“Intrepid Investor argues that Apple (with a market cap of $700 billion) might be the inferior investment in comparison to a basket of other companies valued at $700 billion,” Jonathan Weber writes for Seeking Alpha. “This basket consists of Cisco, Intel, Taiwan Semiconductor, Qualcomm, SAP, Baidu and Hewlett-Packard. As you can see those are seven tech companies as well, so the comparison between the two baskets seems fair.”
“The author argues that Apple will likely be the inferior investment due to the fact that things tend to stop growing once they reach a certain size and that the basket of the seven other tech companies is a better choice due to the fact that those seven have a higher total amount of retained earnings on their balance sheet,” Weber writes. “His first point is obviously true – a company will never be able to grow (its revenues) at a pace higher than global GDP growth forever, since otherwise it would one day be responsible for every dollar generated in the whole world. ”
“This however does not mean that Apple will not be able to grow at an above average pace for the next years, and neither does it mean that Apple’s shares will not see continuing growth over time,” Weber writes. “Despite being the biggest company in the world by market capitalization (using nominal dollar values), Apple’s share of global GDP is still very small and could easily grow further: Apple’s trailing revenues of $210 billion make up just a small portion of the global GPD of $76 trillion (that’s 76,000 billion, or more than 360 times Apple’s revenues). In addition to the fact that Apple could easily grow its revenues further (and there are other companies with higher revenues, e.g. Wal-Mart, Apple’s market cap also could grow through multiple expansion (as Apple’s P/E multiple is below market average). And lastly, market cap expansion is not even necessary for share price gains. As Apple keeps buying back a lot of shares over time share prices (and thus the value of an investor’s investment) increase, even if the market capitalization remains flat.”
Much more in the full article – recommended – here.
MacDailyNews Take: Apple is just getting started. We haven’t seen anything, yet!