Apple is a $3 Trillion Stock

Apple (AAPL) was briefly a $3 trillion stock on January 4^th, the first day the stock market opened in 2022. The stock price climbed over $182.86 per share on optimism about an electric vehicle, augmented-reality glasses, and other products. Alas, Apple’s stock price dropped the remainder of the week as a negative sentiment about rising interest rates impacted tech stocks and the NASDAQ. Apple’s market capitalization finished the week at $2.824 trillion.

Apple’s market cap crossed the $1 trillion mark in August 2018, making it the first US company to do so. Two years later, Apple’s total valuation was more than $2 trillion in August 2020. It took only 16 months or just short of 500 days for Apple to cross the $3 trillion mark. Most of this increase has been under the current CEO, Tim Cook. He took over bas CEO in August 2011. The stock has appreciated by 1,474% since he became CEO.

Apple $3 Trillion Stock — Apple is a $3 Trillion Stock

Apple is the Largest Company in the World

Apple is the largest company by market capitalization in the US and the world. The company’s value is about $450 billion more than the next closest company, Microsoft (MSFT), at $2.357 trillion. The top five companies in the US are all tech stocks. The top five companies in the world are four US tech stocks and Saudi Aramco. Finally, we must go all the way to number eight for a US non-tech stock, Berkshire Hathaway (BRK.B).

An interesting analysis of the top 20 companies by market capitalization from 1995 to 2020 shows tech dominance during the dot-com boom and since about 2016. However, for many years, General Electric (GE) was the number one company until Microsoft dethroned it. GE returned to the top spot during the dot-com boom. Exxon Mobil (XOM) was number one for a stretch during oil prices in the 2000s.

Apple became the largest company in the world in 2011, taking over from Exxon Mobil. It was not until 2019 that Microsoft surpassed Apple. However, Apple returned to the top spot in 2020 and has remained there ever since. Notably, Exxon Mobil has dropped out of the top 20 and is now at No. 29 despite high oil prices and improving revenue and earnings.

Apple is One of the Largest Dividend Payers

Not only is Apple the largest stock by market cap, but the company was also one of the largest dividend payers in 2021. Apple was number four on the list by cash flow used for dividends, moving up from No. 6 in 2020. The company was only behind Microsoft (MSFT), AT&T (T), and Exxon Mobil (XOM). Apple will likely be in the top three in 2022 since AT&T is cutting its dividend.

Apple’s dividend safety is excellent based on payout ratio, dividend-to-free cash flow (FCF), and debt. The company’s payout ratio and dividend-to-FCF ratios are below 15%, and Apple has a net cash position. Furthermore, the credit rating is now ‘Aaa’ from Moody’s, the maximum score.

Investor Returns

Apple is a stock every investor wishes they bought years ago. Suppose you bought Apple stock in 2001; your retirement would most likely be set. Suppose you had saved $10,000 in a year and made a purchase of Apple stock in mid-July 2001. When I first did this calculation, the $10,000 grew to over $3.6 million by April 2021, with dividends reinvested. Using the exact same start date and a January 7th, 2022, end date, the same $10,000 has now grown to over $4.6 million, a ~46,606% total return. On the other hand, the S&P 500 Index had only a ~444% total return.

In addition, an investor owns ~27,128 shares. The forward annual dividend rate is $0.88 giving $23,872.64 in yearly dividends. However, one must bear in mind Apple did not start paying a dividend again until 2012. Furthermore, the dividend growth rate has only been about 9.2% CAGR, a reasonable rate but not very high. Instead, Apple has been focused on share repurchases.

Assume now an investor buys $10,000 of Apple shares ten years later. The total returns are now ~1,509%, and the dollar value is about $160,882. In absolute terms, this is not bad, but those ten years made a huge difference.

Final Thoughts on Apple is a $3 Trillion Stock

Apple is a unique stock and is not just 10 bagger stock; it is not just a 100 bagger stock; it is about a 400 bagger in the past 20 years. Few companies can claim this record. Furthermore, Apple is still growing rapidly despite its large size. Apple’s revenue rose 29% from a year ago, even though the company missed expectations.

