Apple’s life as a $US700 billion (around $A820 billion) was brief – a few minutes on Tuesday morning (US time) as investors took the stock to $US119.75, the level where its value topped the magic figure.
That it then fell back to close lower on the day tells us the market is not prepared for the event, and that the rise was probably a one off, engineered by some smartypants in the markets.
But the shares rebounded in trading overnight and was trading around $US118.40 this morning and a market cap of $689 billion, still short of sustaining life over the $US700 billion mark.
But the company’s share price peaks have been slowly edging higher in the past six weeks. It is in fact up around 20% in the past month alone.
Apple is currently worth more than half the value of our market, and more than 40% the value of the $A1.8 trillion in our superannuation system.
At $US700 billion, it was worth just under $US300 billion more than ExxonMobil, the second biggest company by market value, and well ahead of Microsoft (still the holder of the world’s most valuable company, in real terms, back in 1999, when the tech and net boom was a frothing bubble. Microsoft was worth an inflation adjusted $US874 billion back then. It’s actual value at the time was $US613 billion).
Apple’s share price has recovered strongly (and remember the current shares were split 7 for one in June) in the past 18 months after lingering and then falling in the wake of the death of Steve Jobs and his replacement as CEO by Tim Cook. The shares hit $US100 for the first time on September 19.
But more impressive has been the rise in price, from the adjusted year’s low of $US70.51 to the high of $US119.75 on Tuesday. It was as low as just over $US55 in April 2013, so the rise since then has been even more dramatic.
The reasons for the rise are many and varied – the new iPhone 6 products are very popular, and the company had finally cracked the Chinese market. And even though Ipods and Ipad sales are falling, sales of the Mac personal computers, the iPhones and the forthcoming iWatch are big positives for the company. The long awaited AppleTV killer app or TV product has still to be realised, but US investors in particular, have regained their confidence in the company’s ability to generate new ideas and improve on the old under, Tim Cook, who replaced Steve Jobs in August 2011.
And yet it’s cheap compared to the S&P 500, and despite the growth stock like surge in its share price since August, many US investors regard it as a ‘value’ stock. It has regained its favoured status among hedge funds in the past couple of months as they have caught the tailwinds of its strong rise.
Hedge funds are desperate for performance after getting the move in bonds (especially US Treasuries) wrong this year rates were supposed to rise sharply, instead they have fallen. And many funds also got caught on the wrong side of the slide in oil and other energy prices. Backing Apple, especially since the iPhone 6 launch, has become the easy play for hedge funds.
Marketwatch.com pointed out that Apple’s is also "relative historically in terms of its valuation within the S&P 500 index. When Microsoft peaked, its market value amounted to nearly 5 percent of the overall value of the S&P 500. In the 1980s, when IBM was the top-valued company in the index, it amounted to more than 6 percent of the blue chips’ overall value.
"Currently, Apple wouldn’t even be among the top five companies" by that measure, said Howard Silverblatt, senior index analyst for S&P indexes. He noted that Apple’s current weighting within the S&P 500 is less than 4 percent, since the overall market has risen to record levels."
And how is a near $US700 billion company ‘value’?
Marketwatch points out that when Microsoft was at the top, it was trading at 72 times earnings, according to Nasdaq and Factset data. Apple’s price-to-earnings ratio is currently 18, in line with the overall S&P, even as the tech giant’s sales and profits are growing faster than the overall blue chips—Apple’s revenues are growing at 15% and its earnings at over 20%.
And the future? If Apple’s shares hit $A135 over the next year, it would worth close on $US800 billion. And to get to a trillion dollars of value, the shares would have to rise 43% or so to $US171.