Elon Musk was person of the year for Time magazine and the Financial Times and through him, the Tesla battery and electric vehicle maker would be regarded by many investors as the stock/company of the year in 2021.
Since then, Tesla has justified its market leading position with record sales of its EVs, record revenue and profits and forecasts of a record year in 2022 (but don’t tell those investors leaping at shadows as the Fed gives them what they have been demanding for months – multiple interest rate rises).
Tesla’s market cap surged 36% over 2021 as it expanded production of both batteries and cars in the US and in China, as well as leading the resurgence in the fortunes of the EV market – from tricks to cars and smaller vehicles.
But as good as that was, listed company of 2021 surely goes to Apple as investors rediscovered the attractions of the iPhone giant in the closing months of 2021 and lifted its value to an unheard-of $US3 trillion on the first trading day of the New Year.
And while it and the rest of the tech sector have led Wall Street lower since that peak, the December quarter financials from Apple on Friday are a reminder that it is streets ahead of every other US company at the moment.
Even though it as well as its peers and rivals are being crimped by supply problems of key components, Apple managed to earn record revenue for a quarter and record profits. All this after years of superior growth, unlike Tesla which is just starting on its corporate career.
A year ago, Apple shares were valued at just under $US129 each against $US182.94 at the peak on January 3. They ended at $US159.22 on Thursday ahead of the release of the company’s December quarter financial report – which was better than expected with record sales across the board (except for iPads) and record profits.
The shares jumped more than 5% to trim the loss year to date to just over 7%. Prior to Thursday’s earnings release, the value of Apple shares had fallen to around $US2.6 trillion against that $US3 trillion valuation reached on January 3.
But Apple’s value since the iPhone was introduced in January, 2007 is still more than 5,700% against the solid jump of nearly 220% in the value of the S&P 500.
Microsoft and Amazon each briefly eclipsed Apple as the most valuable publicly listed US company in the past three years, but thanks to the strong gain at the end of last year, Apple pulled decisively ahead.
For all of 2021, Apple shares were up 33.8%% and the S&P 500 up 26.89% after a solid closing 10 days for the market in December.
Apple now accounts for about 7% of the S&P 500, up from as little as 5% in June and back in line with where it started 2021.
The recent stockmarket strength in Apple shares has been supported by ratings agency, Moody’s which in mid-December lifted the iPhone giant to the prized AAA level,
Moody’s said it had upgraded Apple’s senior unsecured long-term credit rating to Aaa from Aa1 with a stable outlook.
The rating lifts Apple to the top rung of US corporate credit ratings – AAA – the top of the agency’s ratings scale alongside fellow tech giant, Microsoft and pharma group, Johnson & Johnson.
Moody’s cited the iPhone maker’s “exceptional” liquidity and “robust” earnings, alongside a “very strong” business profile.
Moody’s expects average operating income growth in mid-single digits over the next one to 2 years, buoyed by growth in iPhone, services and wearables categories. Revenue gains and profitability are expected to primarily hinge on iPhone sales despite ongong diversification into services, according to Moody’s.
“Apple’s ecosystem of products and services provides enhanced revenue visibility over time despite some level of volatility that is inherent in its business from product introduction cycles,” Moody’s said in a note.
Apple’s fiscal 2021 earnings surged about 65%, while revenue rose 33% on strong demand for its products and services during the pandemic.
Its stock has surged nearly 30% this year, bringing the iPhone maker within spitting distance of becoming the world’s first company to cross $3 trillion in market value.
Moody’s says it expects Apple’s earnings to grow over the next two to three years.
Moody’s, however, said that Apple faces execution risks from short product cycles, the need to adapt to shifting consumer preferences and managing a large and complex supply chain with frequent product upgrades.
But that has always been a risk with Apple and cited continuously by analysts and critics as a downside risk – which it remains as it does for the company and its rivals.
Since 2012, the company has paid dividends and conducted stock buybacks.
Apple spent $US85.5 billion buying back shares and $US14.5 billion on dividends in Apple’s 2020-21 financial year which ended September 30. Analysts reckon the company bought back around $US20 billion or so worth of shares in the December quarter, which helped drive the price higher.
That took the value of Apple’s buybacks over the past decade to a massive $US467 billion. And the shares have been split twice in that decade – four for one in mid 2020 and a huge seven for one in mid 2014.
Apple had around $US123 billion in debt as of October, made up of floating and fixed-rate notes. That leaves its net cash position at $US64 billion at the end of December.
Those buybacks have helped drive the company’s value higher – since August 2018, when Apple first hit a $US1 trillion value, its share price is up 252%, compared to a market cap increase of about 200%.
The disparity is a direct result of its buyback program, which has reduced the company’s share count by around 3 billion – from about 19.4 billion at the end of June 2018 to about 16.4 billion now.
The US is rated AAA by both Moody’s and Fitch ratings groups, but AA+ by S&P, meaning that Apple is rated slightly higher as a credit risk than the US.
Investors are beginning to see Apple as a “flight to safety” or quality trade thanks to the combination of its large cash flow and willingness to return that money to investors as well as its the strength of its brand, its core products and the 745 million subscribers to its various services.
Its smaller fall in the recent tech sell off than the wider Nasdaq suggests that it is being valued a little differently than the rest of the tech sector (with the possible exception of Microsoft which is also viewed as a slightly better credit risk than the US government).
