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Apple (AAPL US) US$176.08

UPDATED 20/03/2024 09:32

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This week, there has been an ongoing discussion on the desk around Apple, and whether or not we should be trimming or even exiting our longest-held position in the International Equities Portfolio. The portfolio kicked off on 26^th June 2019, and Apple is the only original member to have been there for nearly 5 years. The position is up ~270% since then, and the portfolio collectively has generated 17.47% pa, implying Apple has done significantly better than the average constituent.

However, successful investing is all about looking forward, and we need help seeing where future growth will come from, especially when the baseline for growth is so significant, with Apple now sporting a market capitalisation of US$2.7 trillion. There is no denying that Apple is a phenomenal company, and its ability to evolve is one of its core strengths. However, the numbers have us questioning the position.

The Market Matters Website shows 41 analysts covering Apple, one of the most highly researched companies in the world, so the probability that consensus data is accurate will be high. Bear in mind that when thinking about valuations, growth in earnings and certainty are very important to provide context to ratios such as the price to earnings (PE).

Apple’s profit is expected to grow 6% pa for the next 3 years, and AAPL US trades on 26x those earnings.
Profit for Microsoft is expected to grow 17% pa for the next 3 years, and MSFT US trades on 34x those earnings.
Profit for Nvidia is a bit more lumpy, but call it 30% average over the next 3 years, and NVDA US trades on 36x those earnings.
Profit for Meta is expected to grow 14% pa for the next 3 years, and META US trades on 25x those earnings.

We could argue that Apple’s earnings certainty is high, which justifies their current multiple, which sits around their longer-term average. A ~US$200bn cash balance is also a nice buffer to have. We could also argue that Nvidia is not expensive for the growth that it’s delivering, while Meta offers Growth at a reasonable price (GARP). Microsoft remains a core portfolio holding, and we remain confident that their growth is sustainable and their multiple is justified.