August 22, 2012
When Apple became the largest U.S. company in history this week, individuals were kicking themselves for missing out and they wondered if they should be buying Apple now to fortify their future.
But as analysts debate whether Apple is priced to buy or not, people who feel like they must grab the stock now and catch up may not realize that they haven't been left behind. Many have unconsciously devoured quite a few bites of Apple, and their 401(k)s and IRAs show it.
If you have a mutual fund in your 401(k) that invests in large U.S. companies, you probably have about 5 percent of your money invested in Apple, maybe more. That might not seem like much if you are convinced Apple is a slam dunk, but investment professionals generally advise clients to have no more than 5 percent of their nest egg in a single stock.
"It's a firm rule for our equity clients," said Jack Ablin, chief investment officer for Harris Private Bank. "We have 60 stocks and no more than 5 percent in one name."
Pension funds also tend to limit exposure to 5 percent for a single stock, although some will stretch to 10 percent.
If you have all your stock money in a simple Standard & Poor's 500 index fund that mimics the stock market, you have about 4.8 percent invested in Apple. In 2012, you would have earned about 12.4 percent in the index. If Apple hadn't been in the index, you would have earned 10.7 percent, according to Standard & Poor's analyst Howard Silverblatt.
Many mutual funds that invest in large stocks copy the index or follow it fairly closely. Others go further, especially those known as "growth" funds. For example, Fidelity Blue Chip Growth fund tries to increase investor gains by holding more fast-growing stocks than the index, and the fund has climbed 16.7 percent this year. According to Morningstar, the fund has about 10.3 percent of its portfolio invested in Apple, and 2 percent in Qualcomm, a company that builds the guts for smartphones. About 5 percent is invested in Google.
In other words, people who have been longing to buy Apple or feel stupid for not buying it when it hit $369.80 after founder Steve Jobs died in 2011, might have unknowingly owned plenty of Apple all along in their 401(k).
If you've been fond of technology stocks in general, you might be heavily relying on Apple to keep growing your wealth. Morningstar analyst Robert Goldsborough notes that the technology-heavy Nasdaq Powershares QQQ has 19 percent invested in Apple, and the iShare Dow U.S. Technology exchange traded fund has 24 percent in the single stock.
"That is big," said Goldsborough. When Apple is pleasing investors the large exposure will give a good jolt of growth. For example, the iShares technology fund has gained about 19.8 percent this year. But if Apple disappoints investors with a lackluster product introduction or its sales slip based on slower growth globally, the stock could fall hard and "you would feel it in a big way."
Some analysts estimate Apple stock, now at $656 a share, might go to $900 or $1,000 after the company introduces a new iPhone and a mini iPad. Others are telling investors to cool it because the stock has already climbed 84 percent in the last 12 months, and rumors about products such as an Apple TV device remain unproven. Stocks often take a breather after such a hefty move or even decline somewhat, as Apple did Tuesday after hitting a record Monday.
Amy Lubas, technology strategist at Ned Davis Research, said she is a believer in Apple for the long term but has concerns over the next few months as Europe struggles through recession.
"People can't live without their phones," she said, but added that investors have been "pricing in too much optimism."
About 20 percent of sales for large technology companies are in Europe, and such countries as Spain and Italy have high unemployment and are in recession. Last year about 25.7 percent of Apple's sales were in Europe.
In its last earnings report Apple noted slowing sales in Europe. On a price-to-sales basis, Lubas thinks the company is priced slightly higher than usual at 4.08 rather than the average of 3.98. Yet with the price about 15 times trailing earnings, she said, it would not be considered pricey compared with the five-year average of 20.6.
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