Moskowitz’s colleague, portfolio strategist Thomas Lee, offers up some observations on how massive Apple is relative to the Standard & Poor’s 500 Index, how under-owned it is by funds, and how it is relatively undervalued:
AAPL carries greater weight than most industries and several sectors. At 3.7% of the S&P 500, AAPL carries a larger weight in the index than Basic Materials, Utilities, and Telecom Services (see Figure 7) and would be the 6th largest industry (GICS Level 3). YTD, AAPL has accounted for 11 of the 104-point move in the S&P 500. In other words, as a stock, AAPL is more important than most industries and many sectors. The stock remains underowned institutionally. Of the 282 mutual funds indexed to the Russell 1000, a surprising 40% do not have AAPL as a top 10 holding � this despite the fact that AAPL is the largest stock in the Russell 1000. AAPL at current valuation is undervalued on absolute P/E (12.0x vs. 12.7x S&P 500), its relative P/E (94% vs. historical avg of 164%), or PEG ratio. By our ests, moving to historical avg adds 24- 38 points to the S&P 500 � in short, showing AAPL is important to our Cyclical call.
The report is in part prompted, no doubt, by the observations this week of how influential Apple is on the S&P, made by S&P’s own index veteran Howard Silverblatt, and written up on Tuesday by my colleague Brendan Conway.Moskowitz and Lee are hosting a conference call this morning at 10 am, Eastern time.
In a companion note, Moskowitz this morning writes that he sees “substantial appreciation potenti! al from current levels” for Apple shares given that the company “continues to disrupt the tech playing field.”
With its optimized smartphone, tablet, and notebook PC form factors, complemented by its iTunes/App Store ecosystem, the company single-handily has disrupted the technology playing field. The supply chain has been impacted, and there also has been a splintering of the Wintel and Android-based camps. As a result, we expect many industry participants to be left scrambling to restore relevance in the next few years.
Moskowitz notes the company has “low penetration rates,” including just 19% share of smartphones, 5% share of PCs/
Apple shares this morning are up $3.57, or 0.7%, at $519.96.
Moskowitz and Lee offer a few tables of com parables to size how Apple ranks relative to cyclical stocks, industries, and sectors:
