http://buzz.money.cnn.com/2012/08/21/apple-stock-2/?iid=HP_LN
Apple is not overvalued ... yet
August 21, 2012: 12:34 PM ET
Apple is the most valuable tech stock by far. But is it towering too high above some of its competitors?
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
Asking the following question may be considered blasphemous to the throngs of Mac geeks and iFaithful out there. But here goes: Are shares of Apple (AAPL) finally getting TOO expensive?
Apple hit another all-time high Tuesday, coming close to $675 per share before pulling back a bit. The company is now worth approximately $620 billion. That's nearly two-and-a-half times the market value of Microsoft (MSFT) and almost three times what Google (GOOG) is worth. Those two companies are the only tech giants with a market capitalization even remotely close to Apple.
So it's fair to wonder if Apple's stock, which is up 63% year-to-date, has risen too far too fast.
The good news is that Apple shares are still reasonably valued. It doesn't have a triple-digit price-to-earnings ratio like Cisco (CSCO) did in the late 1990s -- a time when many on Wall Street and Silicon Valley were predicting that Cisco would be the first tech to hit a market value of $1 trillion. Apple's stock is trading at 15 times fiscal 2012 earnings estimates, a fair price for a company whose earnings are expected to increase by 22% annually, on average, over the next few years.
But Apple is no longer the slam-dunk bargain it used to be. The earnings multiple is not just keeping pace with earnings growth, it is expanding. When I wrote about Apple nearing an all-time high just a few weeks ago, shares were trading at 14 times earnings estimates. And when Apple's share price topped the $500 mark for the first time back in February, I noted that the stock was trading for less than 12 times fiscal 2012 forecasts.
With the end of Apple's fiscal year rapidly approaching, it will soon be time to look at fiscal 2013 predictions as the best gauge for Apple's value. On that front, Apple is not dirt cheap. The stock trades at about 13 times fiscal 2013 estimates. What's more, analysts have been cutting their earnings targets for next year, following Apple's warning that its current quarterly earnings will be below estimates.
Now, don't get me wrong: Investors shouldn't be nervous just yet. The company has $117 billion in cash. It's finally using some of that mountain of moolah to pay shareholders a healthy dividend. Doing so makes Apple a stock that both growth-hungry momentum investors and yield-starved income investors can comfortably own.
And unless the upcoming iPhone 5 (or will it merely be the "new iPhone"?) looks like Apple's ill-fated Newton from the early 1990s, it seems unlikely that consumers are going to suddenly fall out of love. Competitors like Research and Motion (RIMM) and Nokia (NOK) may be on their last legs, which can only help Apple in the long run.
But investors would be foolish to ignore risks. Regardless of what happens with the Apple-Samsung patent infringement trial, Samsung and others that have joined the Google Android camp have emerged as tough competitors. Microsoft, which will soon start selling its Surface Tablet and Windows 8 operating system, seems to have rediscovered its innovative roots. Intel(INTC) is aggressively pushing ultrabooks as an alternative to tablets.
Apple is in a business that requires constant product refreshes. There is no time to rest on one's laurels. As soon as the iPhone 5 is out, people will start wondering when the next iPad will be released. Expect even more questions about when Apple will finally reveal the long-rumored Apple TV product, which may or may not be an actual television.
And what happens if another company creates a product that makes tablets look obsolete? Just ask Dell (DELL) and HP (HPQ) how sticking with PCs for too long has turned out.
"When Apple's stock finally does begin to come down, it will be because of competitive reasons," says David Darst, chief investment strategist with Morgan Stanley Smith Barney. "Valuations are not stretched."
True. Shares of Apple may not be overvalued at $670. As long as the company's sales and earnings continue to shine, it could very well surpass $700, $800, and continue its march toward a quadruple-digit stock price and $1 trillion market valuation.
