We recently gave you our own spin on Apple Inc.'s (Nasdaq: AAPL) historic move up through the $1 trillion market-value threshold.
I say "historic" because Apple was the first company to pierce that trillion-dollar barrier.
Or was it?
In an intriguing (and kinda cool) piece in its August issue, Money magazine argues the iDevice king wasn't the world's first trillion-dollar company.
Indeed, the magazine said five other companies hit the trillion-dollar mark before Apple. It referred to these five other firms as charter members of the "Four-Comma Club."
"When you search globally and historically, you'll find plenty of examples of dominant corporations that actually dwarf Apple's market size - after you inflation-adjust their value to today's dollars," Money reporter Ryan Derousseau writes. "Once you do that, several dominant companies have already made it into the four-comma club."
I know what you're thinking: "C'mon, Bill, by adjusting for inflation, this writer is playing games with the numbers."
True, but we should be used to games of that ilk: I mean, Wall Street plays games with numbers all the time.
So do most public companies.
This "game" is actually pretty scintillating. And it doesn't change the fact that Apple (which has given you a 266% gain since Zenith Trading Circle Editor Shah Gilani recommended Apple in July 2013 at a split-adjusted price of $60.10 a share) continues to be one of our "Accumulate" stocks.
So let's take a look at the charter members of Money's "Four-Comma Club" companies. Then we'll circle back and tell you why the stock is still on our "Accumulate" list.
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Let me share with you why I find this so fascinating...
As a guy who loves history and finance, I found the Money piece especially fun because the writer reached way back into history to flesh out his list. And he did a nice job with the accompanying narrative.
But that's not the only reason I read this piece with such interest.
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I also scrutinized it because Apple is a stock you have a big profit in right now if you bought when we recommended it in July 2013. That was just before raider-turned-activist investor Carl Icahn moved in and ignited the stock.
Apple now trades at nearly $216 a share - meaning that "call" has given you a capital gain approaching 267% in one of the world's most valuable companies, to boot.
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Here's the final reason this story caught my eye: We still see big things to come for this stock - so I also got the latest analysis from our resident Apple expert here at Money Map Press.
But let's start with a summary of the Money story, which is worth your time reading.
I'll give you the company, its peak market value (in today's dollars), and a bit of history as to what eventually happened.
Four-Comma Club Member No. 1: Dutch East India Co. ($8.2 trillion) - Often known as the "world's first multi-national," this venture was formed in 1602 when Dutch shippers formed a combine known as the United East India Co. ("Dutch East India" was its ID outside The Netherlands; Vereenigde Oostindische Compagnie, or VOC, was its name in Dutch).
The VOC was granted a government monopoly for all trade in Asia - and rode the boom in tulip bulb trading, something fueled by "Tulip Mania." By the late 1630s, that took the company's peak value to 78 million Dutch guilders - about $8.2 trillion in today's dollars.
Early investors got rich, and the company was a going concern for a long time. Of course, we all know what happened to the tulip-triggered "flowering inferno" - it crashed. That collapse, combined with power shifts and military defeats in Europe, lousy financial management, as well as other factors, pushed the VOC into a slow decline.
The Fourth Anglo-Dutch War (1780-1784) was disastrous, resulting in nationalization in 1796 and dissolution in 1799. The Dutch government seized the assets and VOC territories and trading outposts became Dutch colonies.
Four-Comma Club Member No. 2: The South Sea Co. ($4 trillion) - Investors just never learn, and South Sea was like the British version of Dutch East India Co. - a century later.
But unlike its predecessor, which was zinged by a bubble, South Sea was a bubble. In 1711, at the time the South Sea Co. was formed, the British government was ridden with debt - and lacked the income to pay it off. So it used the allure of exploration to strong-arm bondholders to surrender their debt in return for shares in the South Sea Co. - which was given a "monopoly" to trade with South America.
Unfortunately, Spain actually controlled most of those South American trading ports - and Britain and Spain were at war. Even the treaty that ended the fighting left Spain in control of those valuable trading posts. Phony claims of trade riches - and other "Bubble Companies" that fueled the speculative frenzy - pushed the South Sea Co.'s value up to a peak of roughly $4 trillion.
It all ended badly. And as we told you in a report earlier this year, even Sir Isaac Newton - a sharp guy - took a haircut on this one. That's stunning, given that the man who first recognized the existence of gravity should've understood that what goes up must come down.
