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Is Apple the New Walmart?

Apple Chart

Just a quick note on a stock that everyone seems to follow. If you look at the chart above, you can see that I have charted the stock price of Apple since early May compared to its 50-day moving average (the solid red line) and the S&P 500 (the solid purple line).

Apple, being the largest stock in the S&P 500 Index and being up 55% year-to-date, has been responsible for 5% to 7% of the S&P 500’s increase this year. However, from the chart above, you can see that the two have parted company and that Apple has fallen below its 50-day moving average.

Expectations for the iPhone 5 were sky-high, and when Apple didn’t meet them – particularly with their Maps fiasco – investors sold the stock off from its all-time high around $700 and booked profits.

A 10% pullback after the run it had should not be surprising, but its total sales numbers for the iPhone 5 during the 4th quarter will be key to whether it will trade side-ways for a significant period of time (See the Walmart Chart that follows) while it waits for a new catalyst.

Walmart

The last stock that I remember acting like Apple has the past few years is Walmart in the 90’s. You can see that Walmart had an equally meteoric rise higher, corrected, then plateaued for 12 years as its earnings caught up with investor expectations.

Could that happen to Apple? Well, Apple’s valuation is no where near as high as Walmarts from a P/E perspective – but from a Price/Sales perspective, the valuation is pretty high. But it could certainly happen – there are many similarities to Apple today compared to Walmart in the 90’s – everyone owned
Walmart and no one wanted to sell it. They continued to expand and grow their earnings, consistently beating prior quarters and expectations. But eventually, each new store made a significantly smaller impact on the bottom-line.

Then, they hit a time where they just couldn’t meet the expectations of investors, and it took 12 years for valuations to become reasonable compared to the market and their earnings.

Only time will tell if Apple is at that point where each new product is having an increasingly smaller impact on the bottom-line. Combine that with Steve Jobs no longer being with the company, and it should give investors some caution.

For those investors that have racked up > 800% gains by holding the stock the past few years, booking some profits might be a good strategy. You never know what Mr Market has in store for you since your returns depend so much on the sentiment of other investors.

If everyone else turns on Apple and devalues it, you are the loser even if it continues to earn a lot of money – the result is that even though its sales are significant (as Walmart’s were for years) investors are just not willing to pay as much for those sales and the price goes down, bringing the price/sales ratio back in line with the market.

The 4th quarter will be key for Apple (as will its impending deal with China Mobile to offer the iPhone through China’s largest cellular company for the first time), so this is one to keep your eye on and not lose the profits you’ve gained over the years.

Mark