First To a Trillion? It’s Not Just Apple vs. Google
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It has a $420 billion market capitalization, so it is nearly halfway to a trillion. It trades at only 10 times trailing earnings, meaning that it is hardly overpriced and may even get some multiple expansion. Shouldn’t ExxonMobil (NYSE: XOM) be in the mix to be the first public company to be worth a trillion dollars?
Let’s make no mistake: if Apple (NASDAQ: AAPL) continues to grow its business at a rate similar to what it has done over the last few years, it will easily get to a trillion dollar market cap. That’s only a 60% increase from its current valuation, which doesn’t seem that hard for a stock that is up 62% so far in 2012. And we’d be hard pressed to say that the stock price has outpaced the business, with Apple’s trailing P/E being only 16 (note that the statistics so far indicate that ExxonMobil is currently earning higher profits than Apple). If we had to guess, we would say that Apple is more likely than any other company to reach a trillion dollars. But there are two scenarios in which ExxonMobil could be the first to cross the ten-figure mark.
Apple would have to stumble. Whether because of a poor product launch or competition in the tablet and smartphone markets eats away at its market share and profit margin, Apple’s growth needs to slow enough to reduce increases in its stock price to about 10% per year. At that rate, it would take five years for the company to be worth a trillion dollars. Economic theory argues that as these product markets mature and more companies start providing competing goods, prices and margins will come down. Just as importantly, Apple would have to cease coming up with groundbreaking successful products.
Global growth would have to be strong. ExxonMobil’s stock price is connected to oil and natural gas prices, which in turn are determined by the supply of and demand for energy. The demand for energy, in turn, is derived from global economic growth. In the 2000s, growth was strong- despite gripes in the U.S. about a “lost decade” the world as a whole saw a remarkable rise in per capita GDP- and between the end of 2002 and today (a little less than 10 years) the price of oil has risen from under $40 per barrel to around $90.
ExxonMobil, meanwhile, is up 157% in that timeframe, and a rise in oil prices could pull its business higher; we don’t expect prices to double in the short term, but seeing good growth could make investors more confident in the long-term prospects of the company and pull its P/E higher. ExxonMobil would also be helped by a recovery in natural gas prices, which are currently low due to a supply glut in the U.S. This is partly because limited transportation infrastructure exists to bring natural gas to markets such as China where prices are higher. In time, we think that the natural gas side of ExxonMobil’s business should do better.
In this scenario, with its stock rising 15-20% per year, ExxonMobil Corporation could get to $1 trillion in about five years and edge out Apple. It would also likely beat out Google (NASDAQ: GOOG): that company has good growth prospects in a number of markets, and it would be the largest beneficiary from any Apple setback (though it would also see lower margins and market share if competition in the tablet and smartphone markets heats up). However, ExxonMobil has a substantial head start as its market cap trumps Google’s by 71%. This means that Google could outperform ExxonMobil over the next three to five years and still lose the race.
We actually considered Chevron and BP to possibly be cheaper than ExxonMobil when we looked at the company earlier this month, so it might not even be the best buy in the oil & gas industry. However, we think that because of its large market capitalization and the dynamics of the energy sector it has the potential to be the dark horse in the race to $1 trillion. Read more of our coverage about Apple and about Google.
Compare and Contrast
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InsiderMonkey has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and ExxonMobil. Motley Fool newsletter services recommend Apple and Google. 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.