By Philippe van Doorn

Apple’s impact on the broader stock market has never been greater, landing its CEO on MarketWatch’s 50 list of most influential people in the markets.

How capable is the CEO of a company of investing your money most effectively? This is an important question for long-term investors. This can underline the difference between a long-term stable performer and a flash in the pan.

And Apple Inc. (AAPL) now accounts for 7% of the SPDR S&P 500 ETF Trust (SPY), the first and largest exchange-traded fund (with $360 billion in assets), which tracks the S&P benchmark. 500. That’s close to an all-time high, and the iPhone maker has a whopping 14.1% position in the Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100 index. Looking at the full Nasdaq index, which has 3,747 stocks, Apple takes a position of 13.5%.

This is definitely an Apple stock market, with the company topping major market-cap-weighted indexes. You are likely to be indirectly invested in the business. You might also feel Apple’s impact in other ways. Apple’s App Store ecosystem generates more than $600 billion in annual revenue for developers.

Tim Cook’s tenure as CEO of Apple has been nothing short of breathtaking when measured by the company’s financial performance. Apple isn’t one of the fastest growing companies in terms of sales or profits – it’s too big for that. But its strong stock performance reflected Cook’s ability to deploy invested capital with improved efficiency. Cook was also a market pioneer in other important ways. It asks Apple to repurchase $90 billion of its stock every year, setting the pace for stock buybacks in the market. Cook’s steady hand has also helped Apple weather the market’s technological wreckage and remain a stable mainstay for the Nasdaq Composite index in general. For all of these reasons, Cook has earned a spot on MarketWatch’s 50 list of most influential people in the markets.

Apple continues to improve with this important step

Stock investors seek long-term growth. The best measure of this is whether or not a company’s stock price is going up or down. But Cook isn’t just managing Apple’s stock. Digging a little deeper into the company’s actual operational performance can provide some insight into Cook’s good work.

What should a business leader focus on? The share price? How about the most efficient and cost-effective way to deliver goods and services? There are different ways to do this, and Apple has focused on quality, reliability, and great service to build customer loyalty.

Apple’s commitment can be felt by anyone who calls the company for customer service. It’s easy to reach a well-trained representative who will solve your problem. How many businesses can say that at a time when it seems like many businesses can’t even answer the phone?

Coming back to actual performance, Cook took over as CEO of Apple in August 2011 when Steve Jobs resigned. The chart below shows the company’s quarterly invested capital returns from the end of 2010 through September 2022.

A company’s return on invested capital (ROIC) is its earnings divided by the sum of the book value of its common stock, preferred stock, long-term debt, and capitalized lease obligations. ROIC indicates the extent to which a business has used the money it has raised to run its business. This is an annualized figure, but available quarterly, as used in the chart above.

The book value of a company’s stock may be well below its current market capitalization. The company may have issued most of its shares a long time ago at a much lower price than the current price. If a company has issued shares recently or at relatively high prices, its ROIC will be lower.

A business with a high return on investment is likely either to have a relatively low level of long-term debt or to have made effective use of borrowed money.

Among S&P 500 companies that have been around for at least 10 years, Apple ranked in the top 20 for average return on investment over the past 40 fiscal quarters reported as of September 1.

As you can see from the chart, Apple’s return on investment has improved dramatically over the past five years, even as widespread adoption of the company’s products and services has led to a general slowdown in the sales growth.

A quick comparison with the other benchmark giants

It might be interesting to see how Apple stacks up against other big companies, in part because some companies are more capital-intensive than others. For example, over the past four quarters, Apple’s ROIC has averaged 52.9%, while the S&P 500 average has been weighted 12.1%, according to FactSet’s estimate.

Here are the 10 S&P 500 companies reporting the highest annual sales for their last full years, with a comparison of average ROIC over the last 40 reported quarters:

Company                          Ticker  Annual sales ($mil)  Avg. ROIC -- 40 quarters  Total Return -- 10 Years 
Walmart Inc.                      WMT               $572,754                    11.0%                     142% Inc.                   AMZN              $469,822                     6.8%                     693% 
Apple Inc.                        AAPL              $394,328                    33.0%                     721% 
CVS Health Corp.                  CVS               $291,935                     6.8%                     161% 
UnitedHealth Group Inc.           UNH               $287,597                    13.7%                   1,031% 
Exxon Mobil Corp.                 XOM               $280,510                     9.9%                      85% 
Berkshire Hathaway Inc. Class B  BRK.B              $276,094                     8.2%                     233% 
McKesson Corp.                    MKC               $263,966                     6.6%                     353% 
Alphabet Inc. Class A            GOOGL              $257,488                    16.6%                     405% 
Costco Wholesale Corp.            COST              $226,954                    16.2%                     558% 
                                                                                               Source: FactSet 

Among the 10 largest companies in the S&P 500 by annual sales, Apple ranks first in average return on investment over the past 10 years, while ranking second in total return behind UnitedHealth Group Inc. (UNH) and ahead of Inc. (AMZN). UnitedHealth was able to stay at the forefront of managed care during the period of health care transition in the United States, following President Barack Obama’s signing of the Affordable Care Act in 2010.

Here’s a chart showing the 10-year total returns for Apple, UnitedHealth Group, Amazon, and the S&P 500:

Apple is only slightly ahead of Amazon’s 10-year total return. But what is so striking about this chart is the volatility. Apple had a smoother ride. During the 2022 bear market, Apple’s stock fell 18%, while the S&P 500 fell 20%, the Nasdaq fell 32% (all dividends reinvested), and Amazon fell 45%.

The broad indices would have been even worse so far this year without Apple.


-Philip van Doorn


(END) Dow Jones Newswire

11-05-22 1007ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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