Stern Advice: Apple is bigger than my brain

WASHINGTON, April 11 Wed Apr 11, 2012 3:06pm EDT

WASHINGTON, April 11 (Reuters) - By various accounts, Apple Inc. is now bigger than Spain, Portugal and Greece (combined), or the entire retail sector of the U.S. economy, or 13 Warren Buffetts. What are we to think about that?

First, a disclosure. In my two-person household are three Apple laptops, two Apple desktops, two iPhones, one iPod, two healthy iTunes accounts, a fair amount of iPad lust, and 200 shares of Apple stock, purchased by my husband roughly two decades ago, and making up a large share of his retirement account.

He would have had 400 shares, but - as he frequently reminds me - I talked him into selling 100 shares (pre-split) back when it was selling for an eye-popping $65 a share, a price I thought was frighteningly high. It is selling today for about $628 a share.

So, (1) No sane person would take buy or sell advice from me; and (2) I have a vested interest in everyone plowing more and more into this company until it's worth more than every other company put together, or I can convince my husband to sell more. However, that isn't the point of this column.

Rather, it's to offer some perspective on this gorilla of Wall Street and the people who own it. And to warn individual investors that, even if they don't live in an iCult ashram like mine, they may own Apple stock.

That's because the most commonly held mutual funds have been plowing cash into Apple, and when a company gets that big, it can dominate even a diversified mutual fund portfolio.

And so, a few points to consider.

- You may already be an Apple shareholder, according to data compiled by Lipper, a Thomson Reuters company. For example: Do you own PowerShares QQQ Trust, Series 1? That's an exchange-traded fund that is sold as an inexpensive proxy for the whole of Nasdaq. As of March 31, Apple made up 17.5 percent of that fund; so, if you had $20,000 in that ETF, you were sitting on $3,500 of Apple stock. Of course, since then, Apple has gained about 3 percent, while most other stocks have fallen.

Other popular funds that hold a lot of Apple are Fidelity Contrafund (ironic, right?), with 9.46 percent of its March 31 portfolio in Apple; Vanguard Growth Index Fund, with 6.13 percent; and Fidelity Growth Company Fund, with 7.9 percent of the portfolio. And if you own the whole market, as proxied by the Vanguard Total Stock Market Index Fund? On March 31, $26.80 of every $100 you had in the fund was in Apple.

- Institutions dominate the stock, holding 69.1 percent of all Apple shares, according to Nasdaq data as of the end of March. Big pension funds, investment companies and more are all invested in Apple. More than half of the 1,848 institutions which claim to own Apple bought even more shares in the first quarter.

Apple pessimists say the fact that everybody seems to own the stock is a good argument for selling it. Lest we forget, in 1999, Microsoft reached a $619 billion market capitalization, and it's now worth a shade less than $255 billion. The once-popular bull market Wall Street adage holds, "Trees don't grow to the sky." At its 1999 peak, Microsoft was selling at $58.38 a share; a year later, its share price was $21.69 (and today, it's at about $30.36).

- Some people still think the company is reasonably priced. At 12.5 times estimated forward earnings, Apple is roughly in line with the NASDAQ and cheaper than the Dow Jones Industrials, which sports a forward PE of ro ughly 14.25 now. Indeed, Apple could keep on rising. At least two analysts - Piper Jaffray's Gene Munster and Brian White of Topeka Capital Markets - are predicting a $1,000 share price for the company.

- But naysayers have a point, too. They look at the death of Steve Jobs, the problematic labor conditions in China where most Apple equipment is made, the antitrust lawsuit filed against Apple and others by the Justice Department claiming collusion on e-book prices, increased competition from other smartphones, tablets and streaming video services, and say the company's easiest earnings days are behind it.

- Don't forget the dividend. Apple recently said it would pay shareholders $2.65 a share each quarter just to hang on to its stock. That's roughly 1.6 percent a year, and almost four times the average yield on 6-month certificates of deposit now, according to Bankrate.com figures. Of course, if all of those mutual funds, ETFs, pension funds and my husband decide they've had enough of Apple, you may wish you had your cash in the bank instead.

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Comments (1)
ARJTurgot2 wrote:
“And if you own the whole market, as proxied by the Vanguard Total Stock Market Index Fund? On March 31, $26.80 of every $100 you had in the fund was in Apple.”

Uh, I’d reality check your numbers.

Apr 11, 2012 12:27am EDT  --  Report as abuse
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