Let’s Look at AAPL

Apple (Ticker AAPL) has really bounced around this year as has the stock market, so I think now could be a good time to relook at the stock market using AAPL as the illustration.

For some basics:

I will be discussing Apple because it has characteristics that make it easy to teach market concepts and because most every investor knows about AAPL and the large numbers of owners of AAPL iPhones, Apple Watches and iPads, and NOT because I recommend it. Do not construe anything I say here as a recommendation or endorsement of Apple or anything other than a “lesson” in the stock market.

Who this column is NOT for:

1. People investing in stocks to make a killing.
2. Traders and those that frequently buy and sell stocks and/or options.
3. People that invest for any purpose other than to help achieve their long term financial security.

If the above applies to you stop here and go read something else.

BTW, I used Apple as an illustration in many previous blogs. If you want a PDF of reprints of those blogs send a request to [email protected]. Just type “Apple” as the subject.

• The range of the price in the last year between the low and high was almost double at 93%. That indicates a very volatile market for the stock and much indecision about AAPL’s stock, and possibly the company. This is also much greater than the market as a whole.
• The 2020 low compared to today’s price was 229.24 to 353.63 or 54% spread, also much greater than the market as measured by the S&P500 index. All further references to the market are to the S&P500 index.
• The forward and trailing P/Es are pretty much similar. Trailing means the last twelve months P/E and forward means the projected next twelve months P/E. Here it looks like AAPL’s earnings are projected to be similar to what it has been. Considering the current pandemic, social unrest and upcoming elections that could change the leadership in the White House and Congress this seems like it is difficult to estimate and projecting it as similar or unchanging appears to be a fair choice, but it doesn’t provide any guidance. However, keep in mind that the markets do not like uncertainty, which reduces confidence which causes price drops. Note that this does not appear to evident in the current market pricing of stocks.
• The P/E of 28 is higher than the recent years for AAPL which had a P/E lower than the S&P500 index. Today the market P/E is 22, so APPL is higher than the market. If you look at my annual 10-year charts posted on Jan 7, 2020 the 22 seems pretty consistent with the last five years, but there has been an upward drift from the five years before that. My comment is that the market has changed significantly over the years and what we thought of as traditional amounts need to be looked at with a different lens. The P/E is a backward measure and the market seems to be more concerned with forward-looking expectations. AAPL is more of a low growth huge cash flow producer and could be an outlier, and this is something that needs thinking, which I am not providing other than to suggest this. Think about it. Of course, if you buy index funds and not individual stocks, AAPL’s individual situation might not matter that much when looking at the market as a whole.
• AAPL’s dividend yield is 0.93% which is half of the S&P500 yield of 1.9%. However, the dollar amount of the AAPL dividend is not likely to be cut while the S&P500 dividends are projected to be cut by 20% to 30% this year. AAPL has a cash hoard that pretty much assures that the dividend payment will be secure. Note that that same dividend amount provided a yield of almost 1.9% when the stock was at its 52 week low. Again, investors receive dollars, not yield percentages, although that factors into investment decisions.
• The dividend payout percent right now is 26%. That means that 26% of its earnings are paid to stockholders as dividends and 74% is retained for growth, to repurchase stock if the board of directors thinks the stock’s price is too low [which seems unlikely to be done at today’s values, in my opinion], to shore up cash or for other purposes. The dividend payout percent for the S&P500 per my 10-year chart was 46%, so AAPL is below that amount which indicates a conservative dividend policy and also room for the dividend to be increased.
• The market cap is the market value of AAPL. This is determined by the per-share price multiplied by the total outstanding shares. Right now AAPL is the highest valued company, but Microsoft is neck and neck and very close behind. On any given day one or the other could take the first position, but for investors, it doesn’t matter too much. What matters is how much dividend they pay and how much higher the stock can go…which is anyone’s guess.
• AAPL’s beta is 1.17. This means that it is riskier than the market as a whole. A beta of 1 represents the market. A beta less than 1 means the stock moves less than the market and has lower risk. AAPL’s beta seems to indicate a greater risk (about 17%) which I could only attribute to its higher than market P/E. I’ve had other blogs describing the effect of P/Es on prices. I will include these with the AAPL reprints I will send you if you email your request at [email protected].

Investing in individual stocks is a serious undertaking and I contend, an almost impossible endeavor without full and proper information which likely does not exist for anyone outside of the CEO’s and CFO’s offices and possibly one or two others, and even they do not have a crystal ball. You, and I, do not have a chance at any meaningful analysis.

Out of curiosity, I checked to see the Berkshire Hathaway (BRK) stock holdings and found a March 31 listing where they report owning just under 6% of AAPL. The BRK listing shows AAPL comprising 42% of BRK’s publicly traded stock portfolio. Looking at it another way, AAPL is worth 73% of all of the other stocks in that portfolio combined. This is certainly not a well-diversified portfolio. The second-largest position was Bank of America at a quarter of the AAPL value. BRK also has a substantial privately owned portfolio, and bonds and other assets that make up its total value.

The above hopefully provides some insights in valuing stocks and again, should not be used in any way as a recommendation of any sort. I hope you got some benefit from reading it.

If you have any business or financial issues you want to discuss please do not hesitate to contact me at [email protected].