Skip to content

Even Apple is Human

May 8, 2012

Earnings count.  So do dividends.

In the last month, Apple started out at $636, dropped to $560, went back up to $610 and then dropped back to $565.  The drop to $560 was in anticipation of poor earnings.  The jump to $610 was a response to a a great earnings report and the drop to $565 seems to be due to a weak market.  Apple also announced it will start paying a reasonably good dividend and will also buy back some of its stock reducing its float.

 

Earnings have always driven value and price for many stocks.  Apple is the most valuable traded company with a market cap of about $525 billion.  Its price/earnings (“P/E”) ratio is just under 14; only a little higher than the P/E for the S&P 500.  Its dividend yield later this year will be close to the yield of the S&P 500… just under 2%.  Apple’s stock has become mainstream.  Apple is Human!

It is a thrilling and familiar company – just try to squeeze into an Apple store in a shopping mall.  It is a mob scene.  Its stock routinely has double digit changes making exciting headlines, but Apple is like every other stock – it is driven by earnings and dividends.

Question: If its stock has become “mainstream,” why would you buy it rather than a bucket of stocks that duplicate the S&P 500 index or other major indexes?  It seems to me that the risks of owning individual stocks are much greater than a fund with a balance between stocks that drop and increase.  Stocks of many top companies have had sharp falls that haven’t recovered – Hewlett Packard, Merck, Citicorp, Cisco, GE – to name a few.  Owning those stocks individually would have caused big losses depending upon when they were acquired.  The Dow Jones Industrial Average, which they are all part of, has almost made up all of its losses from its all-time high.

I suggest you consider investing in mutual funds which have a purpose to duplicate the major indexes rather than buying individual stocks.  This should offer less risk and better long-term performance.  Be aware that huge market drops will not insulate any stock portfolio from loss.  Some major exchange traded funds are:

Index                                                        Description                                               Ticker symbol  Known As
Dow Jones Industrial Average       30 large companies DIA Diamonds
Standard & Poor’s 500 Average      500 of the largest companies    SPY Spiders
NASDAQ 100                                       100 major NASDAQ stocks             QQQQ Ques
Russell 2000              2,000 small-cap stocks               IWM  
Wilshire 5000                                      5,000 equity securities                    VTI Vipers
S&P 400 Average                                    400 mid-cap companies                        MDY Mid-cap spiders
MSCI EAFE                                              European, Australasian and Far Eastern markets EFA  
S&P Global Materials                             Commodity related manufacturing MXI  

Additional information is available from the Index promoters, some of whom are at: www.ishares.com, www.mscibarra.com and www.spdrs.com.

A final thought to consider: Two of the main long-term value drivers are sustainable earnings and dividends, not current fads or flavors of the moment.

This information is for your consideration and thought and should not be construed as a recommendation.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: