See article below:
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) – Apple will not have the world’s largest market cap forever.
That’s hardly an earth-shattering insight, of course. No company — not
even Apple — can remain at the head of the pack in perpetuity.
But Apple
AAPL
-0.93%
fans nevertheless should pay close attention: The average company that
rises to the top of the market-cap rankings proceeds thereafter to lag
the overall market.
Consider an analysis I conducted of a list provided me by Standard &
Poor’s that showed, as of the beginning of each year since 1980, the
stock within the S&P 500 index
SPX
-0.81%
that had the largest market cap. For each of these stocks, I
calculated its dividend-adjusted return over the subsequent 12 months,
and compared that to the total return of the S&P 500 itself.
These stocks lagged the index by an average of 5.0 percentage points per
year. And note carefully that even this number — large as it is —
understates the true magnitude of underperformance, since the stocks
with the largest market caps have a disproportionate impact on the
performance of the S&P 500 itself.
One other data point should also give Apple investors pause: The average
company at the top of the market-cap rankings is no longer in the top
spot two years later.
Remember Cisco Systems
CSCO
-0.49%
? That company rose to the top of the market-cap list in early 2000, at
the height of the Internet bubble. As we know now, of course, Cisco
would remain at the top for only a short time. Its stock today is
trading at around a quarter of its March 2000 all-time high.
Surprised by these findings? You shouldn’t be. Companies at the top of
the market-cap rankings are, by definition, those that are riding a wave
of popularity among investors. There’s therefore a good chance that
they are overvalued.
In other words, bigger isn’t always better.
This notion isn’t new, of course. On the contrary, it is the core
insight behind so-called fundamental indexes, market benchmarks that
don’t weight stocks according to their market caps and focus on instead
on any of a number of fundamental criteria such as sales, earnings, book
value, and so forth. Fundamental indexes regularly outperform
cap-weighted ones like the S&P 500.
One way of gauging Apple’s potential overvaluation is to see where the
company would rank according to these fundamental criteria rather than
market cap. One answer comes from the FTSE RAFI All-Caps US 1000 index:
As of July 31, Apple was the 23rd largest company in that index.
Mark Hulbert is the founder of Hulbert Financial
Digest in Annandale, Va. He has been tracking the advice of more than
160 financial newsletters since 1980.
===================================================
Missing information that I will provide here:
In 2000, CSCO earned 36 cents per share for Fiscal 2000.
Range Annual
stock price .36 per share annual
07/30/99 to 10/30/99: .06 eps 37.00 / 29.38 103 to 82
11/01/99 to 01/29/00: .11 eps 57.63 / 35.00 160 to 97
01/30/00 to 04/29/00: .08 eps 80.06 / 54.75 222 to 152
04/30/00 to 07/29/00: .11 eps 71.44 / 50.55 198 to 140
Fiscal 2001 (.14) per share annual
07/30/00 to 10/28/00: .11 eps 68.62 / 49.81 negative PE
10/29/00 to 01/27/01: .12 eps 56.75 / 33.31 negative PE
01/28/01 to 04/28/01: (.37)eps 38.25 / 13.62 negative PE
04/29/01 to 07/28/01: .00 eps 23.48 / 16.20 negative PE
(CSCO Data extracted from Fiscal 2000 and Fiscal 2001 10K reports filed with the SEC.)
Basically, when CSCO had a market cap of over $500 billion during the 3rd quarter of Fiscal 2000, its PE ratio was trading between 222 and 152.
Today, AAPL's pe ratio is about 15. 5 with a market cap over $620 billion.
The takeaway: Quoting Jim Cramer: "Do your research"
