Apple: A Sector Unto Itself, Says JP Morgan

JP Morgan hardware analyst Mark Moskowitz this morning teams up with the folks at the firm’s portfolio strategy confab to discuss Apple (AAPL) as a “cyclical” sector unto itself. Not a cyclical company, but a sector.
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:

Five Things Obama Didn'tWant You to Hear in His State of the Union

Seeking to put the best possible spin on his message, President Barack Obama took some liberties with the truth in his State of the Union address.

Although the president never actually lied, he repeatedly left out facts that contradict his claims of success.

President Obama hadn't yet left the House chamber when the reality check started. And it didn't take long to find some pretty big the holes in the State of the Union address.

The bending of reality ranged from domestic oil issues to General Motors Company (NYSE: GM) to tire imports.

Here are just five instances in the State of the Union address in which President Obama didn't tell the whole story:

1. What the President Said About the Auto Industry:
   On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world's number one automaker. Chrysler has grown faster in the U.S. than any major car company. Ford is investing billions in U.S. plants and factories. And together, the entire industry added nearly 160,000 jobs.
   
   What the President Didn't Tell You:
   First of all, President Obama forgot to mention that the GM bailout process started under President George Bush. And Ford Motor Company 's (NYSE: F) success has nothing to do with the government; it never took any government help. Jobs were saved, but the auto industry lost 200,000 workers. Analysts say the industry won't get back to pre-recession job levels until 2015.
   
   President Obama also left out the cost of the bailout to the American taxpayer. Because the Un! ited Sta tes became a major shareholder in GM, the nation still holds 500 million shares of the stock. Given the nation's investment, the U.S. would need to sell those shares at $53 each to break even. GM currently trades at about $25 a share, putting U.S. taxpayers $14 billion in the hole.
   
   
2. What the President Said About Oil:
   Right now, American oil production is the highest that it's been in eight years. That's right - eight years. Not only that - last year, we relied less on foreign oil than in any of the past sixteen years.
   
   What the President Didn't Tell You:
   While U.S. oil production is at its highest levels in eight years, production is only incrementally higher than it was in 2003. And higher production is not, as the president implied, responsible for the nation's reduced reliance on foreign oil. That resulted from years of declining consumption - a trend that started in 2006, two years before President Obama was elected. He also forgot to mention that the price of gasoline has skyrocketed 83% during his term, from $1.79 in January 2009 to $3.28 in December.
   
   
3. What the President Said About Job Growth:
   In the last 22 months, businesses have created more than three million jobs. Last year, they created the most jobs since 2005. American manufacturers are hiring again, creating jobs for the first time since the late 1990s.
   
   What the President Didn't Tell You:
   The jobs picture is not quite as rosy as the president described. Total employment is still 1.7 million lower than it was in January 2009, and 6 million lower than the peak in January 2008. And of course, President Obama did not want to remind Americans that the unemployment rate, though it has dropped to 8.5%, was over 9% for most of his presidency.
   
   
4. What the President Said About Government Regulations:
   ! In fact, I've approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his.
What the President Didn't Tell You: True enough, President Obama approved 613 regulations in his first 33 months in office - 30 fewer than President Bush. But what he didn't say was that the regulations he approved were generally more costly. President Obama approved 129 regulations that will cost more than $100 million, compared to just 90 for President Bush.
5. What the President Said About Chinese Tire Imports:
   Over a thousand Americans are working today because we stopped a surge in Chinese tires.
   
What the President Didn't Tell You: The cause and effect for the increase in U.S. tire manufacturing jobs is unclear. Although a tariff enacted in 2009 did slow imports of Chinese tires, other nations -- such as Mexico, Thailand and Indonesia -- quickly filled the gap. "So far as saving American jobs, it just isn't working," Roy Littlefield of the 6,000 member Tire Industry Association, told The Wall Street Journal. "And it really hurt a lot of people in the industry-smaller businesses that geared up to bring these tires in from China."

News and Related Story Links:

• Money Morning:
  Restoring the Dream: State of the Union Pitches an Economy "Built to Last"
• Money Morning:
  State of the Union Focused on Income Inequality, Job Creation
• Money Morning:
  Obama's Rejection of the Keystone XL Oil Pipeline is Pure Politics
  The Washington Post:
  Fact-checking the 2012 State of the Union speech
  
• The Daily Caller:
  Taxpayers still own 500M underperforming GM shares, Obama says "investment was worth it'
  
• Seattle Post-Intelligencer:
  FACT CHECK: Obama pushes plans that flopped before
• FactCheck.Org:
  The State of Obama's Facts
• USA Today:
  Full Transcript of President Obama's State of the Union Address