valued at over $1T, with Apple and Microsoft being the only two publicly traded companies to currently hold that designation.
So, should investors race to grab a piece of this gigantic company’s stock? While nobody can predict the future of any individual company, we can look at the performance of companies with similar characteristics. Reviewing 94 years of U.S. stock market history, we can see that companies that fall in the largest decile by valuation tend to experience below-average stock returns. In fact, owning just the largest 10% of publicly traded stocks resulted in 2.1% underperformance when compared to the total market performance.
Our view is that Saudi Aramco stock absolutely deserves to be included in a globally diversified portfolio, but we won’t bet on it outperforming the market moving forward.