10 Large Caps to Rule Them All
Aug 28th 2011 1:21PM
Updated Aug 28th 2011 1:22PM
After sifting through countless small caps and mid-cap stocks to rule them all over the past 20 weeks, the time has finally come to tackle large-cap companies. Large caps will usually not offer the same torrid growth pace that can be found with small caps, but their businesses are often well established globally, with a rich history of profitability. This global presence gives large caps a distinctiveness that small and mid-caps usually don't have -- namely, that many pay a dividend and can essentially run on autopilot in your portfolio.
Here are the previous three choices:
Today, I want to highlight a company that has become the poster child of all turnaround stories -- Apple (NAS: AAPL) .
What it does
Not knowing what Apple does is akin to not understanding how to work a seatbelt on an airplane. But for those of you living under a rock, Apple is the holy grail of personal computing. It designs and manufactures personal computers, mobile communication and media devices, portable digital music players, and a plethora of other software and networking solutions.
How it stacks up
Normally at this point when I compare my focus company against a handful of its competitors it's not readily obvious who the standout is. That isn't the case here, as Apple is miles ahead of its competition.
Being the second-largest company in the world by market capitalization, high double-digit growth rates are not expected, but are actually quite the norm with Apple. In its latest quarterly report, Apple highlighted an 82% jump in revenue. Fueling Apple's growth was a 142% jump in iPhone units sold, a 183% rise in iPads sold, and a 14% increase in Mac sales over the year-ago period. Even more impressively, 62% of all revenue is now derived from international markets. Apple is not only thriving in the U.S., but it's becoming a name brand worldwide that can apparently grow its business in any economic environment.
Another false presumption you might have is that this rapid growth rate may have created a pricing premium on the stock. We've seen this all too recently with IPO's LinkedIn (NYS: LNKD) and Renren (NYS: RENN) , which have forward earnings multiples hovering around 200! Apple, despite its stock appreciating by 444% over the past five years, is still valued at only 11.6 times forward earnings.
If you need further proof of Apple's dominance, take a glance at this side-by-side comparison with some of its closest rivals:
5-Year Projected Growth Rate
|Apple||22.5%||0.62||$76.2B / 0|
|Microsoft (NAS: MSFT)||9.7%||0.91||$51.4B / $13.1B|
|Google (NAS: GOOG)||18.9%||0.83||$39.1B / $6.1B|
|Hewlett-Packard (NYS: HPQ)||9.2%||0.7||$12.7B / $23.0B|
|Research In Motion (NAS: RIMM)||6.10%||0.85||$2.39B / 0|
With a considerably faster growth rate, lower PEG ratio, and at one time earlier this month a healthier cash position than even the U.S. Treasury, I'd say Apple is a clear leader of the pack.
How it could make you money
The obvious way Apple could earn you money is by sticking to its game plan. Apple has been a step ahead of its competitors in the innovation department for years, and I would be very surprised if it didn't hold its place atop the technological innovation pedestal even after Steve Jobs stepped down as CEO.
An often forgotten aspect of why Apple has been so successful is the fact that its brand name has become mainstream. Apple's products are about as recognizable in people's homes as the Coca-Cola or McDonald's brand name. I wouldn't go so far as to say Apple's products have moved out of the consumer discretionary category, but its products are becoming "must haves" for its customers.
Finally, there's Apple's cash situation. I have to say the one quirk about Apple that annoys shareholders the most is the lack of a dividend despite $76.2 billion in cash and marketable securities on its balance sheet. While I can't guarantee it will ever pay a dividend, this cash provides an excellent downside buffer if the economy begins to turn south.
For these reasons, Apple easily finds itself safely entrenched as a large cap to rule them all.
Would you buy Apple right now? Share your wisdom in the comments section below and consider adding Apple to your watchlist to keep up on the latest news from this technological innovator.
At the time this article was published The Motley Fool owns shares of Apple, Google, Microsoft, Coca-Cola, and Research In Motion. Motley Fool newsletter services have recommended buying shares of Apple, Google, Coca-Cola, McDonald's, and Microsoft, as well as creating a bull call spread in Apple and Microsoft.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's programmed to sync to your needs.
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