- Apple's market cap reached $2 trillion Wednesday, just about two years after it first became a trillion dollar stock.
- Analysts say Apple has a specialstatus, making it almost a market or asset class unto itself, since investors buy it both for growth and safety.
- Apple's latest 21% surge came after its better-than-expected earnings report July 30 and its announcement that day that it would split its stock 4-1.
Apple is one of the big tech engines pulling the market higher, but it is unique in that investors view it as an asset class unto itself.
That is one reason the big tech bellwether Wednesday became the first U.S. company to have a market cap of $2 trillion, just two years after first crossing the $1 trillion mark on Aug. 2, 2018. Microsoft, Amazon and Alphabet also have market caps above $1 trillion.
Apple has been on a tear since it reported stronger than expected earnings July 30 and a 4-1 stock split, gaining about 21% since then. As it often does, the stock has outrun skeptics, who said the stock split should not drive it higher since investors have access to cheaper fractional shares.
"People see safety in that name, as crazy as it sounds," said Matt Maley, equity strategist with Miller Tabak. "With the market hitting new highs, you'd think people would be looking at what is the next big winner. [The market's] gone so far, where do people have to be? They have to be in this name. It has a lot of cash. You can say that gives you a certain amount of safety and income when the market is making new all time highs and is overvalued."
Apple had $193.8 billion in cash at the end of its fiscal third quarter on June 30. At a time of ultra low interest rates and no yield in Treasurys, investors are also drawn to companies that pay dividends. Apple paid out its quarterly dividend of $0.82 a share last week and will split its stock on Aug 31.
Safety, stay-at-home trade
Maley said the operating earnings have not been growing that much but the belief by investors that Apple will do well in 5G technology has benefited the stock. He compared the post-crisis trading of 2009 to now, and said Apple was seen as more of a growth stock then but as a safe haven now.
In 2009, "when people didn't have faith in the market yet, they still said, hey, 'I have five Apple products in my house'" and they traded on that. "Now, it's 'geez, the market is getting ahead of itself. I want safety.' And they look at Apple."
Apple has been a big beneficiary of the stay at home trade, after the coronvirus shutdown America but also as people spend more on its laptops and devices for home offices. They also are spending on in home entertainment as the pandemic continues to impact America. Apple's third quarter revenues grew by 11%.
The stock has also outrun Wall Street's analysts' forecasts, surpassing the average target of $427.87 by $40 so far.
"It's always been a fan favorite among traders, besides institutions and long-term investors," said Scott Redler, chief strategic officer at T3Live.com. "It was a safe haven during the pandemic, and it's also been an area for growth." He said investors now see benefits in not only the stock split, but its dividend and the fact it stock looks set to continue to appreciate.
"It's an asset class of its own. It's almost as if Apple is its own market. Apple's been pretty much leading the market since the lows in March," said Redler. "The next thing will be how does it react after it splits." Apple's stock split is the company's fifth . It previously split on a 7-1 basis in 2014, and a 2-1 basis in 2005, 2000, and 1987.
Redler, who follows short-term technicals, said Apple's chart has looked particularly strong since its earnings and stock split announcement. "It's always been a go-to name and it's always rewarded. When Apple is above the 21-day [moving average], the trend is strong, and it's basically been above the 21-day since the March lows," said Redler.
But risk ahead?
But like many tech names, Apple is facing new issues, including questions about its supply chain as tensions grow between the U.S. and China. It also has a strong market presence in China for its products.
"I think Apple is unusually vulnerable," said Roger McNamee of Elevation Partners. "I have been a huge fan of the stock for decades. I have recently sold a signification portion of my position because it feels to me that external factors, things beyond [CEO] Tim Cook's control will now determine the next 12 to 18 months for its stock."
He said China is a risk for Apple, and there are other issues that could impact it, including disputes over the App store. McNamee said the Apple has less concerns about the government's antitrust probes than other big tech names.
Redler said, however, that investors like the Apple stock because its products have become embedded in the way they live. "Everyone's life is around their iPhone," he said.
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