This is not an Apple [stckqut]AAPL[/stckqut] fanatics site but the importance of the iPhone to the technology world and the market in general is rare. There are few products, that if turned into standalone companies, would be as significant as the iPhone.

As an example, if the iPhone was a standalone company it would have revenue of $88.4B. This means that it would rank 28th on the Fortune 500 and would be between Archer Daniels Midland [stckqut]ADM[/stckqut] and Procter & Gamble [stckqut]PG[/stckqut]. In fact, if Apple spun off the iPhone, Apple would drop to 30 or 31 on the list from its current 6th place and iPhone Inc. would be larger.

BusinessWeek points out that the new company, iPhone Inc., would be the 9th largest company on the Dow Jones Industrial Average.

iphone_vs_dow

I recently came across this list on Forbes on the largest 25 tax payers. Forbes does a bit of analysis on each of them. It is probably worth your time to jump over, but I thought I would give the highlights here:

 

Rank of tax expense

Company

Symbol

Effective Tax Rate

1 ExxonMobil XOM 39%
2 Chevron Corporation CVX 43%
3 Apple Inc. AAPL 25%
4 Wells Fargo & Co. WFC 31.2%
5 JP Morgan Chase & Co. JPM 26%
6 Wal-Mart Stores WMT 31%
7 ConocoPhillips COP 51.5%
8 Berkshire Hathaway Inc. BRK 28%
9 IBM IBM 24%
10 Microsoft Corporation MSFT 22.8%
11 Philip Morris International Inc. PM 29.5%
12 Goldman Sachs GS 33%
14 Comcast Corporation CMCS 32%
14 The Procter & Gamble Co. PG 23.5%
15 Johnson & Johnson JNJ 23.7%
16 Intel Corporation INTC 23.6%
17 Occidental Petroleum Corp. OXY 42%
18 UnitedHealth Group UHG 35.9%
19 The Walt Disney Company DIS 32.7%
20 AT&T T 27.8%
21 Oracle ORCL 21.4%
22 The Coca-Cola Company KO 23.1%
23 The Home Depot Inc. HD 37.2%
24 McDonald’s MCD 32.4%
25 Google GOOG 19.4%

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 The Procter & Gamble Company
Stock ticker PG
Live stock price [stckqut]PG[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

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

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $57.89
Target stock price (averages with growth) $68.68
Target stock price (averages with no growth) $63.55
Target stock price (manual assumptions) $88.95

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

The Procter & Gamble Company (P&G), is focused on providing consumer packaged goods. The Company’s products are sold in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, drug stores and high-frequency stores. As of June 30, 2012, P&G was organized into two Global Business Units (GBUs): Beauty and Grooming and Household Care. The GBUs contain a total of five segments: Beauty; Grooming; Health Care; Fabric Care and Home Care and Baby Care and Family Care. Sales to Wal-Mart Stores, Inc. and the affiliates represent approximately 14% of the total revenue during the fiscal year ended June 30, 2012 (fiscal 2012). On December 30, 2011, Helen of Troy Ltd. acquired PUR water purification products business (PUR) from the Company. Effective June 1, 2012, P&G announced that it has completed the sale of the Pringles business to Kellogg Company.

 

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

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

I recently read an article on CNN Money advising investors to invest in consumer product goods (CPG) companies. The logic was that CPG companies, as a group, have several features that should be appealing to investors:

  • Predictability – these companies can predict how much of a product can be sold in the short-term so they control pricing and inventory well.
  • Dependability – these companies are not going to see massive drops in revenue since consumer purchase their products regardless of the economic climate.
  • Pricing power – due to their brand loyalty, these companies can put forward regular price increases with little negative market reaction.
  • Global reach – while most of CPG companies get the bulk of their revenue in the western world, many have made significant investments in emerging markets.

The problem with the article is that the cited companies were fair at best, and some were poor. Instead of the CPG companies in the article, I suggest that you look at good companies such as Coach [stckqut]coh[/stckqut], Decker [stckqut]deck[/stckqut], Boston Beer [stckqut]sam[/stckqut], or Fossil [stckqut]fosl[/stckqut] (all of these companies are currently on my Watch List). If you want to own one or two of the companies in the article, P&G [stckqut]pg[/stckqut] (the stock symbol is not PR as cited in the article) or Unilever [stckqut]ul[/stckqut] are decent candidates – both companies are very well run.

Settling for companies that are familiar to you and you see on the grocery shelves may not be a good investment strategy.  I suggest that you focus your portfolio on companies that have more upside potential but are still very well run.