Friday, October 5, 2012

The Most Valuable Company in the World?

Hard to believe it all started with this...

According to one report, Apple stock price has soared so much that it is considered the most valuable company in the world.

Really?   Well, think about that for a second.  We are talking Market Cap, here, the mythical number that you arrive at by taking the number of shares outstanding, and multiplying them by the share price the last sucker, I mean shareholder paid in.

It is not the actual cost of all the shares that people paid for the company.  Because a huge chunk of those were stock option shares, insider shares and other shares that people paid nothing for, and other shares sold to early investors that folks paid little for.

In other words, Apple ain't "worth" $700 Billion or whatever you want to believe.  Market Cap is a mythological number that means nothing.

Is Apple doing well?  Well, OK, at least.  The P/E ratio is starting to climb up into the teens - still low for a tech company.   And so long as people will pay four times as much for a Mac as they would for a PC, they will make a lot of money.   So long as people pay six times as much for an iPhone as they would for an Android, they will make a lot of money.

But, you know, what goes up.... must come down, eventually.   If you doubt me on this, ask the fellow who bought a condo in Vegas or Fort Lauderdale, circa 2007.

So, is Apple a good investment?  Yea, if you bought it back in 2005.   Gold was a good deal back then, too.  But buying today is to buy at the peak.  And yea, I know, you think the ship is leaving the harbor and you are not on board.   That's what folks thought about Real Estate, back in 2005, too.

I think long-term, Apple cannot continue to command huge monopoly prices for what are essentially commodity items.  Granted, these are commodity items with a status cachet.  BMW is the most profitable car company on the planet.  Do they make better cars?  Well, they are nicer than a Chevy.   But not so nice as to justify a 3x delta in price.   But they have a style and status cachet, and people will pay extra so that others will know they paid extra.   And getting hosed in the service side (just like with Apple) is part of the deal as well.   Heck, for some, whining about high repair costs is part of the status package.  Ask any Jaguar owner.

But unlike Apple, BMW pays a pretty hefty dividend every year.  Apple has started to pay dividends, after a 20-year hiatus, but not at a very high rate.

Long-term, I just don't see this stock hitting $800 or $900 a share.   They won't go bankrupt, either.  But the time to buy Apple was a few years ago, when they were doing poorly and before the iPhone and iPad were invented.

And as for their vaunted Patent litigation against Samsung?   Don't break out the champagne just yet.  This will be appealed to the Court of Appeals for the Federal Circuit, where a panel of judges, not Californian Jurors living in the shadow of Apple's "donut" office building, will decide the issues.   It may be likely overturned or reduced on appeal.   And no, the decision does not block competitors from making smart phones, only just certain kinds of smart phones.

Investing based on the headlines of the day is never a very good idea.   People are hyping Apple stock because of new products or sales headlines.   These are very poor ways to choose to invest.