In­vestors eye Ap­ple’s race to $1 tril­lion

401(k) own­ers have large stake in world’s most valuable com­pany

USA TODAY US Edition - - FRONT PAGE - Adam Shell

In­vestors with 401(k)s have a lot at stake in Ap­ple’s race to be­come the first com­pany with a $1 tril­lion mar­ket value.

Just like a bet­tor with cash rid­ing on Ken­tucky Derby win­ner Jus­tify in Satur­day’s Preak­ness, there’s real money on the line. Ap­ple, worth roughly $916.4 bil­lion ac­cord­ing to Bloomberg data through May 16, is the world’s most-valuable com­pany, giv­ing it some se­ri­ous eco­nomic horsepower.

Not only do tens of mil­lions of Amer­i­cans use Ap­ple prod­ucts such as the iPhone and iPad, the stock is also one of the most pop­u­lar and fre­quently traded. The com­pany’s swelling mar­ket value now ac­counts for 4.1% of the Stan­dard & Poor’s 500, the big­gest weight­ing in the large-com­pany stock in­dex. That means in­vestors who don’t own an iPhone or never bought a sin­gle share of Ap­ple on their own, but who have S&P

500 in­dex funds or ex­change traded funds in their 401(k)s, still have big ex­po­sure to the com­pany.

And that ex­po­sure could soon get big­ger as the com­pany ap­proaches the

$1 tril­lion dol­lar mar­ket cap. Each share of Ap­ple, which fell 0.6% Thurs­day to close at $186.89, would need to climb to about $197.24, or an­other 5%, to reach the his­toric mile­stone.

Mu­tual fund gi­ant and lead­ing in­dex­fund provider Van­guard owned nearly

349 mil­lion Ap­ple shares at the end of

2017, or roughly 7% of all out­stand­ing shares — the most of any fi­nan­cial firm. Black­Rock, the world’s largest money man­ager and a ma­jor player in the ETF busi­ness, owned 6.3% of the com­pany.

So if an in­vestor can’t come up with

$186.89 to buy a sin­gle share of Ap­ple for their own bro­ker­age ac­count, they will still own Ap­ple stock if they in­vest in in­dex funds that do own shares.

“So many in­vestors have skin in the game with Ap­ple,” says Chris Rup­key,

chief fi­nan­cial econ­o­mist at MUFG, a New York-based fi­nan­cial firm.

Many Wall Street an­a­lysts, in­clud­ing An­gelino Zino of New York-based re­search firm CFRA, see Ap­ple mak­ing his­tory soon. Zino said he sees Ap­ple’s share price ris­ing to $210 in the next 12 months, which would push its value above $1 tril­lion.

Its clos­est chal­lengers, Ama­zon, Al­pha­bet, and Microsoft, are still about

$250 bil­lion shy of the mark. Work­ing in Ap­ple’s fa­vor are an ar­ray of bullish driv­ers, in­clud­ing record earn­ings in the first quar­ter, its plans to buy back $100 bil­lion of its own shares and a lineup of prod­ucts, from the iPhone to its iCloud ser­vice, with strong fu­ture earn­ings power, says Thorne Perkin, pres­i­dent of New York in­vest­ment firm Pa­pa­markou Well­ner.

Ap­ple also recently re­ceived a ring­ing en­dorse­ment from bil­lion­aire in­vestor War­ren Buf­fett, who bought

74.2 mil­lion more Ap­ple shares in the first quar­ter and told CNBC he would “love to own 100% of Ap­ple stock.”

Here’s a few key things 401(k) in­vestors need to know about Ap­ple’s im­pact on its own bot­tom line:

❚ The in­dex effect: In­vestors who own funds such as the Van­guard 500 In­dex Fund or the SPDR S&P 500 ETF — funds that mimic the S&P 500 stock in­dex and match its returns — should be aware that Ap­ple has the big­gest im­pact on fund per­for­mance. The rea­son: The S&P 500 is a price-weighted in­dex, which means stocks with the big­gest mar­ket val­ues move its daily price the most.

“Your for­tunes are more tied to this com­pany than any other,” says Chris­tian Th­waites, chief strate­gist at in­vest­ment ad­vi­sory firm Brouwer and Jana­chowski in Mill Val­ley, Calif. In­vestors who own in­di­vid­ual shares of the stock and in­dex funds have even more tied up in Ap­ple.

❚ Sign of a top? Just as there’s talk of a mar­ket top when the Dow Jones in­dus­trial av­er­age hits a level such as

25,000, the same holds true when a com­pany such as Ap­ple hits a mile­stone Wall Street has never seen be­fore.

It’s the type of event that can get in­vestors squea­mish about a po­ten­tial peak in a stock or the broader mar­ket, Th­waites warns. It could be­come a rea­son why some in­vestors will want to take Ap­ple and the mar­ket back down, he adds.

On the flip side, Ap­ple top­ping the tril­lion-dol­lar mark could be a bullish trig­ger, Perkin coun­ters.

“It’s some­thing to cheer, and it could en­cour­age fur­ther in­vest­ment,” Perkin says.

❚ Is it a rea­son to sell? Mar­ket value alone isn’t a big enough sig­nal to call a top in an in­di­vid­ual stock, says Michael Farr, pres­i­dent and CEO of money-man­age­ment firm Farr, Miller & Washington in Washington, D.C.

“I can’t imag­ine set­ting a mar­ket cap as a trig­ger for sale (of a stock),” Farr says. “Mar­ket cap doesn’t make some­thing ex­pen­sive.”

What does make a stock ex­pen­sive is when its price rel­a­tive to earn­ings climbs much higher than his­tor­i­cal norms and it be­comes much more ex­pen­sive rel­a­tive to the broad mar­ket, he adds. Right now, Ap­ple is trad­ing at

18.2 times its earn­ings over the past four quar­ters, which is cheaper than the S&P 500’s price-to-earn­ings ra­tio of 19.5, ac­cord­ing to Thomson Reuters.

There’s no rea­son to sell, Farr says, if the stock isn’t overly ex­pen­sive or hav­ing other prob­lems.

Still, Ap­ple’s as­cent to­ward $1 tril­lion in mar­ket value is a sign that it has grown so large that keep­ing up its rapid growth pace could get more dif­fi­cult.

And that, MUFG’s Rup­key says, is a risk.

“At some point soon, it just isn’t go­ing to grow as fast, and that in­creases the dan­ger that in­vestors are pay­ing too much for fu­ture earn­ings,” Rup­key ex­plains.


Ap­ple is worth roughly $916.4 bil­lion, ac­cord­ing to Bloomberg.

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