It was business as usual for Apple (Nasdaq: AAPL) last week. The technology giant crushed Wall Street's earnings estimates...again...and reinvigorated talk on Wall Street that the stock was on its way to the psychologically significant $1,000-per-share mark.
On the other side of the coin, many have also argued that the law of big numbers has crushed any company that has ventured much beyond the $500 billion market value before -- and there is truth to this statement. In late February, Apple became just the sixth company to ever cross the $500 billion market value plateau, joining Microsoft, Cisco Systems, General Electric, Intel, and ExxonMobil. Suffice it to say, these five haven't fared too well since peaking above $500 billion years earlier:
|
Company |
Peak Market Cap |
Current Market Cap |
Difference |
|---|---|---|---|
| ExxonMobil | $527.1 | $405.9 | (23%) |
| Intel | $509 | $141.9 | (72%) |
| General Electric | $601 | $209.3 | (65%) |
| Cisco Systems | $557 | $107.6 | (81%) |
| Microsoft | $642 | $268.7 | (58%) |
Sources: CNN Money, Bespoke Investment Group, Yahoo! Finance. Market values current as of April 27, 2012.
For all but ExxonMobil, you could make the argument that irrational exuberance was to blame, but history has thus far proven unkind to loftily valued companies.
As for me, I'm rooting for Apple as I do think at some point it will surpass that psychologically important $1,000-per-share plateau based on its undeniably strong growth prospects. But that doesn't mean that other companies won't beat Apple to that special $1,000 mark.
Today, I want to take a look at three companies that I feel have what it takes to beat Apple to $1,000. Now here's the shocker: Neither Google (Nasdaq: GOOG) nor priceline.com are one of those three stocks.
Google, in its recently released first-quarter earnings, did report a 39% increase in revenue, but that came, once again, with the caveat that cost-per-click ads are declining. Without high-margin CPC growth, I don't see how Google will reach $1,000. As for Priceline, I've made my case before that its valuation simply doesn't seem sustainable.
So throw the preconceived notion that either of these two companies will beat Apple to $1,000 out the window and take a gander at these three stocks that I feel will beat Apple to the punch.
MasterCard (NYSE: MA)
Credit service companies are dominant in basically any economic environment, which makes MasterCard, to me, a shoo-in to wind up at $1,000 before Apple.
MasterCard and peer Visa are merely credit transaction processors, which means they have no default risk. That risk falls to the banks that actually decide to lend credit to consumers. This means MasterCard needs to focus on only two things: increasing market share and expanding into emerging markets.
Based on comments from MasterCard CFO Martina Hund-Mejean, 85% of all transactions worldwide are still executed using cash, which leaves credit processors with a huge pool of untapped customers. We're also beginning to see just how important the prepaid debit market is for MasterCard, which reported 19.6% growth in gross dollar volume thanks to prepaid debit cards.
We also need to remember that MasterCard is sitting on a moat of cash. The company's strong cash flow and lack of debt afford it incredible flexibility that few other financial service providers possess.
Intuitive Surgical (Nasdaq: ISRG)
The maker of the da Vinci robotic surgical system keeps producing, year in, year out. With no direct competition at present, Intuitive Surgical is enjoying enormous pricing power for its robotic systems, as well as the high margins that come with being able to control pricing.
What's more, Intuitive Surgical dispelled the thought that its growth was slowing when it reported its first-quarter results two weeks ago. The company easily ran past both sales and earnings expectations, but more important, it boosted its full-year forecast for surgical procedures as well as its annual revenue projections over prior guidance.
It's likely that MAKO Surgical and other competitors will present a formidable threat years from now and that the da Vinci surgical system's price will eventually shrink, but I'd be surprised if that affects Intuitive Surgical's results in any meaningful way over the next three to five years.
Like MasterCard, Intuitive Surgical is loaded with cash ($971 million), and is projected by analysts to grow by 21% annually over the next five years. It isn't the cheapest stock on the block, but it has a monopoly on an in-demand product in a field that is only bound to see increased demand. It will beat Apple to $1,000.
White Mountains Insurance Group (NYSE: WTM)
That's right; I said it! A property and casualty insurance holding company is going to beat high-growth Apple to $1,000!
White Mountains Insurance Group has been on my radar for a long time due to its prudent fiscal management, steady shareholder returns, and the fact that it's consistently undervalued relative to its book value. Even now, after the steady run the company has had over the past year, White Mountains sits below its book value of $565 per share. I can't quite figure out why that's so, because the company's subsidiaries locked in another solid quarter last week.
OneBeacon Insurance reported a healthy combined ratio of 93.6% for the quarter as premium payments for its professional, technology, and accident insurance lines rose. Sirius Group logged an even more impressive combined ratio of just 84% as catastrophe losses were small. Gross premiums rose by 5% for Sirius. Even White Mountains investments segment got in on the fun with fixed-income returns helping its portfolio return 2% during the quarter. White Mountain also repurchased nearly one million shares at an average discount of 10% to book value, which helped add $7 to overall book value.
The best part about White Mountain is that it still has $1.8 billion in undeployed capital that it can continue to use on share repurchases and acquisitions as it sees fit. It may not have the flash of Apple (no pun intended), but I feel it has the right mix of value and growth to beat Apple to $1,000.
The race is on
The race is on to see which stock is the first to make it to $1,000. I've made my case for MasterCard, Intuitive Surgical, and White Mountains Insurance; now it's your turn to chime in. Vote in the poll below with your choice of which stock will hit $1,000 first, and add a comment as to why you chose the stock that you did.
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