The Motley Fool Previous Page

Apple Should Make Stock Market History This Year

Evan Niu (TMFNewCow)
June 19, 2012

So far, 2012 has already been quite a historic year for Apple (Nasdaq: AAPL  ) . Just two months ago, the Mac maker briefly topped $600 billion in market capitalization, a threshold crossed by only one other company before it: longtime rival Microsoft (Nasdaq: MSFT  ) over a decade prior.

The software giant topped out around $613 billion in December 1999 amid the height of the tech bubble, sporting a price-to-earnings ratio of 72.6. That's much pricier than the 14 times earnings Apple trades at today. Conglomerate General Electric (NYSE: GE  ) nearly joined the club, seeing a max market cap of $596 billion back in August 2000, trading at 51 times earnings. By year's end, Apple may very well march into uncharted market-cap territory.

Banking on net income
More importantly than market-cap figures that are influenced by fickle investors and active traders, Cupertino might even set a new record in stock market history this year with something investors can actually bank on: net income. Topeka Capital Markets analyst Brian White, a rather vocal Apple bull with a $1,111 price target, came out with a research note predicting that Apple's projected net income in calendar 2012 could make it the "most profitable company ever."


White is the same analyst who said in May that Apple could easily become a multitrillion-dollar company, and he echoed that sentiment this week: "We believe investors should think of Apple's market cap potential in terms of trillions, not billions." The $500 billion market cap threshold seems to be a psychological barrier for many investors, questioning whether the massive company can continue to grow with sustained earnings momentum.

Party like it's 1999
He also compares Apple with numerous other companies whose valuations had approached these levels, including Microsoft, GE, Intel (Nasdaq: INTC  ) , Cisco Systems (Nasdaq: CSCO  ) , and ExxonMobil.

Other than Exxon, these companies had rather lofty multiples when they peaked, a potential indication that their valuations weren't sustainable. In addition, they had "monopoly-like market share positions" at the time. Microsoft owned more than 90% of the PC operating system market when it maxed out, Cisco claimed in excess of 70% share of networking, and Intel occupied north of 80% of the processor market.

Apple represented just 4.7% of the PC market in the first quarter, and 8.8% of the mobile-phone market, although in fairness it dominates the burgeoning tablet market with an estimated 68% market share. White found very few similarities between Apple and the other tech giants when they peaked.

Dollars and sense
White's forecast for calendar 2012 calls for $46.2 billion in profit. Microsoft actually also saw its most profitable trailing-12-month sales last September of $23.5 billion.

AAPL Net Income TTM Chart