Review & Outlook

Our take on the investing, financial, & economic themes of the day

Apple’s Impressive Comeback

Apple is one of O’Brien Greene’s core technology holdings.  In January of 2013 I wrote a post, “Taking Stock of Apple,” which commented on the big sell off that hit Apple at the end of 2012.  Happily, we argued for holding on, since although Apple’s growth was slowing, it remained a well-run cash machine with an enviable portfolio of products.  Since that date, Apple’s stock has rebounded about 43%, beating the broader market (as measured by the S&P 500 Index) handily.  Add to this performance Apple’s 2.09% annual dividend yield, which is currently about 59 basis points above the yield on the 10-year Treasury bond, and the company provides a nice combination of growth and income.

APPL perf

Over the past five years Apple is crushing the S&P 500 Index, even though it hasn’t returned to its all-time highs from the latter half of 2012, when the stock did seem to get ahead of itself.

APPL 5 Yr

John Authers of the Financial Times has an interesting discussion about Apple and momentum versus value investing with Aswath Damodaran of NYU Stern Business School.  Damodaran notes just how fickle momentum investors are, and how it seems that it was Apple’s decision to split its stock that finally occasioned a more sustained price rebound (even though a split shouldn’t make any price difference).

Large-cap technology companies have generally done well this year.  Apple has led the technology hardware segment’s outperformance, which has increased 11.2% year to date and 5.3% in May alone.  According to UBS analysts, on a relative basis, the technology hardware segment is outperforming by 530 basis points in 2014.  Apple, Qualcomm (which is another O’Brien Greene holding), and Cisco account for approximately 70% of the weighting for this segment and they were +7%, +2% and +7%, respectively, for May, according to UBS.

Apple’s ability to innovate has been amazing: as UBS notes, the company delivered $171 billion in revenue in fiscal year 2013 and $123 billion, or about 72%, of that total came from products that didn’t exist seven years ago.  Its three main products–the iPhone, iPad, and personal computers such as the MacBook–continue to set industry standards for design and functionality.  Through the iPhone and its platform of apps, the company is moving into the “internet of things” by offering an integrating tool to control and organize a household’s wireless devices.

Apple trades at 16.0 times 2013 earnings and 14.3 times projected 2014 earnings.  If the stock regains the heights it reached in 2012, then it may be worth trimming and taking gains, but for now its worth holding on.