Apple: The $1 Trillion Company?
http://blogs.wsj.com/marketbeat/2012/04/03/apple-the-1-trillion-company
By Steven Russolillo
Apple’s meteoric rise is far from over.
Piper Jaffray analyst Gene Munster predicts Apple shares will reach $1,000 in 2014 and become the first company ever to have a $1 trillion market capitalization. Putting aside excessive investor exuberance, “we believe the real story is earnings growth,” Munster says.
Apple shares jumped 1.8% to $630 minutes after the opening bell and set another all-time high. The stock is up 56% this year and has a market cap of about $587 billion, according to FactSet data.
“Despite the law of large numbers, we believe the opportunity in mobile devices (iPhone and iPad) are big enough for Apple [to] grow earnings by 20% plus over the next three years,” Munster says.
He also points out 45% of iPhones sold through 2015 are “in the bag.” He bases his prediction on average iPhone life and user upgrade rates.
Apple fever has been in full bloom this week. Yesterday, Brian White of Topeka Capital Markets launched coverage of Apple with a four-digit price target: $1,001.00. He said he sees “no end in sight” to all the bullishness surrounding the company.
Munster, however, points out what could go wrong.
“The key risk to the Apple story is pace of innovation,” he says. “While we have not seen anything to make us believe innovation will slow, it is the fundamental barrier that stands between shares at $600 and $1,000.”
That said, the pros largely outweigh the cons at this stage of Apple’s game, he says. Here’s the kicker.
“While it seems virtually every investor (professional and retail) and analyst has something positive to say about Apple, the multiple on shares does not suggest there is excessive investor exuberance,” Munster says.
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ya, AAPL news pretty much dominates “google finance” ever since it passed 500. I am currently 100% long in AAPL (I dont care about asset alocation at the moment), it is a bubble, so I set a VTSO on it….
If I understood you correctly, that means you own one stock, and that’s APPL?
Or are you levered too?
You want a quote? Haven’t I written enough already???
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not levered. yes I hold only aapl, I have a small portfolio tho.
These articles have popped up about once a week for the last few months.
I like Apple, but I think the hedge funds are going to kill the retail investors at some point in the near future. It’s now the number one holding among the HF. When the market corrects and HF have to liquidate it’ll be Apple they’ll have to sell.
As long as Apple continues to produce awesome products the above scenario will represent a great buying opportunity. But, a lot of weak hands will get shaken out in the process.
Didn’t they say the same thing about Qualcomm? Perhaps this is the first indication of where the latest Fed-created bubble is forming. I give it 2-3 years.
KISS MY CONVERSE.
good call Turd…..got me trying to figure out how much , if any, money should be put on this……
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Respect. I remember those headlines well. My boss at the time got in and basically got wiped out. Fool and his money…
Maybe Apple has the next decade in the bag, but maybe not. Remember when Sony was the most important brand in consumer electronics? Every kid had a Walkman/Discman and PlayStation was the best video game console. Now, not so much.
Technology stock prices can spike dramatically, but can decrease just as fast. It’s probably healthy to maintain some level of optimism, but be careful that you don’t get blind to the downside:
http://finance.yahoo.com/echarts?s=SNE+Interactive#symbol=sne;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
“I’m a CPA! I got money b***h!”
I like StL’s point, but not sure I agree with Turd Ferguson. Two points:
1) Qualcomm was massively overvalued, Apple is nowhere close to that valuation. Qualcomm lost some money during the internet bubble burst, but most of the pain in revenues came before there was even a recession and revenues recovered rather strongly after the recession. I’m skeptical that Apple will have much luck developing new products without Jobs. The iPad is the best tablet now, but five years from now may not be (which could begin to effect earnings). Apple’s in a great position now, but their greatest risk is for their competitive position to be supplanted down the line, not that they are overvalued.
2) The Fed can create a general boom in the economy. This boom may be stronger in some of the more cyclical sectors (tech, housing, etc). However, just because the economy is booming does not mean that these sectors are in a bubble (which is more about something being substantially overvalued, likely with a substantial psychological component). Further, you could never blame the Fed for a single company being overvalued. That’s ridciulous.
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This reminds me of a story my granddaddy told me. Some kid was shining JP Morgan’s shoes and asked him, “Mr. Morgan, what do you think of xxx stock?” Mr. Morgan had no comment but thought if my shoe shiner is into this stock, it’s probably overvalued. He shorted the stock and did very well.
#soccermomtheory
(Dons tinfoil hat): Not if you believe QEx is all about supplying bankers with capital with the implicit guarantee they’ll run up a few momo names - AAPL, NFLX, et al. Welcome to ZH.
/I like ZH
//ZH is generally favorable to AAPL. They’re still capitalist after all. Just anarcho-capitalists.
JM, was your #2 point supposed to be facetious?
KISS MY CONVERSE.
Kind of a tangent here, but has ZH been right about any of its major themes?
Europe has not collapsed
China has not collapsed
The US has not collapsed
Gold is up – but they were on the gold bandwagon after it went up
We have not see hyper inflation
Probably others – I stopped reading a long time ago
In sum, that site adds no value. It’s a bunch of bitter arm chair investors incorrectly predicting the end of the world.
