Apple (NASDAQ:AAPL) stock is overpriced. I say that as a person who owns Apple stock.
As the market opened for trade Dec. 11, Apple was trading at $261.41 per share. That’s a price-to-earnings ratio of 22.5. The once generous dividend of 77 cents per share now yields just 1.15%.
All this for a company that isn’t growing. Sales for fiscal 2019, ending in September, were $5.5 billion below those of the previous year. Profits were no better than they had been. The revenue mix is changing. There’s more service revenue, less reliance on the iPhone. There’s still $100 billion of cash. But, even minus cash, it means Apple is now worth $1.1 trillion.
Apple should be the canary in the coal mine saying the current market’s days are numbered. You won’t hear that on TV or read that in any investment letter. Nope, you’ve got to go online and listen to some crank journalist for that.
Apple Stock Feels “Safe”
I know why Apple is in such favor now. Apple is a “safe haven” stock. You can’t get money for money, oil is down, manufacturing has crumpled, the farm sector is on its back, the foreign situation looks dicey. But Apple keeps on keeping on.
Apple created the device revolution that is half of this decade’s economic story. Thanks to Tim Cook it’s on top of the second leg, cloud. Apple had $10.5 billion of capital expenditures in its latest fiscal year, mostly spent on its cloud data centers. There are now 11 of them, including three in Asia and two in Europe.
Apple isn’t overspending. It is the smallest of the Cloud Czars. Facebook has more data centers than Apple. Both have a tiny fraction of the number Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), or Amazon.Com (NASDAQ:AMZN) have.
Still, analysts keep pounding the table for Apple stock. One has a price target of $300. Since Tim Cook became Apple CEO in 2011, and began sharing the company’s gains with investors, the stock is up 393%.
If you bought 100 shares at $350 back then, you now have 700 shares at $249, plus dividends that would now yield about 8.6%. That’s not Home Depot (NYSE:HD), which is up 556%, but it’s not chump change.
Why I Worry
I am not worried about Apple the company. I think its strategy is spot-on. I like all its new products. The idea of a walled garden is working. They’re crushing it in wearables.
My concern is with the wider market. It’s vulnerable here. The market’s inflation and cyclically adjusted price to earnings ratio, its Shiller PE, is 30. The average stock in the S&P 500 has a PE of 23.47. Apple is still cheaper than the market.
What could crash this market? Let me count the ways. Falling oil prices could crash this market. An expanded trade war could crash this market. A hot war, just about anywhere, would do the trick. Heck, a Tweet could crash this market.
The Bottom Line on Apple Stock
I have Apple and a mix of tech stocks, some finance, a little retail, some mutual funds. My retirement account is also over 25% in cold, hard cash.
That may be a bad strategy. It’s when everyone wants to access all this financial ammunition that values may really crash.
Everyone is in stocks, including Apple, because nothing else works. Even the price of your house in San Francisco is starting to roll over.
I’ve predicted 11 of the last 4 recessions. The only markets I liked are those like 2001 and 2009, when I didn’t have any money for them. But I continue to believe this.
Dana Blankenhorn is a financial and technology journalist. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL, MSFT and AMZN.