But the stock is no longer cheap, and investors can be unforgiving. The one major negative that comes with being a stock that just about everybody loves and owns is that everybody might be quick to head for the exits if Apple ever stumbles -- or if investors suddenly decide that it's time to dump tech and move elsewhere.
So if you want to own Apple, don't go overboard. Any S&P 500 or Nasdaq-100 index fund will give you substantial exposure to the stock.
In case you forgot, Cisco and Microsoft -- the company that used to claim the title as the most valuable company ever -- are nowhere close to where they were trading more than a dozen years ago. Apple isn't necessarily destined for the same fate, but there's a saying about history repeating itself for a reason.
Posted in: Apple, Cisco Systems, Google, iPad, iphone, Microsoft
link: http://www.bloomberg.com/news/2012-08-20/apple-on-track-to-top-microsoft-record-closing-market-cap.html
link: http://www.bloomberg.com/news/2012-08-20/apple-on-track-to-top-microsoft-record-closing-market-cap.html
pple Reaches Record U.S. Market Value On IPhone Optimism
By Adam Satariano - Aug 21, 2012 8:53 AM GMT-0500
Dale de la Rey/AFP/Getty Images
An Apple store in Hong Kong.
Apple Inc. (AAPL) set a U.S. record for market value, surpassing the high mark reached byMicrosoft Corp. (MSFT) during the Internet heyday, on optimism that the next version of the iPhone will meet strong sales.
The shares of Cupertino, California-based Apple rose 2.6 percent to $665.15 at the close in New York yesterday, for a market value of $623.5 billion. That overtook Microsoft’s $616.3 billion closing market capitalization on Dec. 27, 1999, according to data compiled by S&P Dow Jones Indices LLC. Apple extended the gains today, advancing as much as 1.5 percent.
Apple is preparing to introduce the next version of the iPhone on Sept. 12 in what will be a design overhaul of its top- selling product, two people with knowledge of the company’s plans said last month. The next iPhone “could be the most impactful product upgrade in Apple’s history” and the company will probably sell as many as 250 million units over the life of the device, according to analysts at FBR Capital Markets.
“With the iPhone they have successfully created a strong customer following in an absolutely enormous marketplace,” Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co., said yesterday. “They have captured the hearts and minds of consumers.”
Apple gets about 70 percent of its profit from the iPhone, Sacconaghi said. The company’s stock has risen an average of 11 percent in the two months before previous iPhone updates have been released, he said.
The new iPhone will have a larger screen and thinner body, and is expected to work with faster, long-term evolution wireless networks being introduced by carriers such as Verizon Wirelessand AT&T Inc. (T), according to analysts including Piper Jaffray Cos. (PJC)’ Gene Munster.
Smaller IPad
In addition to the iPhone, Apple also plans to introduce a smaller, cheaper iPad by the end of this year, people familiar with the plans said in July.
Apple, already the world’s most valuable company, has surged more than sevenfold since the iPhone debuted in January 2007. The stock had climbed 64 percent this year through yesterday. Apple rose 1.1 percent to $672.61 at 9:47 a.m. in New York, and earlier touched $674.88.
Because Microsoft’s record was set during the Internet boom, when valuations were inflated by predictions that later failed to materialize, a more significant long-term milestone would be if Apple’s market value tops $1 trillion, David Yoffie, a Harvard Business School professor who has written about Apple, said in an interview yesterday.
“We’re in a period now of much more normalcy, which makes Apple’s accomplishments even more impressive,” Yoffie said.
‘Easily Justified’
While the popularity of the iPhone and iPad make it possible that Apple might surpass that $1 trillion mark, it can be difficult for technology companies to sustain a run of successes like Apple has had over the past decade, he said.
“It doesn’t take much to miss a cycle,” Yoffie said. “Right now this valuation is premised on iPhone 5 and a new smaller iPad coming out, and if these are very good or great products then the valuation will be easily justified. If for any reason they have a hiccup on any of these products, then Apple would be vulnerable.”
