Apple: Spectacularly bad advice from the Wall Street Journal

“This column isn’t investment advice,” wrote Colin Barr Friday under a headline (“Why It’s Time To Dump Apple“) that could have fooled me.

Why is Colin Barr telling Apple investors to sell their shares?

Simple. Because Apple is the world’s most valuable company, and other companies that once held that title—IBM, Microsoft, Oracle, AT&T, for example—have since come back to earth. Writes Barr:

The S&P 500-listed company with the largest market value has steadily lagged behind the broader index over the past 45 years, accumulating a deficit of more than 8,000 percentage points, according to data compiled by Ned Davis Research Inc.

OK. Let’s put that to the test for Apple. We don’t have 45 years of Apple history, but we do have 41. If you’d sold Apple shortly after it went public in 1976 you would have missed out on a 7,000% gain. Not good.

Apple vs. S&P 500 Max

A fairer test of Barr’s advice would be look at the effect of dumping Apple in 2011, when it first topped the most-valuable-company list. Not quite as bad, but bad advice nonetheless:

bad advice

What if you’d sold Apple Friday morning, when Barr’s column appeared in the Journal? Even that was a loser.

Barr’s advice turns out to be bad no matter what time period you choose. One year, three years, 10 years, max.

Where did Barr go wrong? You have to read nearly to the end of his piece to get to the counter-thesis:

Analysts continue to expect Apple shares to soar, and why not. The firm’s revenue outlook for its fourth quarter was stronger than expected, thanks in part to the coming unveiling of the 10th anniversary iPhone. Despite posting a healthy 14% annual return since 2012, Apple shares still trade at a discount to market earnings multiples.

That’s right. Apple may be the S&P’s most valuable company, but it still cheaper than the rest. Does that sound like a reason to sell?

10 Comments

  1. Ken Cheng said:

    Like most analysis on Wall Street, it’s pretty shallow. Would be far more interesting if they had shown what company was the biggest over time, and what the PE had been at the time, and how that compared to the S&P’s avg PE for the period. Would be nice to know if Apple’s low PE is a relative outlier compared to other previous largest companies. Still quite basic, but that would be a far more interesting article.

    2
    August 6, 2017
    • Fred Stein said:

      Agree. I made a similar comment on the WSJ site.

      0
      August 6, 2017
  2. Gregg Thurman said:

    The problem with the analysis by Ned Davis Research is that it is insular, meaning that it ONLY looks at stock price action, and gives no weight to the underlying firms’ continued R&D/Innocation.

    Apple continues to get LARGER because, as competitors copy its products, Apple introduces, not new variations, but new product CATEGORIES.

    Also, Apple chooses, quite wisely, to compete at the high end of the price range with a totally differentiated product, not one cobbled together from off the shelf components/operating systems

    Ned’s “research” is crap.

    2
    August 6, 2017
  3. Gregg Thurman said:

    PED, your analysis of the WS article is one of the best you have done in recent months.

    1
    August 6, 2017
  4. Fred Stein said:

    Colin copies Ned. Ned does not reveal how his calculations were made. Cherry picked comparisons mean nothing. As Ken, above, points out, what about P/E? Maybe the other stocks over 45 years hit the peak due to naive investors piling in and pumping up stock prices. Who knows? Ned gives us no data.
    Another quirk of statistics. The S&P always dumps its losers and adds new growth companies because it can only contain the top 500. Over 45 years, that makes a difference. Imagine if Ned had frozen the S&P 500 for each year of the 45 years, keeping all the losers and taking in no new growing companies.
    Wake me when Apple’s forward P/E gets above 17.

    1
    August 6, 2017
  5. David Emery said:

    So you should sell all kinds of energy companies, because of Entropy…

    0
    August 6, 2017
  6. Robert Paul Leitao said:

    In FQ1 2018, Apple is expected to (again) set a record for corporate operating profits in a quarterly period. In FY2018, Apple may eclipse the company’s current record for corporate annual operating profits set in FY2015.

    Apple is currently trading at only 17.77 times trailing 12-month earnings (below the 23.90 average multiple for the S&P 500 as of Friday) and 14.45 times the consensus forecast for FY2018 earnings per share. Meanwhile, the company is in the midst of a $210 billion share repurchase program which constitutes the largest share repurchase program in corporate history. Clearly, Apple’s management sees Apple as the company’s best investment.

    Looking at Apple’s June quarter results, the only thing in “decline” at the company is the number of shares outstanding.

    Perhaps Mr. Barr should consider why Apple is the world’s most valuable company before offering what he claims “isn’t investment advice” to sell the shares.

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    August 6, 2017

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