Apple: It's Different This Time

Oh, Apple (Nasdaq: AAPL  ) . Things have not ended well for companies in your position.

Barron's writer Michael Santoli raises an ominous point as the world's most valuable tech company barrels through new all-time highs.

"According to Standard & Poor's, and based on monthly figures, only five other companies have ever surpassed $500 billion, and each peaked out at or below $604 billion," he writes.


With Apple kicking off the new trading week commanding a market cap of $556 billion, it's getting painfully close to the historical popping point. And even then we're really talking about the $604 billion hit by Microsoft (Nasdaq: MSFT  ) ; the other companies came undone a lot closer to where Apple is now.

If you want to hear even more grim news, consider that four of the five companies -- Microsoft, Intel (Nasdaq: INTC  ) , General Electric (NYSE: GE  ) , and Cisco Systems (Nasdaq: CSCO  ) -- now fetch less than half of their peak value.


Reasons to be cheerful
If it's any consolation, consider that all four of those companies peaked during the dot-com bubble.

Market multiples were truly out of whack at the time. Microsoft was trading at roughly 60 times trailing earnings at its peak -- and that was actually cheap compared to some of the dot-com dynamos that were being valued based on their popularity absent actual profitability.

Intel popped because it was the top choice in microprocessors powering the Microsoft-fueled experiences. The dot-com revolution was real, and we were all going to have "Wintel" machines.

On the enterprise end, no Internet revolution could be complete without the networking gear that made it all come together. Cisco was the big name there, and for a brief while it was actually the country's most valuable company.

GE wasn't necessarily a dot-com play, but its eclectic portfolio of well-run properties bubbled up on the chunky valuations. If even slow-growing soda giants were trading at more than 50 times earnings, wasn't GE worthy of a healthy markup? Like Cisco and Microsoft, GE also had a run as the market's most valuable company.

In a fresh contrast to all of the pre-bubble bursting, Apple isn't trading at some insane multiple. The class act of Cupertino is trading at a reasonable 17 times trailing earnings. Looking out over the next few quarters, Apple is going for less than 14 times this fiscal year's projected profitability (which ends in September) and just 12 times the next fiscal year that begins in October.

Microsoft, Intel, GE, and Cisco certainly weren't trading in the teens -- and at year-ahead multiples in the preteens -- when they were at these lofty heights. In other words, those fallen darlings were never as profitable as Apple is today.

Reasons to be fearful
Apple isn't guaranteed to always be the same market beater that it is right now. Apple may be making most of the profits in mobile, but Android is the open-source platform that's running away with the global smartphone market.

Apple is still the undisputed market leader in tablets, but let's not underestimate the smartphone appeal of Android in bleeding over into the tablet space. There's also Microsoft. Windows 8 is supposed to be very tablet-friendly when it rolls out later this year, and Microsoft's Windows operating system remains the PC leader.

The threats are real, but the chances of Apple being more valuable in a year or two seem to outweigh the chances that it won't. The smartphone and tablet revolutions -- and despite all of Apple's gear, this is really a play on the growth of the iPhone and iPad these days -- are still early in their global growth cycles. If Apple can sustain its share of these growing markets, we're really just scratching the surface.

Apple is cheap, and this is judging by a basic earnings-based gauge that has sorely underestimated Apple's eventual profitability nearly every single time over the past decade.

It is different this time. It may take as little as a few weeks or as long as a year or two, but Apple will break through that $604 billion glass ceiling -- raining the shards onto the head-shaking naysayers.

Apple jacks
The next trillion-dollar revolution will be in mobile, but the best investing play isn't necessarily Apple. If you want to cash in on the upcoming trend, a new report will get you up to speed. Yes, it's as free as this article, but it won't last forever so check it out now.

The Motley Fool owns shares of Microsoft, Apple, Cisco Systems, and Intel. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Intel. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Read/Post Comments (14) | Recommend This Article (10)

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  • Report this Comment On March 26, 2012, at 11:13 AM, GordonsGecko wrote:

    Many an investor has learned to rue the day that they bought into the "it's different this time" discussion.

  • Report this Comment On March 26, 2012, at 12:42 PM, 1984macman wrote:

    @GordonGecko: ...and many any investor has rued the day the neglected to get on the Apple bandwagon!

    There has never been a stock like Apple. Never. Broken paradigms lie all about it. Sooner or later investors are going to have to acknowledge that salent fact, either from the sidelines or on the freight train with the rest of us.

    Apple is destined to blow right past a trillion dollar market cap, and even then it'll just be getting started!

  • Report this Comment On March 26, 2012, at 12:44 PM, 1984macman wrote:

    Sorry. Made a hash of the verbage and spelling on that one....

  • Report this Comment On March 26, 2012, at 12:52 PM, techy46 wrote:

    Oh, too be arrogant, ignorant and young again. There has never been a stock like Apple. Oh, he just mentioned 4 or 5 with Microsoft at the top. I love the freight train analogy. Be fearful when others are greedy.

  • Report this Comment On March 26, 2012, at 1:34 PM, lucasmonger wrote:

    Fearful when others are greedy, and greedy when others are fearful.

    I bought Apple at $10 per share when they were about to go bankrupt. Sold at $30 per share (too soon) when it made a meteoric climb to the $120's during the dot-com era. Bought again at $6.50 (accounting for the split) during dot-bomb. Bought more at $87 during the financial crisis. Sold it all around $280-300 (again a bit too early).

    All in all, I agree, there has never been a stock like Apple, but again, chasing after profit after the company has risen tremendously is a recipe for potential trouble. I like Father Guido Sarducci's 5 minute university...

    Economics... Supply and Demand

    Business... Buy something and sell it for more

  • Report this Comment On March 26, 2012, at 1:53 PM, roadrash5155 wrote:

    Name one other company that had a trailing P/E of 17 and a 600 billion market cap, that had 100 Billion cash in the bank at the same time.... can't be done.

