Why cheap Apple shares can’t gain any traction
click for larger graphic

Source: Barron’s



The chart above shows the 5 largest market cap firms as a percentage of the S&P500 index.

Barron’s points out that when companies hit 5% of the S&P500, it often acts as a cap on further valuation growth. The Trader column points out that “General Electric (GE) and ExxonMobil (XOM) neared the 5% level in the third quarter of 2000 and the first quarter of 2009, respectively, before dropping back. IBM (IBM) got as high as 6% at the end of 1985. That preceded a long down period in terms of its percentage of the S&P’s market value.”

Despite a P/E below 15, when “Apple’s price was $700, its market value was almost 5% of the S&P 500′s.” The reason?

“Investors, particularly professionals, diversify their portfolios, and few are willing to commit more than 6%-7% of their portfolios to one stock, Cohen [Aaron Cohen, president of money manager Financial Partners Capital Management] says. Not everyone can own Apple, and at a certain point, “there was nobody left to buy the stock” who didn’t already have a full position, he adds.”

Hence, argues Barron’s, the difficulty in AAPL powering higher . . .

Category: Index/ETFs, Valuation

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10 Responses to “5 Biggest Market Caps As % of S&P500”

  1. JC in Va says:

    How does this weigh into the argument for Equal Weight Indexes? Seems this would be one of their stronger talking points. RSP (up 7.2% since 10/1) vs SPY (up 3.06%) – AAPL down 25.05% which would explain 1.25% of that difference.

  2. rd says:

    Given Moore’s Law, there was always the fundamental question about what percentage of the economy would be made up of iPhone, iPad, and iPod purchases.

  3. cfd says:

    I dont think an Equal Weight Index would make much of a difference. The 5% mark could very well be a ratio in which stocks relate to each other, or how individual stocks relate to the broader market.

  4. constantnormal says:

    It will be interesting to see if this proves to be a continuing obstacle as the PE continues to fall … not so much for the current quarter, due to the rolling off of that blowout record Jan’12 quarter — even if this quarter is every bit as big a blowout (due to iPad mini and iPhone 5 sales), the rolling off of that monster quarter will mean that the PE will not decline much — but rather for the current quarter’s numbers that will be reported in April. At that point, we will be replacing quarters immediately following the big Jan’12 results, that sagged a bit by comparison, doubtless due to a lot of sales being pulled forward.

    At this point, I think the US is not going to add significantly, as they are already flat out on purchases of Apple products. If Apple is going to continue to move the needle higher, it will come from either China or Europe, one of which appears to be improving economically, the other, not-so-much. And these things show un in the regional sales data that Apple reports. EU sales were pretty lackluster (putting it mildly) in the quarter reported in October, and I’m sure they are even worse now. But if the EU finally figures out that they cannot grow their way out of their fiscal problems via austerity, they may contribute something toward the end of CY2013.

    The other thing that might move the needle on AAPL is what kind of dividend hike is in store this summer … which would be announced around the end of the current quarter, I think, sometime in between the end of March and when earnings are next reported in April. Apple has a HUGE amount of flexibility on what to do with their dividend, and I’m sure there is a lot of pressure on them to use some sort of extraordinary measures to support the stock price. I’d much prefer to see a significant dividend hike (like doubling it, at least) than a stock buyback. The only kind of a stock buyback I’d like to see is a large enough reduction in the outstanding float to put the fear of God into the short-sellers, and that’s not going to happen.

    But I think it’s an interesting question: If the dividend yield on AAPL was upwards of 4%, would there be a pickup in demand for the shares? Any increase in demand would also drive the market cap share higher … perhaps over 5% of the S&P, not that it would come from institutions, but rather from the individual investors who are currently chasing yield in a variety of other ways … it is likely that the Congress is going to put a damper on demand for US Treasuries in a few weeks … anyone who looks at the AAPL balance sheet is going to consider them a hell of a lot safer than banksters or REITs, in a time of uncertain debt markets.

    One thing for sure, this stock is being moved a lot more by rumor and innuendo than by analysis these days … February call open interest is showing similar speed bumps at 700, 650, 600, 550 to what we just have been through, but if the stock jumps on unexpected earnings good news (and any good news would be unexpected at the WSJ), we could see a lot of frenzied buying to close out those calls while they are still making money on them …

    At this point, the March open interest looks a lot smoother, but March is a long time away … things can change.

  5. I read the Barron’s article, and the most bullish paragraph I found was this:

    “Meanwhile, without any help from its biggest stock, the S&P 500 has rallied beyond its own Sept. 14 high. Had Apple’s shares merely remained flat, the broad market could be approaching all-time highs, according to Bespoke Investment Group.”

    I also find it interesting that while S&P 500 is approximately 5% below it’s all-time highs recorded in 2007. However, if you add in the dividends that an investor who purchased at the top in 2007 would have received for over 5 years now, stocks have actually surpassed their all-time-highs.

  6. Simon says:

    Hmmm the logic above sounds like something that could be true until it isn’ t. If Apple said they had developed a way to interact telepathically with their computers over long distances the stock would go higher. Much higher.

  7. constantnormal says:

    @ Simon …

    … perhaps true, but only until the people using them started catching telepathic viral memes …


    Could this explain Apple’s rabid customer base?

  8. louiswi says:

    …..Not everyone can own Apple, and at a certain point, “there was nobody left to buy the stock” who didn’t already have a full position, he adds.”……

    Yes, virtually everyone could own APPLE, just do a 20 for 1 split…

  9. JimRino says:

    Exxon Overpriced?
    Exxon is riding the wave of Peak Oil demand, a chimp could do nothing and maintain value.
    You need a REAL Steve Jobs at the head of this company to innovate into Battery Technology, Solar and Wind.

    It’s time Exxon shareholders pulled a LEADER out of Silicon Valley to Run this Company to GREATNESS.

  10. JimRino says:

    How about Exxon offer Elon Musk, head of TESLA, and SpaceX, an offer he can not refuse.