Will Apple be the New US Steel?
Mohamed is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In 1901 Carnegie steel was bought by J.P. Morgan and Elbert H. Gary for $492 million. It was combined with several other steel companies to form US Steel (NYSE: X) capitalized at $1.4 billion making it the first company ever to be worth more than a billion dollars.
111 years later we still haven’t crossed the trillion dollar threshold, however when one thinks of the corporation most likely to make history and be worth more than one trillion dollars, Apple (NASDAQ: AAPL) most likely makes the cut.
Apple is already the most valuable company in the world with a market cap of over $500 billion. Now these big numbers can be scary. History has not been kind to companies who have crossed the $500 billion threshold before. Way back in the dot com bubble in the late '90s/early 2000s when the likes of Microsoft (NASDAQ: MSFT), Cisco (NASDAQ: CSCO), Intel (NASDAQ: INTC) and GE (NYSE: GE) all approached half a trillion dollars, they then collapsed. Look at the table below:
Peak Market Cap
Current Market Cap
|General Electric||$601 (August 2000)||$200||(67%)|
|Cisco||$557 (March 2000)||$89||(84%)|
|Microsoft||$642 (September 2000)||$246||(62%)|
|Intel||$509 (August 2000)||$131||(74%)|
source of historical peak market caps: CNN money
However as I see it Apple is different than these companies. It is different in that it is estimated to make about $50 billion this year giving it a forward P/E ratio of only about 10. Yes that’s right, 10 for a company that has grown its earnings by nearly a 100% in the last three years. That means not only is the company properly valued at these levels unlike the irrational exuberance characteristic of the dot com bubble, it is properly undervalued too.
Just think about it, if Apple’s P/E ratio expands to around the 20s, which is actually pretty reasonable for a company like Apple, it would already be near a trillion dollars in market value. This isn’t even considering any growth beyond this year, which is highly unlikely. Unlike US Steel which counted on its size and eventually lost market share to its competitors like Bethlehem Steel, Apple is one of the most innovative companies in the world.
Some of the key strength that will help Apple's value go above and beyond in the coming period are:
If people start to walk out of Apple stores with TV sets then be sure that you will see the first multi-trillion dollar company real soon. Apple TV was referred to as a hobby some years back. However, right before he died, Steve Jobs told his biographer that he had finally cracked the code for TV. Apple’s current CEO Tim Cook has recently stated about Apple TV that “it’s an area of intense focus for us.” RBC research firm believes that Apple TV may be launched by 2013 and may generate sales of 15 million units in the first year.
Dividend and Share Buy Backs
Tim Cook made a decision that many thought they would never ever witness. Apple earlier this year paid its first dividend in 17 years! The new dividend will definently make the company more attractive in the eyes of mutual funds and big institutional investors.
Apple is expected to release a new Apple iPhone later this year dubbed the iphone 5. The iphone 5 is expected to offer new features and a radical new design. The iPhone line up has been the most profitable product for the company. About 150 Million iPhones are expected to be sold this year!
Don't let Market Cap Phobia keep you away from Apple
I will sign off with a chart of Apple vs. the S&P 500 for the last 5 years. Need I say more?
Eliteinvesting has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Intel, and Microsoft. Motley Fool newsletter services recommend Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.