Apple: It's Different This Time

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Oh, Apple (NAS: AAPL) . Things have not ended well for companies in your position.

Barron's writer Michael Santoli raises an ominous point as the world's most valuable tech company barrels through new all-time highs.

"According to Standard & Poor's, and based on monthly figures, only five other companies have ever surpassed $500 billion, and each peaked out at or below $604 billion," he writes.


Ouch.

With Apple kicking off the new trading week commanding a market cap of $556 billion, it's getting painfully close to the historical popping point. And even then we're really talking about the $604 billion hit by Microsoft (NAS: MSFT) ; the other companies came undone a lot closer to where Apple is now.

If you want to hear even more grim news, consider that four of the five companies -- Microsoft, Intel (NAS: INTC) , General Electric (NYS: GE) , and Cisco Systems (NAS: CSCO) -- now fetch less than half of their peak value.

Really.

Reasons to be cheerful
If it's any consolation, consider that all four of those companies peaked during the dot-com bubble.

Market multiples were truly out of whack at the time. Microsoft was trading at roughly 60 times trailing earnings at its peak -- and that was actually cheap compared to some of the dot-com dynamos that were being valued based on their popularity absent actual profitability.

Intel popped because it was the top choice in microprocessors powering the Microsoft-fueled experiences. The dot-com revolution was real, and we were all going to have "Wintel" machines.

On the enterprise end, no Internet revolution could be complete without the networking gear that made it all come together. Cisco was the big name there, and for a brief while it was actually the country's most valuable company.

GE wasn't necessarily a dot-com play, but its eclectic portfolio of well-run properties bubbled up on the chunky valuations. If even slow-growing soda giants were trading at more than 50 times earnings, wasn't GE worthy of a healthy markup? Like Cisco and Microsoft, GE also had a run as the market's most valuable company.

In a fresh contrast to all of the pre-bubble bursting, Apple isn't trading at some insane multiple. The class act of Cupertino is trading at a reasonable 17 times trailing earnings. Looking out over the next few quarters, Apple is going for less than 14 times this fiscal year's projected profitability (which ends in September) and just 12 times the next fiscal year that begins in October.

Microsoft, Intel, GE, and Cisco certainly weren't trading in the teens -- and at year-ahead multiples in the preteens -- when they were at these lofty heights. In other words, those fallen darlings were never as profitable as Apple is today.

Reasons to be fearful
Apple isn't guaranteed to always be the same market beater that it is right now. Apple may be making most of the profits in mobile, but Android is the open-source platform that's running away with the global smartphone market.

Apple is still the undisputed market leader in tablets, but let's not underestimate the smartphone appeal of Android in bleeding over into the tablet space. There's also Microsoft. Windows 8 is supposed to be very tablet-friendly when it rolls out later this year, and Microsoft's Windows operating system remains the PC leader.

The threats are real, but the chances of Apple being more valuable in a year or two seem to outweigh the chances that it won't. The smartphone and tablet revolutions -- and despite all of Apple's gear, this is really a play on the growth of the iPhone and iPad these days -- are still early in their global growth cycles. If Apple can sustain its share of these growing markets, we're really just scratching the surface.

Apple is cheap, and this is judging by a basic earnings-based gauge that has sorely underestimated Apple's eventual profitability nearly every single time over the past decade.

It is different this time. It may take as little as a few weeks or as long as a year or two, but Apple will break through that $604 billion glass ceiling -- raining the shards onto the head-shaking naysayers.

Apple jacks
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At the time this article was published The Motley Fool owns shares of Microsoft, Apple, Cisco Systems, and Intel. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Intel. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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