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Apple: down more than 20%, Apple reveals cheap basics

(Bahrain Stock Exchange) – Technology stocks have been weighing for months, especially with the monetary tightening in action. Apple in particular has fallen short, becoming (despite its sheer size) cheaper than Amazon or Microsoft.

It is simple to say that the markets have not been favorable since the beginning of the year, as many new investors have struggled painfully in recent months. The Paris market is down about 12% since the beginning of the year, which is not the most complaining compared to the leading US S&P 500 (-18%) and especially the Nasdaq Composite (-27%).

In fact, technology stocks, which for many years have benefited from generous valuation multiples, are most affected by the prospect of higher interest rates. The most emblematic, the one that long ago crowned the crown of the largest capitalization in the world, did not escape it: with a drop now of more than 20% (ie a “bear market” in the parlance of a stockbroker, without this threshold has no particular technical or financial significance) Saudi Aramco has overtaken Apple once again. Since January, the movement has lost 24%.

The sign of the times, because just the decrease in the valuation multiples of the California company does not explain everything: it is clear that the rise in oil prices has boosted the price of the Saudi energy giant in parallel. Its capital is currently more than $2,300 billion, while Apple is only worth about $2,200 billion, or 24% less than it was at the beginning of the year…

One of the cheapest GAFA

Holding back the indices to which Apple belongs, given their weight, this decline in the specialist in new technologies in the stock market has begun to put the title on the radar of some investors in search of strong fundamentals at low prices, and it is likely that this will be postponed until now in the required proportions.A few months ago to buy the address.

To take the base ratio, i.e. price divided by earnings per share (PER), Apple is now only trading at 22 times its earnings. In absolute terms, PER doesn’t mean much, but compared to a fallen star like Nvidia (although the price has been halved, the graphics card producer is still 44 times) or Amazon (51 times), the strength is the realization that the group Steve founded Jobs are not particularly expensive. Microsoft pays a little more (24 times), only Meta publishes fewer complications, but who wants to buy a platform that is losing users now?

Apple can even rank among the highest-earning stocks for a decade. Admittedly, the amount of dividends paid last year ($0.92 per share, in four payments) doesn’t give a staggering return: about 0.65% of the current price. But since the group started paying dividends back in 2012, there’s been a regular increase in the coupon, which increases by 5-10% each year. Given the way the group has been able to build a service ecosystem around its equipment (used by nearly 2 billion people worldwide…) which has allowed it to grow its high-margin revenue even more, analysts are betting on continued growth in earnings, and thus in dividends. Earnings, at a double-digit annual rate. In other words, the ball is still skinny at time t, but the market only sees it growing. Not to mention the stock buyback program that was recently budgeted for an additional $90 billion…

In a good position against inflation

According to Bank of America (admittedly, it moved from neutrality to buying stocks at a very bad time, at the end of 2021), Apple is also not particularly threatened by rising consumer prices. In a recent study, the Research Division reviewed the performance of S&P 500 companies over the past 20 years by comparing it to the evolution of inflation according to an internal composite index (used by Bank of America since 1975, which enabled it to predict hyperinflation that has rocked markets ever since) . A handful of values ​​offer a positive correlation with this indicator, coming from different sectors – including tractor manufacturer Deere, oil company Devon Energy, mining group Freeport-McMoRan or core Apple.

Among the “core” investors who have bet heavily on the Californian company, Warren Buffett is undoubtedly the most famous. Apple over time became the largest center in the listed portfolio (almost 40%) of investment firm Berkshire Hathaway.

Another major institutional contributor with an unknown long-term return goal: it’s the Swiss National Bank. In fact, the SNB laws allow him to invest up to 20% of his reserves in the financial markets and do not deprive himself of the income that his shares in Apple gradually bring … SNB actions are almost passive managed in a way that does not lead to imbalance Market, as far as possible for indices with certain exceptions for ESG (Environmental, Social and Governance) reasons, such as Norges Bank as well as located in the capital of the apple company.

Guillaume Beyer – © 2022 BFM Bourse

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