In a recent Wall Street Journal article, Goldman Sachs compared the top 5 companies in 2000 to the top 5 companies today. In that comparison, Goldman concludes that the market is not repeating the problems of 2000 that caused the stock bubble in today’s market.

The top 5 companies in the S&P 500 today are:

  1. Facebook Inc.  [stckqut]FB[/stckqut],
  2. Apple Inc.  [stckqut]AAPL[/stckqut],
  3. Amazon.com Inc.  [stckqut]AMZN[/stckqut],
  4. Microsoft Corp.  [stckqut]MSFT[/stckqut],
  5. Alphabet Inc.  [stckqut]GOOGL[/stckqut].

and of 2000 were:

  1. Microsoft,
  2. Cisco Systems Inc.  [stckqut]CSCO[/stckqut],
  3. General Electric Co.  [stckqut]GE[/stckqut],
  4. Intel Corp.  [stckqut]INTC[/stckqut],
  5. Exxon Mobil Corp.  [stckqut]XOM[/stckqut].

The five companies in 2000 traded at 47 times expected earnings, according to Goldman. Today’s five biggest companies trade at 30 times expected earnings—making them by no means a bargain, but still less expensive than the stocks that dominated the stock run in the early 2000s.

The tech giants powering the S&P 500 today also reinvest far more of their profits into their businesses than their predecessors did. The five companies funnel about 48% of their cash flow from operations into capital expenditure and research and development spending, according to Goldman, well above the S&P 500’s 21% average and the 26% average for the five biggest companies in March 2000.

According to Goldman, “Lower growth expectations, lower valuations and a greater reinvestment ratio suggest the current concentration may be more sustainable than it proved to be in 2000.”

Apple [stckqut]AAPL[/stckqut] is known for brutal efficiency, regularly killing off features and products that no longer serve its purposes.

So there is irony in the fact investors have taken a similarly ruthless view of Apple itself, penalizing the company heavily ahead of what is expected to be the slowest year on record for its key product: the iPhone. Apple’s share price ended 2015 down 4.6%, marking its first drop in seven years. That selloff looks overdone, even if one accepts the prevailing view that the iPhone 6s won’t sell at a pace anything like that of its predecessor.

Consider that Apple is now the cheapest stock among the 10 largest tech companies in the S&P 500, once its huge net cash pile of $150 billion is excluded. That means Apple is cheaper than other growth-challenged giants like Microsoft [stckqut]MSFT[/stckqut], Oracle, Cisco Systems [stckqut]CSCO[/stckqut] and International Business Machines [stckqut]IBM[/stckqut].

Source: Apple Peeled: Getting Under the Skin of iPhone Worries

carly fiorina photoCarly Fiorina is currently a candidate for President of the United States of America. She is campaigning for the nomination of the Republican Party to run in the general election of 2016. According to her, one of her strengths is her business background. Most notable she speaks of her background as the first CEO of a DOW30 company: Hewlett-Packard [stckqut]HPQ[/stckqut].

This site is purposefully non-political. While I tend to be a conservative and have voted for a Republican candidate more times than not, I do not want this site to reflect my personal political thoughts. I will occasionally point out a law or regulation that is tough on investors or the business community, but success at investing must be an apolitical activity. In fact, I have written that investors should probably ignore politics and political turmoil when investing.

I am writing this article simply to analyze the success of Ms. Fiorina or the lack thereof. I am fairly hard on companies and their management. It takes a lot to make my Watch List, and most companies cannot achieve that level of performance. I doubt that HP would have made that list while Ms. Fiorina was CEO, and it certainly cannot make that list today.

donald trump photoIronically, her record at HP is one of the criticisms of Ms. Fiorina. Donald Trump is famous for criticizing her as a failed CEO, and he often cites the writings of Jeffrey Sonnenfeld. It is virtually impossible to compare the success of Donald Trump as CEO with Ms. Fiorina as CEO since Mr. Trump’s businesses are not public entities while most of Ms. Fiorina’s career has been with public entities. It is possible to dig into Ms. Fiorina and see just how lousy she was as the leader of a massive corporation.