    AAPL has already blown through all "reasonable" valuations.

    Growth potential: 20% of the world's population lives in China (1.3 Billion people). Another 1.2 Billion in India. Apple has only begun to scratch the surface in those markets. Brazil is the 5th largest country in the world and Apple is rapidly expanding there as well.

    One final thought, Apple now averages 1 Billion a week in profit....and growing. :o)

  • Report this Comment On March 26, 2012, at 2:45 PM, CluckChicken wrote:

    There is one thing to watch with Apple, they are in a consumer goods business that has a life cycle of 1 year. All it takes to go from a high flying company to a what the heck happened is back to back releases of products that dont stack up well against its compeditors.

    Motorola was king with the RZR and then just a couple years later they were an also ran. They have since made a comeback with strong products again. RIMM was king of the smart phones then there was a change in what the market wanted and now it is questionable if the crackberries can make a comeback.

    Yes Apple has the whole iTunes connection to try and lock people in place but this too is not that big a deal as consumers have shown that they will change products if they presseve another one is superior. Even in Apple's history you can see that a couple lesser products can reduce you to an also ran as the late 80s showed. Yes Apple does have it's Appleites that will blindly purchase any and all Apple products but those too have their limits.

    Personally I find it very strange that people believe a consumer goods company could easily be worth more than the economy of Australia (970bln).

  • Report this Comment On March 26, 2012, at 3:36 PM, GordonsGecko wrote:

    Maybe it is "different this time". Maybe not. Perhaps we will all be swimming in piles of money and be surrounded by beautiful women. Time will tell.

    Yet, history has taught us over and over again that It is usually during the height of over-exuberance that one experiences the greatest of falls. Plenty of great books with repeated examples (Intelligent Investor - Graham, etc..)

    Of course...from time to time, from that wreckage may come a Phoenix burning brighter than ever (see: Apple, circa mid 90's and continuing today).

    I'm not denying the great story that Apple has been and continues to be. It makes up a significant portion of my portfolio. I'm very happy about the gains I've experienced and only wish I had been earlier to the party.

    I'm simply saying that "different this time" has been a very risky (if not outright capital destroying) investment thesis.

  • Report this Comment On March 26, 2012, at 4:56 PM, mmmm101 wrote:

    Y'all, especially techy46, are missing the the point. It's NOT different this time simply because "it's not a different time." There is no "paradigm shift", there's nothing remotely resembling the dot-com bubble, and the metrics used are not eyeballs... it's CASH! If you read the article the 4 or 5 names listed were outlandishly priced during the Henry (IDIOT) Blodget, dot-com, eyeball, new paradigm era. AAPL at .07 PEG is inexpensive. PE of 12 for 2013 is "insane". I believe this is without having backed out the cash!!! Got info from Yahoo! Finance... cough, cough...

    This article should really not be called "It's Different This Time"

  • Report this Comment On March 26, 2012, at 5:13 PM, PoorerThanU wrote:

    I believe mmmm101 you are missing the point. You are looking backwards. Looking forward, I see no Steve Jobs. Do you remember Apple without Steve Jobs? You can mark 2011 as the year of the "paradigm shift" for Apple. Make no will not appear so for at least a year, maybe three or four. But, it has happened.

    Personally, I own some Apple shares. I believe it will be a good investment throughout the remainder of 2012. If, or should I say when, Apples climbs another 50% or so during the next 12-24 months, I will be looking for my exit strategy.

  • Report this Comment On March 26, 2012, at 6:07 PM, neilmalek wrote:

    Looking at market cap is almost as foolhardy as looking at share price. CluckChicken - if this consumer goods company produces more than Australia, then it should be worth more than Australia.

    The only problems are problems of quality, style, and mystique. Unfortunately, Apple's earnings are predicated on 'cool', so if the cool leaves, the company deflates quickly. The simple fact remains - if they keep making money at this rate, there's no reason at all we shouldn't pay a large price for it.

  • Report this Comment On March 26, 2012, at 7:54 PM, lowmaple wrote:

    Recency bias. Market cap in deflated dollars. These comparisons are useless. Instead compare P Es and though we won't get to the 50s P E, we may get over 25. Not that a dip couldn't happen. Just write a few options for insurance.

  • Report this Comment On March 26, 2012, at 8:43 PM, RipRagge wrote:

    Market share is a meme. Apple is winning the mobile wars in the only metric that really counts: profit. I don't have the numbers at hand but Apple is taking more than half of the profit in mobile phones. Not smart phones – mobile phones.

    Apple is selling the top three *phones* on the market. the iPhone 4S, 4, and 3G. No other single model from any competitor is even worthy of mention.

    There is no such thing as a *tablet* market. There is iPad and the *not iPad* market.

    Ultrabook is a made-up word for lame attempts to copy the success of MacBook Air. There isn't one giving MacBook air anything like a run for its money.

    Name the competing portable music player to iPod.

    FD: I bought most of my shares of Apple in 1999. And I've been adding to the stack since.

  • Report this Comment On March 27, 2012, at 1:39 AM, jdwelch62 wrote:

    Its only a paper profit until you sell...

    I sold 1/3 of my AAPL position today to lock in some decent (ok, really good) profits, reducing my exposure to that one equity which had climbed to be too high a percentage of my total portfolio, & to invest in something else that looks like it'll do just fine in the long run.

    Remember, pigs get fed, hogs get slaughtered.

    What % does AAPL make up of your total portfolio? Maybe it's time to lock in some profits now & rebalance your portfolio, before that freight train either falls off a cliff or slams into the side of a mountain. Speed kills...

    Are we having fun yet?... :-)

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