But as he would later lament, "I can calculate the movement of stars, but not the madness of men."
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Four-Comma Club Member No. 3: PetroChina Co. Ltd. (NYSE ADR: PTR) ($1.7 trillion) - After the fallout from the whole dot-bomb explosion began to settle, globalization became the watchword and worldwide growth accelerated. Crude prices zoomed from about $20 a barrel in 2002 to a peak of nearly $150 a barrel in 2008. And China's stock market surged in kind.
Those speculative forces were like a JATO-assist rocket for PetroChina, whose market value soared past the $1 trillion mark to an inflation-adjusted peak of $1.7 trillion, Money says. Indeed, when its shares were listed on the Shanghai Stock Exchange in 2007, PetroChina roared past Exxon Mobil Corp. (NYSE: XOM) as the world's most-valuable company.
Then the global financial crisis hit, oil prices plunged, and PetroChina lost more than $800 billion in market value. It's worth "just" $216 billion today.
Four-Comma Club Member No. 4: Saudi Aramco ($1.5 trillion) - Two years ago, Saudi Arabia's state-owned oil company was put on a path toward the biggest IPO in history - a $100 billion deal that would have created the world's most valuable public company.
If the deal had gone as planned, the market value would have been as high as $2.5 trillion. But "a combination of hubris on the valuation, an overambitious timetable, and indifference - if not derision - from global investors doubtful that an IPO would benefit them, has forced Riyadh to delay the sale until at least 2019," said Bloomberg writers Javier Blas and Will Kennedy.
Bloomberg has now dubbed Saudi Aramco the "Zombie IPO." We'll see.
Four-Comma Club Member No. 5: Standard Oil Corp. ($1 trillion) - A moment ago, I mentioned Exxon Mobil - which is currently worth nearly $326 billion. But that behemoth is just a "stub" - a single part of a once-greater whole - of what was once the world's mightiest energy monopoly: John D. Rockefeller's Standard Oil. To fully understand what Standard Oil was before its government ordered the 1911 breakup, Money said to "imagine Exxon Mobil, Chevron, parts of BP, and Marathon Petroleum all in one company."
Those four companies are the surviving descendants of the Standard Oil breakup. Were those pieces reassembled into one entity again, we'd be looking at a company easily worth $1 trillion, the magazine said.
A fascinating exercise. And one that brings us back to the current view on Apple.
And here I have an ace in the hole.
Here on staff at Money Map Press, I have a colleague who's one of the sharpest Apple analysts you'll ever meet - anywhere.
The analyst I'm referring to is friend and colleague David Zeiler - a journalist, analyst, blogger, and Bitcoin miner/cryptocurrency expert I've known for 20 years. Indeed, I actually hired him here - during my days running Money Morning.
During the 2000s, when Dave and I were both at The Baltimore Sun, he wrote an Apple blog for the newspaper's website that was one of the most popular in the market. It was so well trafficked, in fact, that Apple regularly came to Dave with announcements, story ideas, and insider access.
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His "mental arsenal" on all things Apple has only been bolstered since joining Money Map Press.
Dave's real strength is to take multiple "data points" - announcements, product insights, technology trends, financial results, strategic shifts, and more - and to assemble them into forward-looking analyses on the iDevice firm that can be put to good (and profitable) use.
And with Apple currently trading at about $216 a share, Dave's latest pronouncement is worth looking at closely.
You see, he says Apple shares are headed to $300 by 2020.
"It's funny, Bill," Dave began the other day, after comfortably settling himself in one of the guest chairs in my office. "Apple has a big, big upside - but you sure wouldn't know it by looking at what the 'sell-side set' is saying right now. The consensus target price for Apple over the next 12 months is $211.99 to $215.46 - depending on which estimate you're viewing. That's ridiculous. Bill, this group has a terrible track record of overestimating the impact of 'bad' news and underestimating Apple's staying power. I mean, it's embarrassing. That's why I believe there's some nice money to be made in this stock over the next two years ... a 40%-plus return from the world's most valuable company."
Here's just one example from the first couple of months of this year.
"Go back to Apple's second quarter ... in fact, go back six weeks before the Q2 earnings report," Dave said. "Investors slapped the stock - which fell 10% - after analysts said to expect a steep drop in sales of the iPhone X. One of the firms - Mirabaud Securities - actually crafted an elegy for the smartphone, declaring it 'dead' and imploring Apple to bury it and reanimate the iPhone 8 design."