I will point out that there is an incredibly different scale in Ms. Fiorina’s career with Mr. Trump’s career. It is unlikely that in 1999-2005 (the time when Ms. Fiorina was CEO of HP) that Mr. Trump’s combined businesses would have cracked the Fortune 500 in revenue. In comparison, Ms. Fiorina was in the DOW30, which the Dow Jones company creates to give the best representation of the overall health of the stock market. In other words, Ms. Fiorina was in the big leagues while Mr. Trump was making a lot of personal money in the minor leagues.

So how did Carly Fiorina do as CEO?

It is probably best to take a look at her critics. Mr. Trump is fairly light on details, but he cites Mr. Sonnenfeld, so let’s look at his criticisms as revealed in Politico.

  • In the five years that Fiorina was at Hewlett-Packard, the company lost over half its value.
  • During those years, stocks in companies like Apple and Dell rose.
  • Google [stckqut]GOOG[/stckqut] went public, and Facebook [stckqut]FB[/stckqut] was launched.
  • The S&P 500 yardstick on major U.S. firms showed only a 7 percent drop.
  • At a time that devices had become a low margin commodity business, Fiorina bought for $25 billion the dying Compaq computer company, which was composed of other failed businesses.
  • The only stock pop under Fiorina’s reign was the 7 percent jump the moment she was fired following a unanimous board vote.
  • Fiorina countered that she wasn’t a failure because she doubled revenues. That’s an empty measurement.
  • She hasn’t had another CEO position since her time at HP

Let’s look at each of these accusations.

In the five years that Fiorina was at Hewlett-Packard, the company lost over half its value.

This is true and is a great reason that it was probably foolish to purchase the stock of HP in that time period. However, to accurately gauge the failure we must look at the reasonable peer group of HP. I contend that the reasonable peer group was Dell, Apple [stckqut]AAPL[/stckqut], Oracle [stckqut]ORCL[/stckqut], IBM [stckqut]IBM[/stckqut], Cisco [stckqut]CSCO[/stckqut], and EMC [stckqut]EMC[/stckqut]. I choose this group for several reasons. They are all quite large and, for the most part, they got their revenue at that time from either selling personal computers or from selling large and complicated systems to the IT departments of major companies.

Unfortunately, Google Finance only shows a weekly price for that long ago. While Ms. Fiorina joined HP on July 19, 1999, and left on February 9, 2005, those dates are not exactly available on Google Finance. The exact dates may be available on other sources but using Google Finance makes it easy for my readers to play with the dates as well as throw in other comparison companies.

HP comparison chart

 

If we look at the above chart it goes from July 9, 1999, to February 18, 2005. This is a very close approximation to Ms. Fiorina’s joining and departure dates. A quick appraisal shows that only Apple and Dell increased in value during this time frame. The other companies decreased in stock value, and most of them decreased in the same approximate range as HP.

In fact, you can see that several of these companies, including HP, had peak prices shortly after Ms. Fiorina joined HP. Many of the companies had significantly bigger drops than HP during the period. If we move the start date to March 2, 2000, you will see that most of these large enterprise-IT sellers had much larger drops in stock value than HP. Obviously, this was a major challenging time for companies that sold in the same market as HP. Even Apple dropped over 70% by the end of 2000. Remember, Apple at this time was not the amazing gadget, phone and entertainment content seller of today, but instead a computer company that was quite reliant on selling personal computers.Read More →

Company name Cisco Systems, Inc.
Stock ticker CSCO
Live stock price [stckqut]CSCO[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Good
Sales growth Fair
EPS growth Good
P/E growth Poor
EBIT growth Poor
ANALYSIS
Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $17.23
Target stock price (averages with growth) $20.41
Target stock price (averages with no growth) $17.69
Target stock price (manual assumptions) $22.61

Confident Investor comments: Cisco is a relatively recent addition to the Dow 30 and it doesn’t suffer from the lack of performance that claims many other Dow 30 companies. At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

Live stock price feed: [stckqut]CSCO[/stckqut]

Company name: Cisco Systems, Inc.
Stock ticker: CSCO


P/E compared to competitors: Good


Employee productivity: Good
Sales growth: Good
EPS growth: Poor
PE growth: Poor
EBIT growth: Poor


Target stock price (high): 18.27
Target stock price (low): 11.41

At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.