Apple Now A Cult Stock

By Sham Gad | February 17, 2012 AAA

Apple (Nasdaq:AAPL), the most popular stock in the world today, achieved another milestone this week. For the first time ever, Apple shares hit $500 and kept climbing. At the current moment, Apple is by far the most valuable company in the world based on market cap. A staggering $464 billion, well ahead of the now second place Exxon Mobil (NYSE:XOM), which now commands a market cap of $400 billion.

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Phones Over Oil
Without question, Apple's growth rate has been nothing short of phenomenal. Despite even the most optimistic earnings estimates from analysts, Apple's results continue to defy both its own investors and those on the sidelines. Apple's 2012 fiscal fourth quarter net profit of $13 billion, was, get this, nearly equal to Apple's total profit in the entire fiscal year 2010. Thanks to that record setting quarter, Apple also sits on over $100 billion in cash, enough to create an entire country. So far, there are no meaningful signs that Apple's growth is slowing down despite the fact that Google's (Nasdaq:GOOG) Android based phones are showing signs of being a strong competitor to the dominant iPhone.

At the moment, Mr. Market loves iPhones and iPads more than he does oil, despite the fact that one commodity has been universally used for over a 100 years while the other is part of a rapidly changing technological revolution. Regardless of the market cap, Exxon is still the world's most profitable company. The company is on pace to earn some $40 billion in profit in 2011 from over $400 billion in sales. Assuming there are no major hiccups in 2012, a big IF in tech land, Apple could potentially eclipse Exxon in profitability in 2012. (For related reading, see Steve Jobs And The Apple Story.)

A Must Have Stock
Just like its products, Apple is now a 'must have' stock to own. Trading at nearly 10 times forward earnings, Apple is not trading at tech nosebleed valuations. In fact, Apple trades at the same forward earnings multiple as Microsoft (Nasdaq:MSFT) and Intel (Nasdaq:INTC), two high quality companies in their own right but with significantly less growth potential at the current moment. Despite Apple's relatively attractive valuation, it is a company that is in a world of its own. Even at $500 a share, the biggest risk is not owning Apple today. Apple is not an overvalued stock but rather a fairly valued one at the moment, and if its growth continues then shares are going to go higher. The company has $100 billion in cash on the balance sheet, and at current rates, Apple could end 2012 with over $150 billion in cash.

The Bottom Line
But Apple operates in a cut throat industry where the only certainty is that the industry is uncertain. So far, the company continues to defy the world, but success is not infinite though Apple certainly seems invincible today. There will be hiccups, may not until $600 or $700, or maybe now. Going forward, Apple will be an exciting story to watch but it may be best to watch from the sidelines.

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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

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