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To the point of the thread, AAPL will probably go up for some time, but I would not buy any. All they have is brand. Eventually the brand will fade and they will be just another consumer electronics company in a tough market. It’s design or die with these companies, and by definition you can’t lead the pack forever. In ten years we’ll all look back and say, “Wow, remember that one time that AAPL was massively overvalued? Yeah, that was funny, I bet a lot of people lost money on that.”
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
Massively overvalued? Their PE is under 20 and their estimated forward PE is under 15,
If it goes to $1T it will be massively overvalued. There is no way that AAPL is the most valuable franchise in the world. That is impossible regardless of what the market capitalization says. It’s a branded consumer products company that had some neat ideas, but at the end of the day, they make basically commodity products that happen to be hot right now through some clever marketing. At some point they will no longer be hot and the stock will tank – it is virtually impossible for AAPL to stay on top forever. It could take years for that to happen and you can probably make money on the upside before then (very likely I would guess), but at $1T you are dreaming if you think that is not hugely overvalued.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
@bromion re: ZH: It’s part of a balanced diet. The only theme that’s been a constant at ZH over the years is that fiat goes to zero and central planning doesn’t work. Both of those are multi-decade trends that I’d say they’re nailing so far.
When it comes to specifics, you’ve definitely got to wade through a sea of hyperbole but there’s some good info there. I’ve found, at least directionally, ZH is far more reliable than CNBC.
^ Good points, but is it possible for any company to stay on top forever?
When Apple crossed the $500b market cap number, I read an article about how historically all other firms that crossed over $500b crossed back to under $500b within a few months. I would bet Apple stays there for a while.
Clearly, if the stock goes to $1k with no change in financials it would be overvalued; however, I think the premise of the research that says the stock will rise to that level is based on revenue growth from the forthcoming Apple TV. If they can carve out a piece of the TV market (which is enormous) I wouldn’t be surprised to see the stock rise a few hundred bucks from here.
More reliable than CNBC – I would agree, but that is a low bar lol
Yes, some companies can stay on top forever and grow intrinsic value year after year. Coke is one that everyone knows. There are plenty of others. Apple is not one. I think they’re going to be on top for some time, but it’s a fad and it will correct at some point. If you’re nimble with a small position, it’s probably a long.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
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For those who cite “valuation,” have any of your looked at assumptions for earnings?
For the most part, the street is expect Apple to eventually sell 120 mil. iPads (annual run rate), 250 iPhones (annual run rate), double in market share for Macs in 2~3 yrs, and perpetual double digit growth in iTunes. Oh, and almost zero average price declines.
Not saying they can’t achieve that, but man that is some high ass hurdles….
Valuation is interesting. Pundits always seem to present something confidently as “it’s overvalued/undervalued/fairly valued.” I used to be intimidated by how confident they seemed to be about stuff, and wondering what it was that I was doing wrong because I find valuation so difficult to do well. The answer seems to be that most of them don’t really know, but they do a good job of acting like they do.
In practice, valuation is always determined by three things that have to be estimated: 1) what you think short term earnings are likely to be, 2) what you think the long term rate of growth is (and possibly the rate of change in growth), and 3) what the appropriate discounting factor is.
Of these, perhaps item 1 is the easiest to guess, but each of the others is often no more methodical than licking your finger and trying to guess which way the wind is blowing. Change any one of those three assumptions, and your valuation ratios can go anywhere. Having a margin of safety can help a lot, and that’s really what it’s about… it’s having a margin for all the mistakes in one’s own analysis.
I’ve eventually come around to looking at earnings yields, dividend yields, and cash flow yields instead of price multiples for valuations. It’s still imperfect, but I find that they are better behavied in conditions where earnings are small.
You want a quote? Haven’t I written enough already???
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There is a reason valuation pundits don’t usually qualify an investment as “reasonably decent” or “ok, given the lack of market opportunities.” These are things you say in research meetings, not to naive clients (sophisticated clients are fine) or the press.
“Some people make shoes. Some people make houses. We make money and people are willing pay us a lot to make money for them.”
I get the marketing pressure dynamic and why they act the way they do.
But as someone who knows how tricky it can be to evaluate this stuff, it feels a lot like listening to a used car salesman explain why a particular used car is such a terrific value (“just look at those chrome hubs!!!”)
You want a quote? Haven’t I written enough already???
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Word, I figured you got it.
On AAPL, I owned it a large position (10% in a ~20 position fund) and am trimming. It just seems really long in the tooth now after a multi-year massive expansion (especially relative to the market) and as mentioned above:
1) It is the top holding in 13f filings, I believe
2) Earnings and sales estimates are becoming continually more aggressive.
3) The loss of Jobs vision is no minor thing in the longer term. He made this company what it is today. The question is what is the duration of his legacy.
4) The cash on the balance sheet is a major reason for the reasonably attractive valuation (for the quality and growth). The cash doesn’t generate sh!t and earns nothing. We’ll see what dividend policy looks like going forward and the tenor of management on acquisitions. Right now it is a signal of lack of new ideas from management, unless they are pacing themselves. Or, maybe it’s a signal that management with large equity positions in AAPL stock what to keep the cash on the BS for themselves.
So, moving slowing out.
“Some people make shoes. Some people make houses. We make money and people are willing pay us a lot to make money for them.”