Apple hit a market cap of $2 trillion Wednesday, doubling in valuation in just over two years to become the first publicly traded U.S. company to reach the milestone.
Five market experts weigh in on the move.
Krish Sankar, managing director and senior research analyst at Cowen, said the move toward services has allowed for multiple expansion.
“What has really changed is the mix has shifted. You’ve seen more of a mix shift towards services side. And I think that’s one of the reasons why you’re seeing the multiple grow. The question that always comes with investors is that, what about valuation? The stock is expensive, … The valuation has always been a bear pushback.”
Jim Lebenthal, chief equity strategist at Cerity Partners, said he is taking some money off the table.
“I trimmed it a couple of times this year. And that certainly is an incrimination to me but on the other hand, even after trimming it, it’s still a 5.5% position in my portfolio, which is very large for anyone who’s running a diversified portfolio, and even so, that’s underweight to the market. OK, the market, it’s about 6.5%. So what I’m really trying to get at with this is that Apple is the market right now. It is, in my opinion, and you have to decide — is this market and thus Apple trading on fundamentals or is it trading on a sugar high of fiscal and monetary stimulus? … But I do have to acknowledge that underneath this are some artificial supports to this market that leave me … a little less enthusiastic than the rest.”
Joe Terranova, senior managing director at Virtus Investment Partners, said it’s hard to escape Apple given its weighting.
“I think there’s a lot of fundamental tail winds behind the move that we’ve witnessed since August 2018 for Apple. I do think when you look at Apple and you give consideration to if you hold it in a portfolio, whether you’re getting out or not, you just can’t get out of the stock … I think in the coming months we’re going to be talking about Amazon and Microsoft eclipsing $2 trillion. So, I’m not afraid of that number.”
Jenny Harrington, chief executive officer at Gilman Hill Asset Management, is avoiding the stock right now.
“We don’t own it because the actual operating earnings growth over the past four years or so hasn’t really been that impressive. It’s only been in about the 5% range. What’s driven the overall earnings growth has been the tax cuts and buybacks. Also a lot of the revenue growth has been driven by pricing increases, not by unit sales increases. So that’s what’s held us back up until now, and then what holds us back at this point is in fact that great quarter that they just had. And what I think is probably the case is that a lot of revenues were paid forward into this quarter, as people started working from home and kids started needing to go to school at home. And I think that there was a huge acceleration of iPad sales, laptop sales and all sorts of device sales that were accelerated into a short time period, which could leave a hole in the future.”
Marc Lasry, CEO of Avenue Capital, sees two different markets.
“It’s been surprising because when you sort of look at it, I think for a number of companies, especially tech companies … there’s a whole part of the market that just isn’t participating. I can tell you, a week ago, two weeks ago, we invested in a company — Diamond Offshore — where think of this, they’ve got $450 million of bank debt that’s secure, they’ve got $450 million cash. And we ended up buying the bank debt at 65 cents on the dollar. … You’ve got the haves and have-nots. If you’re the haves, life is great. If you’re the have-nots, in a zero-rate environment, we’re able to make all these investments. It just doesn’t make sense but that’s sort of where we’re living.”
