Kicked Out of the Four Percent Club (February 2013)

Last spring we noted Apple Inc. had joined a club no company has ever managed to remain a part of—stocks that have reached a four percent weighting in the S&P 500. By March 2012 (its second month in the Four Percent Club), Apple’s market cap exceeded the capitalization of the entire S&P Small Cap 600, and no doubt institutional owners of the stock belittled their Small Cap colleagues over this fact (although Small Cap managers are laughing now).

  • Apple’s S&P 500 weight—after a fairly typical 10-month tenure in the Four Percent Club—is now 3.20%, and no company has regained admittance after falling this far. (Once you mingle with the “commoners” they don’t want you back.)

Is Apple Forever? (April 2012)

First, I must disclose that The Leuthold Group owns Apple stock in some of its quantitative strategies, but we’ve performed no investment banking services for the company in the last 12 months (or ever). You’ve no doubt heard the mind-bending stats related to the rise in this stock (...market cap equal to 300 years of beer consumption in Ireland, and to twice the annual U.S. automotive aftermarket, etc.) Closet indexers are probably aware that Apple’s market capitalization of $560 billion on March 30th matches the combined cap of the bottom 125 companies in the S&P 500. Yet Apple’s sales and earnings today are several-fold those of Cisco Systems when that company’s market cap matched the smallest 190 companies in the S&P 500 in March 2000.

  • Apple is worth more than the entire S&P Small Cap 600 ($560 billion versus $540 billion). Extreme? Yes, but Apple’s 2011 calendar net income of $32 billion exceeded the combined net income of the Small Cap 600 by about 60%. While the fun lasts, Large Cap managers should take every opportunity to remind their Small Cap colleagues, “I own a stock larger than your benchmark!”

Success To Which No Company Should Aspire (April 2012)

Apple now comprises 4.4% of the S&P 500, making it the fifth entrant into the Four Percent Club since 1990 (see below). Prestigious, yes, but no company has been able to stay in this club since the inception of the S&P 500 in 1957. Membership for Microsoft, General Electric, and Exxon Mobil each lasted for about a year. Cisco Systems was booted out after a month (solely due to declining market cap—not the arrogance of CEO John Chambers).

Finally, Apple bulls might note that the stock was dramatically cheaper upon its February entry into the Four Percent Club (at 15.3x trailing 12-mo. EPS and 5.6x book value) than three of the other four companies upon their initial entry.

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