What’s next for Apple and your equity portfolio?

Quote of the Week:
"The most critical thing...leaders need to understand is to stay focused on the things that you can control...and then: Execute, Execute, Execute." - John Chambers, former CEO, Cisco Corporation

In March of 2000, CEO John Chambers and Cisco were on a roll. Wrestling with Microsoft and General Electric for the title, Cisco was then briefly the most valuable company in the world, reaching a market capitalization of more than $500 billion. The stock was $77 per share.

The company rode the “dot com” bubble through what many saw at the time as a brilliant stream of innovation, products and marketing. Cisco’s core businesses of telephony software, data communications services, and internet routers, together with a wave of strategic acquisitions produced huge, increasing revenues. Big profits, as usual, resulted in rising stock prices. Competitors emerged from inside and outside the technology sector. The so called “dot com era” peaked, then sputtered to an end.

Today, Cisco is still around and by most accounts, doing fine. But their stock price has changed a bit. Last Friday, some twelve years later, even after a nice run the past few years, it closed at $20.03, about a quarter of the March 2000 stock price. Interesting.

Apple’s stock price high in March of 2000 was $36. Last Friday, Apple stock closed at $585, a sixteen fold increase. Like Cisco back in 2000, Apple today has the highest market capitalization of any company in the world. Recounting the stream of fabulous innovations and superior marketing responsible for Apple’s success seems unnecessary, since, like us, you have likely lived it. They seem to “get it” about execution, don’t they?

In the Davis family, there are several iPhones and iPads around. Investment-wise, we like the fact that we currently own Apple stock within various components of our portfolios. As shareholders, we realize there are plenty of competitors already in Apple’s businesses, and more are entering.

Here’s the point: in virtually every market there are companies who appear to have it all: Great products and outstanding management; Companies whose stock price moves up and up, exceeding expectations; Companies who seem unstoppable; Companies like Apple today, and Cisco in 2000.

Understanding that market forces, much like gravity in the physical world, tend to moderate a company’s stock price in the long term is very helpful information. Helpful too, are the fundamental principles of successful investing. Principles like diversification, rebalancing, a proper understanding of risk, and an appropriate time horizon.

We cannot know who the “Apple” of the 2020’s will be. Nor have we any idea what Apple’s stock price might be then. However, we can know and apply fundamental investment principles, like those above. Which is precisely what we intend to do.**

Sources:
http://www.expressindia.com/ie/daily/20000326/ibu26043.html
http://en.wikipedia.org/wiki/Cisco

Fund/Stock prices and history:
http://finance.yahoo.com
http://www.secinfo.com/d2wVq.46q.htm#527x
http://investor.cisco.com/stocklookup.cfm



Market Week: March 19, 2012

The Markets

Between the relative calm over Greece, the Fed's stand-pat stance, and a tiny bit of easing on the oil front, investors felt comfortable fleeing the low yields of U.S. Treasuries. That sent yields soaring, particularly at the shorter end of the spectrum; as bond prices fell, the benchmark 10-year yield hit a level not seen since last August. Equities benefitted across the board. The S&P 500 had its best week of the year and closed above 1,400 for the first time since May 2008, while the Dow recaptured 13,000 and tied its 2012 weekly record.


Last Week's Headlines

• No news is good news: The Federal Reserve continued to stay the course on both interest rates and its Operation Twist bond purchases. The statement said the Fed expects higher gas prices to boost inflation temporarily but not long term, and that global financial markets have eased but continue to pose significant downside risks.

• Spiking gas prices translated into spiking consumer inflation in February. According to the Bureau of Labor Statistics, most of the 0.4% increase was the result of a 6% jump in gas prices during the month; excluding food and energy, costs were up only 0.1%. Meanwhile, wholesale prices were up 0.4%, with energy once again accounting for the bulk of the increase. However, the 3.3% wholesale increase since February 2011 was the smallest yearly figure since August 2010.

• Dramatically reduced exports helped create China's largest monthly trade deficit in two decades. According to China's General Administration of Customs, a 40% increase in imports helped push February's trade deficit to $31.5 billion, though China's lunar New Year holiday in January also may have affected the monthly figures.

• The Federal Reserve's March surveys of manufacturing in the Philadelphia and New York regions showed continued expansion at a moderate pace. Meanwhile, the Commerce Department said a manufacturing slowdown and lower natural gas extraction kept U.S. industrial production relatively unchanged.

• Fifteen large banks passed the Federal Reserve's stress tests and will be able to increase dividends or institute stock buy-backs, which some have announced plans to do. However, four others--Ally Financial, SunTrust Banks, MetLife, and Citigroup--must resubmit plans that show they have sufficient capital reserves to handle a financial crisis.

• February's retail sales were up 1.1% from the previous month and 6.3% higher than February 2011, according to the Commerce Department. Not surprisingly, gas prices were up the most, but car dealers, clothing and department stores, and building/garden supplies dealers also saw 1%+ increases; building/garden materials and equipment were up 13.8% from the same time last year.


Eye on the Week Ahead

With conditions in place for Greece to make its bond payments on Tuesday, domestic housing data could suggest whether the relatively benign housing statistics of recent months were produced by mild weather or the beginning of a genuine recovery.
Key dates and data releases: housing starts, Greek bond payments due (3/20); home resales (3/21); new home sales, weekly new jobless claims (3/23).



Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment

Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2012