New American stock king Apple due for decline

ppteam

Now it's Apple's turn to be the largest U.S. stock. Time will tell whether it suffers the sad fate of companies that acquired that title in the past.

According to my favorite stock-market research firm, New Davis Research Inc., five of the seven stocks that achieved the largest market value in the Standard & Poor's 500 underperformed the S&P 500 in the year after their ascension.

Here is a list of companies that have been the largest in the S&P 500 since September 1974, and the dates when they first obtained that distinction:

• Apple Inc. (AAPL), August 11, 2011

• Cisco Systems Inc. (CSCO), March 28, 2000

• Microsoft Corp. (MSFT), September 15, 1998

• Wal-Mart Stores Inc. (WMT), December 1, 1992

• Altria Group Inc. (MO), December 31, 1991

• General Electric Co. (GE), July 27, 1990

• Exxon Mobil Corp. (XOM), October 30, 1989

• AT&T Corp. (T), September 16, 1974

According to the Ned Davis data, the average one-year performance for the seven companies preceding Apple was a loss of 0.3 percent. That compared with an average gain of 8.5 percent for the S&P 500 during the same series of one-year intervals. So the average margin of underperformance was 8.8 percentage points.

Cisco Systems, which declined almost 80 percent from March 28, 2000, through March 28, 2001, had a big influence on the results. March 2000 was the historic peak for technology stocks. But Cisco wasn't alone. AT&T, General Electric, Altria Group and Wal-Mart Stores also trailed the overall market in the year after they became the biggest U.S. stock.

I was curious to see how the companies fared over a longer period. So I did a five-year analysis. Here are the results.

• Exxon Mobil outperformed the S&P by 10.7 percentage points.

• General Electric beat the market by 5.1 points.

• Altria Group trailed the index by 26.7 points.

• Wal-Mart lagged even worse, 123.7 percentage points behind the benchmark.

• Microsoft kept pace with the market, beating the S&P by 0.1 point.

• Cisco Systems did badly, 61.2 points behind the market.

My five-year calculation excludes AT&T because I wasn't able to account properly for various mergers and restructurings that occurred over the years.

The average result was severe underperformance, more than 32 percentage points behind the broad index.

I suspect that Apple will suffer a fate somewhat like the newly anointed kings of the past. On the plus side, the company is debt-free and highly profitable, its products are popular, and the stock sells for a reasonable 15 times earnings. On the minus side, the stock fetches five times book value (corporate net worth per share) and 3.5 times revenue, above-average multiples. And Apple is losing its charismatic CEO, Steve Jobs, to illness.

Overall, I'd expect Apple to just about match the overall market from now through mid-2016.

Some of the dethroned market-cap kings of the past look like attractive buys to me now. Cisco Systems sells for 12 times earnings and looks inexpensive based on revenue and book value. Exxon Mobil sells for less than 10 times earnings. Yet it is highly profitable and consistently profitable. Exxon hasn't posted a loss in more than three decades.

Microsoft's valuation measures are mixed: It looks cheap by some measures and not by others. Overall, I think it is worth buying. The software leader posted a 44 percent return on stockholders' equity last year, and the stock sells for less than 10 times earnings.

The other three -- Wal-Mart, General Electric and Altria -- strike me as decent holdings but my enthusiasm for them is mild.

Wal-Mart hit its all-time high of just above $59 in 1999. Since then the company has grown substantially while the stock price has shrunk. At 12 times earnings this formerly overvalued stock may be a good value, but I feel the company is losing some of its edge over competitors.

GE Capital, General Electric's financial arm, contributes a hefty share of the company's profits but has been shrinking since the financial crisis hit in 2007.

I'm least keen on Altria. Granted, it offers a lovely dividend yield, more than 6 percent. But cigarettes are not, in my opinion, the business of the future. And Altria carries more than $13 billion in long-term debt, nearly triple its equity.

In the stock market, betting on favorites is rarely a path to riches. When a company is at the peak, it is at the verge.

The perils of size and success may be as big a threat to Apple as the resignation of Steve Jobs as CEO.

dfw

回复 ppteam 的帖子

dividend_growth

Apple is very much like Microsoft in September 1998: mid term very strong, long term weakness, MSFT still more than doubled between Sept 1998 and Jan 2000.

Apart from Cisco, which reached the astronomic P/E of 200 on March 28 2000, all other new market cap kings have outperformed S&P 500 since then.

The best performer: Altria, formerly known as Philip Morris. It has beaten the crap out of S&P 500 during the past 20 years, despite being hit with numerous devastating lawsuits; and its spinoff, the Philip Morris International, is performing even better.

The next best is the sturdy Exxon Mobil, losing slightly to Altria.

Wal-Mart has outperformed S&P500 by a slight margin since Dec 1992.

Both GE and Microsoft have slightly underperformed the index since becoming market cap kings. It's remarkable that GE doesn't trail S&P 500 by too much despite the 2008-2009 disaster.

At 200 times earnings, Cisco was the ultimate bubble king and underperformance was virtually guaranteed.