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.”

Company name General Electric Company
Stock ticker GE
Live stock price [stckqut]GE[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Poor
EPS growth Poor
P/E growth Poor
EBIT growth Poor

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $17.21
Target stock price (averages with growth) $21.4
Target stock price (averages with no growth) $21.38
Target stock price (manual assumptions) $21.75

The following company description is from Google Finance: http://www.google.com/finance?q=ge

General Electric Company (GE) is a diversified technology and financial services company. The products and services of the Company range from aircraft engines, power generation, water processing, and household appliances to medical imaging, business and consumer financing and industrial products. It serves customers in more than 100 countries. In August 2013, General Electric Company completed the acquisition of the aviation business of Ario S.p.A. In February 2014, General Electric Co’s GE Oil & Gas launched its new Downstream Technology Solutions business to supply equipment and services to the $10 bln refining, petrochemical, industrial and distributed gas segments. In February 2014, General Electric Company completed the acquisition of API Healthcare.

 

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in General Electric Company.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

For owners of my book, “The Confident Investor” I offer the following analysis (you must be logged in to this site as a book owner in order to see the following analysis). If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
[s2If current_user_can(s2member_level1)]
In order to assist you in using the techniques of this book, the values that I used when calculating the Manual pricing above were:

Stock price at the time of the calculation: $24.94

Growth: 0.08

Current EPS (TTM): $1.49

P/E: 16

Future EPS Calc: $2.18

Future Stock Price Calc: $35.02

Target stock price: $21.75

I hope that this makes you a better investor. [/s2If]

CNET recently put out an article discussing the most profitable US corporations. The article shows that even with Apple’s disappointing quarter that caused a major drop in stock price, Apple is still had more income than anyone else. The issue is that the analysts thought that the results were going to be even better, so the analysts were disappointed. When you disappoint analysts, they punish you by saying bad things. I am borrowing the great CNET chart below.

 

Apples disappointing quarter in context chart

 

To this analysis, I would like show how cheap these stocks really are. While I try to not compare the P/E ratio of non-competitors, I think it is valid for this one exercise.

If we look at the P/E and EPS of these companies, it is quite telling how cheap Apple really is among this peer group.

 

Company

Symbol

P/E

EPS

Apple Inc.

AAPL

9.78

44.10

Exxon Mobil Corporation

XOM

9.17

9.69

Microsoft Corporation

MSFT

15.39

1.82

Pfizer Inc.

PFE

22.36

1.26

International Business Machines Corp.

IBM

14.57

14.41

JPMorgan Chase & Co.

JPM

9.64

5.20

Wells Fargo & Co

WFC

10.85

3.36

The Procter & Gamble Company

PG

19.76

3.90

General Electric Company

GE

17.08

1.39

 

It might not be obvious from looking at the above table of values. Looking at P/E as a chart shows that Apple is one of the cheapest stocks by comparing its price to the earnings of the company.

Apple's PE compared to the most profitable companies

 

It really becomes obvious then by looking at the earnings per share in chart format!

Apple's EPS compared to the most profitable companies

 

So if you think that Apple’s days are done, you may want to think again! In fact, the biggest complaint that you can say about Apple is it seems that they are not getting enough shareholder value! 

If you think that IBM is fairly priced for its earnings then it would be realistic that Apple could increase its share price by 50% if you focus on P/E! By looking at Microsoft, you could say that the price could go up 60%! This means that it is likely that Apple has more upside potential than downside risk.

My disclaimer on this site consistently says that I ‘might’ be long any stock I talk about. In this case, I am long on Apple as I write this article. However, as I consistently point out in my book, The Confident Investor, I didn’t pay for those shares! My current Apple holdings are all free.  If you want to know how to get free stock in great companies, I suggest that you read my book. You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

Company name General Electric Company
Stock ticker GE
Live stock price [stckqut]GE[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Fair
Sales growth Poor
EPS growth Fair
P/E growth Poor
EBIT growth Poor
ANALYSIS
Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $13.75
Target stock price (averages with growth) $18.32
Target stock price (averages with no growth) $17.5
Target stock price (manual assumptions) $16.7

The following company description is from Google Finance: http://www.google.com/finance?q=ge

General Electric Company (GE) is a diversified technology and financial services corporation. The products and services of the Company range from aircraft engines, power generation, water processing, and household appliances to medical imaging, business and consumer financing and industrial products. Effective January 28, 2011, it held a 49% interest in a media entity that includes the NBC Universal businesses. Its segments include Energy Infrastructure, Technology Infrastructure, NBC Universal, GE Capital and Home & Business Solutions. Effective January 1, 2011, it reorganized Technology Infrastructure segment into three segments: Aviation, Healthcare and Transportation. On February 1, 2011, it acquired Dresser, Inc. On February 3, 2011, it acquired Wellstream PLC. In September 2011, it launched a new entity, Research Circle Technology Inc. (RCT). In October 2011, the Company’s GE Energy Financial Services unit bought a 58% interest in Lightfoot Capital Partners L.P.

Confident Investor comments: Continuing the 4 part series analyzing Jim Cramer’s “Diamonds of the Dow” and once again I am not crazy about his pick. 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, in fact the company ranks as a Good company, but there are some concerns with the price of the stock.

Jim Cramer of Mad Money and The Street is arguably the most famous stock analyst in today’s media.  The best thing about Jim is that he tries to explain everything in great detail and he also admits when he makes a mistake.  It would be great if more analysts (probably myself included) admitted when they were wrong!

Cramer recently picked his “Diamonds of the Dow” or maybe “Rough Diamonds of the Dow”.  So for the next 4 days we will take each one of these and see how they do in the CIR (Confident Investor Rating) scale.  Should be fun!

The four companies are:

AT&T [stckqut]T[/stckqut]

Boeing [stckqut]BA[/stckqut]

General Electric [stckqut]GE[/stckqut]

Kraft Foods [stckqut]KFT[/stckqut]