Disclosure: Long AAPL, MSFT

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Chart or Table of the Week

Today I highlight Amgen (AMGN). Amgen is the largest biotech company in the US and world. The market is negative about Amgen since Neulasta is seeing more competition from biosimilars, and Enbrel is faced with more effective branded competition. However, Amgen’s other therapies are growing. Amgen has a strong pipeline and should result in one launch per year over the next few years. Amgen is a dividend growth stock with 10 consecutive years of raises making the stock a Dividend Contender. Amgen is yielding more than 3.4% and the payout ratio is relatively low at about 46%. The stock is reasonably valued, and the Chowder Rule gives about 21.0%. Amgen is one of my picks for Top 3 Dividend Growth Stocks for 2022. The screenshot below is from Stock Rover*.

Dividend Increases and Reinstatements

I have created a searchable list of dividend increases and reinstatements. I update this list weekly. In addition, you can search for your stocks by company name, ticker, and date.

Dividend Cuts and Suspensions List

I updated my dividend cuts and suspensions list at the end of December 2021. As a result, the number of companies on the list has risen to 541. Thus, we are well over 10% of companies that pay dividends, having cut, or suspended them since the start of the COVID-19 pandemic.

There were no new additions in December, indicating that companies are experiencing solid profits and cash flow.

Market Indices

Dow Jones Industrial Averages (DJIA): 36,232 (-0.29%)

NASDAQ: 14,936 (-4.53%)

S&P 500: 4,677 (-1.87%)

Market Valuation

The S&P 500 is trading at a price-to-earnings ratio of 29.5X, and the Schiller P/E Ratio is about 39.2X. These two metrics were down the past three weeks. Note that the long-term means of these two ratios are 15.9X and 16.8X, respectively.

I continue to believe that the market is overvalued at this point. I view anything over 30X as overvalued based on historical data. The S&P 500’s valuation came down as the index companies reported solid earnings for the second consecutive quarter.

S&P 500 PE Ratio History

Shiller PE Ratio History

Stock Market Volatility – CBOE VIX

This past week, the CBOE VIX measuring volatility was up 1.5 points to 18.76. The long-term average is approximately 19 to 20. The CBOE VIX measures the stock market’s expectation of volatility based on S&P 500 index options. It is commonly referred to as the fear index.

Yield Curve

The two yield curves shown here are the 10-year US Treasury Bond minus the 3-month US Treasury Bill from the NY York Fed and the 10-year US Treasury Bond minus the 2-year US Treasury Bond from the St. Louis Fed.

Inversion of the yield curve has been increasingly viewed as a leading indicator of recessions about two to six quarters ahead, according to the NY Fed. The higher the spread between the two interest rates, the higher the probability of a recession.

Economic News

The US Bureau of Labor Statistics Job Openings and Labor Turnover Survey, or JOLTS, reported 10.56 million job openings as of the last day of November, a decline from an upwardly revised 11.09M in October. Industries contributing to the decrease include accommodation and food services (-261,000), construction (-110,000), and nondurable goods manufacturing (-66,000). Job openings increased in finance and insurance (+83,000) and federal government (+25,000). A record 4.53M people quit their jobs in November, an 8.9% increase over October, beating the previous record set in September of 4.36M. The most significant increases in quits came from restaurants (+159,000), health care (+52,000), and warehousing (+33,000).

The Federal Reserve discussed plans to reduce its bond holdings in its December FOMC minutes. The FOMC minutes indicated that

Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate.” The minutes also indicated that once the process begins, “the appropriate pace of balance sheet runoff would likely be faster than it was during the previous normalization episode.

The Fed also kept the benchmark interest rate near zero. However, policymakers anticipate up to three quarter-percentage-point increases in 2022, another three increases in 2023, and two more in 2024.

The US Bureau of Labor Statistics reported a weaker than expected 199,000 jobs were added in December and followed an upwardly revised November jobs figure of 249,000. As a result, the unemployment rate dropped to 3.9%, down 0.3% from November. Leisure & hospitality led job growth in December (+53K), followed by professional and business services (+43K), manufacturing (+26K), construction (+22K), and warehousing (+19K). Employment was little changed in other major industries, including retail trade, information, financial activities, health care, additional services, and government.

Thanks for reading Apple is a $3 Trillion Stock – Week in Review!

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