Instead, iPhone sales rose 3% on a year-over-year basis while revenue surged a hefty 14%.
Like the boy who cried wolf, Wall Street just keeps getting it wrong, especially when it comes to Apple - over... and over... and over again.
In early 2017, analysts were worried about cutbacks in iPhone 7 production. Back then, Dave wrote that the naysayers were wrong - and the stock zoomed.
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In May 2016, Wall Street was again wringing its crying towel over iPhone sales.
Wrong again.
"It's like the gang that can't shoot straight," Dave said. "That's why I'm not buying today's conservative outlook. And that's why I'm confident in my $300 price target - and believe my forecast isn't farfetched when you look at the numbers."
As we've shown you here, analyst freak-outs about things like "Peak iPhone" are becoming an annual event. But Apple's earnings per share (EPS) is expected to continue advancing at a healthy clip over the next couple of years.
For example, FactSet's EPS forecast for Apple's 2020 fiscal year (which ends Sept. 30) is $15.13.
From the current 12-month trailing EPS of $11.03, that's a 37% increase. If you use the recent price/earnings ratio of 18.83, you're already at about $285 - just $15 shy of Dave's $300 target.
"The numbers are interesting in that they make the current 'consensus' target prices appear ludicrously low," Dave told me. "I mean - look at it, Bill - the current market price is essentially at the target already, despite the belief that profits are expected to growth nicely. That just doesn't make sense - especially given that Apple's valuation isn't really out of line, either. Shares of Apple are more likely to be closing in on $250 a mere 12 months from now."
Looking a bit further ahead, Dave is candid in saying that Apple will almost surely beat the current 2020 consensus of $15.13 by a significant margin. Just an additional $0.80 of earnings - a modest difference of 5.29% - gets Apple earnings to $15.93 and its share price to $300.
If Apple's earnings in 2020 turn out to be just 10% higher than the current consensus, we're looking at profits of $16.64 - and an Apple share price of more than $313.
This scenario is much more plausible than the naysayers would have you think.
"It's not hard to imagine," Dave said. "Apple's two leading business segments - the iPhone and Services - figure to outperform Wall Street expectations, as usual. The iPhone contributed 56% of the company's revenue in its most recent quarter, while Services contributed 18%. Combined, that's three-quarters of the company's sales. Lately, analysts have worried that the saturated smartphone market, as well as the $1,000-and-up pricing of the new iPhone X, would hurt earnings. Instead, Apple proved customers were willing to pay more for the iPhone X. In its recent Q3 earnings, iPhone revenue rose 20% from the same quarter a year ago."
Services is already booming. Revenue in that segment advanced 31% on a year-over-year basis in the most recent quarter. And we see that continuing for the next few years.
In January 2017, Apple CEO Tim Cook set a goal of doubling Services revenue by 2020. Given the company's propensity for delivering "upside surprises," Apple will likely do even better.
Dave said one possible new revenue driver would be an Apple streaming video service. In June, it was revealed the company had hired several veteran television executives. Apple is also starting to invest more in the development of original content.
Here's the best part: Because the Services business has fat, fat margins - more than 60%, which is much higher than any of the hardware Apple sells - this growth will disproportionately feed earnings.
And there are some interesting "wild cards," too.
Apple also has a good chance to grow sales over the next couple of years by stealing market share from Android phones. The iPhone's global share is only about 15% annualized. Apple will lure these converts by focusing on advances in augmented reality as well as its emphasis on user privacy.
Another overlooked contributor to Apple's bottom line in 2020 will be its "Other" category that includes the Apple Watch, Apple TV, Beats products, the HomePod, and AirPods.
While contributing only 7% of Apple's revenue in Q3, it was the fastest-growing segment, with sales increasing 37% year over year. Revenue from Apple's "Other" segment has doubled over the past four years, reaching nearly $13 billion in fiscal 2017.
"Frankly, Bill, even a $300 target for this stock by the end of 2020 is probably too low," Dave said. "This is turning into a wondrous 'ecosystem' firm, where all the businesses and products and services cross-pollinate in a way that 'feeds into' one another. It's a magnifying strategy and is why analysts repeatedly underestimate what Apple is capable of."
The bottom line? We continue to rate Apple as an "Accumulate" stock - and still will when it hits $300 by 2020.
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.