I love Apple and have pretty large exposure to it. Now some of you who’ve been around here for a while might be scratching their heads. After all, how can a guy that has an ETF eBook sign up on the right hand side of his blog suggest a specific stock to buy? How can a dude that was all about not trying to time the market and outsmart the Wall Street traders suddenly decide that he has found the one magic company that can make him rich? The truth is that I don’t have any Apple shares; however, every unit of VTI and VWO that I own has a whole lot of Forrest Gump’s special fruit company in it. If you never thought about it before, the fact that Apple has grown so large so fast means that it makes up a pretty large percentage of the overall USA market. I even heard the talking heads on TV yesterday referring to the prediction that the release of the iPhone 5 could up the entire USA’s GDP for the year by .5-1%. That is insane to me in a big picture sense. A product that is definitely not intrinsic to our modern life the way say oil is, could shift the needle so much all on its own. That is mind-blowing in many ways.
That doesn’t really answer the question on if we should invest in Apple or not does it? Once again, I feel compelled to point out that this isn’t my field of expertise, and I’ll always own about as much of Apple as my ETF says I should. In my young investor life I’ve never seen anything quite like Apple. I imagine at one point Microsoft must have been pretty similar (if you adjust for inflation Bill Gates’ baby still holds the record for biggest company ever as measured by market cap), but is that really the only thing we have to compare it to right now?
The Numbers Game
The sheer raw numbers in every category that Apple is throwing up are impressive. Here are just a few choice metrics that caught my eye:
- Shares of Apple are hovering around $700 right now which means the company’s value is $656 billion. Just for comparison, here are a few countries that have lower annual GDPs than what Apple is worth (according to a lazy man’s Wikipedia Search): Sweden, Saudi Arabia, Switzerland, Belgium, Norway, and Venezuela. If Denmark and Finland pooled their collective resources for an entire year they still wouldn’t come close to being able to buy the single company!!
- In an Age where banks and governments are essentially bankrupt, Apple has a nice little bank account with a rainy day fund in it of roughly $117 billion. If Apple’s management were so inclined to try and singlehandedly bring back the gold standard, they could buy roughly 4,178,571 pounds of gold.
- Apples earnings in 2011 (which they will assuredly smash this year) were $26 billion, which came on revenues of $108 billion. That means that Apple produced more USD worth of goods than the entire goods and services of Vietnam, or Cuba and the Dominican Republic combined for the year.
- Despite a stock that is up roughly 70% on the year, Apple is still considered undervalued by many conventional measures as the stock is currently trading at 12.7x next year’s expected earnings per share (and that’s not even taking into account the rainy day fund that is built to withstand a hurricane).
- Apple sold 115 million iPhones in the last year. They currently cover about 17% of the exploding smartphone market, and is looking to gobble up market share with their latest offering. Iphone sales now actually account for the majority of Apple revenues. I’m going to go out on a limb here and say that we might see some growth there.
The Only Problem With Being At the Top
No company has ever been able to maintain this sort of massive evaluation. Simple laws of innovation and efficiency must come into play at some point right? I mean, in the face of increased competition, shrinking profit margins, and new geniuses in garages across the Silicon Valley, can Apple keep expanding at the rate that investors have come to know and love? Or is this merely a classic case of a company getting huge media attention, followed by a massive jump in investor interest, only to later look back and see that many of the people that rushed to buy Apple were buying near the peak of the company, only to ride the roller-coaster mostly downwards.
Where Does Apple Go From Here
People a lot smarter than me are now asking the question of what Apple’s long-term strategy will be. Can they possible grow much larger? If the company continues to follow in Microsoft’s footsteps we might see a levelling off, and an increasing dividend to reward investors as less capital is put into innovation. Steve Jobs was notorious for shunning this approach, and Warren Buffett is another notable anti-dividend crusader. That being said, when you have such a substantial nest egg sitting on your balance sheet, rewarding shareholders is a pretty popular idea. Or does Apple hurt itself by moving away from areas that it currently dominates simply because it wants to grow? Can a company really be innovative and efficient across several industries? Google has caught some flack from a lot of Wall Street-types who are not fans of the inefficient experimental money that the company spends on everything from wind energy to special glasses. Or maybe the company just keeps cranking out shiny new toys that people can’t get enough of and banks on the rise of a middle class around their world. I honestly have no idea (good thing my portfolio doesn’t depend on me having one), but it should be interesting to watch one way or another.
