Apple’s innovative products have created fervent brand loyalty among their customers. This, combined with the stock more than doubling since the beginning of 2010, from $205 then to $531 today, has inspired equally impressive loyalty among its shareholders. There is no question that Apple is a great company and has been a great investment. But for those who currently own the stock or are considering buying it today, the more significant question is: Can Apple double again?
Since 2010, no one has been more right about Apple than Eugene Groysman. In October 2010, he was buying Apple at about $245 because he believed the iPad had the capability to push the stock to $300. In November 2011, when Apple was trading at $380, Groysman told Forbes readers that Apple could reach $500 in 2012, which it did for the first time on February 24, 2012. Last April, with the stock at $390, Groysman was rebuilding his position to make it a core holding. He has been consistently making the right calls about Apple for a long time now.
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Eugene Groysman runs a core portfolio for our clients in which he uses fundamental analysis to find... [+]
Let’s see what his projections for the stock are today.
Ken Kam: Eugene, with a market value close to $500 billion, Apple is already the most valuable company in the world. They need a big win just to maintain their current valuation, much less grow. It is going to take some extremely large wins to double their market cap. Is Apple too big to double again? What do you think?
Eugene Groysman: To me, it seems like Apple is looking for something big to acquire with all its cash. There has been speculation that they will buy Tesla, as well as possibly breaking into the cardiac medical device business. Apple doesn’t believe it can do any wrong, so they are looking into industries big enough to move the needle for them. As I see it, however, the problem is that they don’t have an advantage in either the automotive or medical device industries.
Kam: I don't think Apple considering buying Tesla is a good sign. It feels like they are flailing. If they can't do something smart with their cash, they should return it to shareholders.
Groysman: I agree. I don’t think that Apple should make a big acquisition to get into the auto industry or the medical device business. The suggestion of it took me by surprise. Tesla does not make sense to me unless they are considering it as an investment only, rather than to gain control of the company. If Apple believes in Tesla and in its growth, they might see this as a way of putting their cash hoard to work.
Kam: In my opinion, if it is just an investment, Apple should dividend the money and let the shareholders decide for themselves whether or not they want to invest in Tesla. Tim Cook should use great discretion in making this decision. Unless he can do something with the cash that Apple shareholders cannot do for themselves, I think it’s not the right call to make.
Groysman: Agreed. I can see the medical device arena as an offshoot from their current devices much more so than I can see the connection to Tesla. Perhaps there is a role for Apple in monitoring medical devices, but not in manufacturing the devices themselves. Medtronic, Johnson & Johnson, and Boston Scientific are the big players in the cardiac medical devices business. It is a highly-regulated business, and they are strong competitors with significant patent portfolios.
Kam: So what is your conclusion about Apple’s prospects to create an additional $500 billion of value and double its market cap through the auto or medical device industries?
Groysman: I really don’t see an opportunity for Apple to use its strengths to radically change the cardiac device business or the electric car business. Maybe they have a way to do it, but it is not yet clear to me, so I do not see the potential to double their market cap in either industry. At least not yet.
Kam: Thank you, Eugene.
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Eugene Groysman runs a core portfolio for our clients in which he uses fundamental analysis to find companies in every sector that offer above average risk/reward profiles. From May 9, 2003 through the end of 2013 his model portfolio has averaged 18.7% a year while the S&P 500 has averaged 8.8%.
Clients in our SMA program at Marketocracy own these stocks because they have allocated a portion of their account to Groysman’s model portfolio. Visit our website for more information about Eugene Groysman.
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Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.