Let’s just hope for the sake of my ETFs and the entire USA market (is it even a stretch at this point to say the world market?) that Apple at least levels off as opposed to trending downwards. If investors lose this flashlight in the long night that is the investing world right now, they may just decide to go inside and not come out for the foreseeable future. Investor sentiment is shaky enough as it is… wait a minute, what am I saying… if Apple rattles the market and causes everyone to do away with equities the entire asset class will be on sale again. Music to your ears if you’re a broad-based ETF devotee. Are you sure you need the iPhone 5? 
What do you all think. Is Apple still a “buy” considering the run its been on? If I’m going to ask questions like that should I be channeling my inner Jim Cramer and having pop-ups of bulls flash onto your computer screen with a crazy voice screaming “buy, buy, buy,”?
And now….Samsung’s Response…
We actually sold this stock last month and bought a higher paying dividend stock. I think it will stick around the $700 mark for a while.
Yah, the revenue numbers seem to support that valuation eh?
You probably already own more AAPL than you think… its shares are likely in any mutual fund due to its market cap and the fact that the SP is market cap weighted… http://www.marketplace.org/topics/business/apple%E2%80%99s-size-can-move-markets-%E2%80%93-and-down
Yup, great point Mrs. Pop. I’m sure my CPP and Teacher’s pension has a healthy dose of indexing in them which definitely means I should be cheering for the fruit company long-term as well.
I used to own Apple stock, but got out once I realized that investing in single stocks can be pretty dangerous. I like my portfolio well diversified with mutual funds.
I hear you John. Just out of curiosity, are those Vanguard mutual funds where you are at least paying a low MER for index-like returns? Otherwise, what would I have to do to convince you you’d be better off in ultra-low cost ETFs?
Vanguard is the company that pioneered extremely low-cost index mutual funds. Their US funds still beat our ETFs on fees. And their Canadian ETFs beat TD eSeries. Sort this list by MER and feel jealous of America: https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc
The BlackBerry Bold 9900 is superior for getting work done. People who say otherwise are the kind of hipsters who appear in that Samsung clip (I lol’d so hard when I saw they put it alllll over YouTube on launch day).
But just because they made a better product doesn’t mean I’d invest in RIM. It’s a terrible investment.
Dividends represent the vast majority of stock market returns in the long run, not capital gains. Dividend investing or indexing represent superior methods of achieving the best returns in the long run, rather than hopping from hot stock to hot stock like an amateur.
I’m a huge fan of Vanguard Joe, John Bogle is the man! I also prefer their ETFs, especially right now that our currency is so favorable! I was more referring to their mutual funds as opposed to their own ETF products. Depending on your contribution and transaction fee patterns one sometimes makes more sense than the other.
I’m not going to lie, I have no idea which phone is better for work as I hate working on my cell anyway. I always pull out my laptop to do anything besides read my email. I even hate texting haha. I’ll take your word for it. I love that Samsung marketing campaign and how the iProducts that used to use the new/youth/young thing can now be credibly depicted as “your parents’ cell phone”.
You don’t need to sell me on index investing buddy, I literally wrote a book on it!
I don’t have anything to say re: investing in Apple stocks as I’m only a novice investor, but I was struck by the comment you made about how (I’m paraphrasing) a non-essential consumer item can be worth so much to the GDP of the US…
This has always rubbed me the wrong way, and I can’t help but yell at the tv (much to my husband’s chagrin) every time a new Apple product comes out and it’s treated as “top news”. Are news stations clamouring to cover the latest iPhone to appear current or is it because at the end of the day, Apple influences the economy so much? Regarding the latter, if that’s the case, newscasters, I find, never frame the discussion in those terms.
I guess it just boggles my mind that a non-essential consumer good can be given so much publicity and be actually weighted as “news”.
Yah, if you check out the Jimmy Kimmel clip you can tell how irrational the obsession actually is. I have to admit that the Apple marketing team is working on a psychological level that is way beyond me. As far as the iPhone goes thought, the number of people around the world accessing the internet through their phones now is pretty incredible when you consider 10=15 years ago cell phones were really only used by large niches.
I wanted to buy apple when it was on 250, but I thought it was already very expensive….
So i don’t know if it will continue its move toward up or not…. lets see.
great article.
This is why I don’t try to time the market – I’m not smart or committed enough!