Apple Vs. JP Morgan

Brit Ryle

Posted August 21, 2023

So far, this August sell off has lopped a little over $2 trillion off the total valuation of the S&P 500. Sounds like a lot. But if you add up the market valuation of all 500 of the companies that make up the index, it comes to a little over $37 trillion. At its most recent peak a little over a month ago, the S&P 500 was worth about $39.5 trillion.

We’re looking at losses of about 4.5% for the index itself. Your personal results may vary. 

Like if you own shares of Apple (NASDAQ: AAPL). Apple shares have lost ~12% since they hit all time high closing price at $196.45 on July 31.  

Of course, the odds that you bought your first Apple shares at $196.45 are pretty much slim to none. (And Slim bought Tesla anyway!). 

Investor’s Business Daily put out a table today, showing the S&P 500 stocks that have lost the most value since August 1. As you might guess, Apple tops the list, with a $376 billion loss in market capitalization. 

Number 9 on that list is JP Morgan (NYSE: JPM). After losing $28 billion in market capitalization, the biggest investment bank is currently valued at ~$420 billion. In dollar terms, an Apple-sized decline in value would probably mean JP Morgan was declaring bankruptcy to save what little value it had left. 

Before I go on, let me just say that any comparisons between JP Morgan and Apple are not particularly instructive. The two are very different companies. But I’m going to do it anyway, because it’s kind of fun (which is probably a sad statement about my life right now.)

  • Kind of amazing to think that Apple is worth 6 and a half JP Morgans…
  • Apple spends $80-$90 billion a year just on share buybacks and has spent $526 billion lowering the number of its outstanding over the last 10 years. JP Morgan’s annual share buybacks total around $10 billion a year. Which sounds like a big difference, except that Apple has 15.7 billion shares outstanding and JP Morgan has just 2.9 billion shares outstanding. 
  • On a relative basis, Apple’s share buyback program is only about 30% bigger than JP Morgan’s.
  • Apple has beaten earnings expectations in 3 of the last 4 quarters, by 1.6%, – 3.1%, 6.3% and 5.9%.
  • JP Morgan has beaten earnings expectations in each of its last 4 quarters, and by a much wider margin than Apple – 8.3%, 16.3%, 20.2% and 18.8%. 
  • Analysts expect Apple’s earnings to grow ~10% in fiscal 2024, from $6.07 share to $6.71. Revenue is expected to grow 6%, from $383 billion to $407
  • Analysts expect JP Morgan earnings to fall by nearly 8% in fiscal 2024, from $14.86 a share to $13.52 a share. Revenue is expected to fall from $146 billion to $142 billion
  • The forward Price-to-Earnings (P/E) ratios for both stocks are sitting at their lowest level all year. But the Price-to-Earnings Growth (PEG) ratio for Apple is 2.2, much lower than JP Morgan’s 2.9 PEG ratio
  • Of course, the difference in PEG ratios is explained by the fact that Apple will have earnings growth next fiscal year, while JP Morgan is not – unless the bank’s trend of handily beating earnings estimates continues…

It’s often said that share buybacks are good for the shareholders. Buyback advocates will often mention them in the same breath as dividends, as if both are ways that companies can return cash to shareholders. In the case of buybacks, when you lower the number of shares outstanding, you are in effect boosting earnings per share, because the divisor (earnings/shares outstanding = earnings per share) is lower. 

But in the case of Apple, if you buy back $90 billion worth of shares at the current $175 share price, that’s 514 million shares. Out of 15.73 billion…

That works out to about a 10% reduction in the number of shares outstanding per year. Which in turn might add 15 pennies to Apple’s quarterly earnings. 

I don’t think any of us would say that $90 billion is an insignificant amount of money. But in this context – adding 15 pennies to quarterly earnings – it doesn’t seem like Apple or the shareholders are getting much bang for the buck. 

But then, how many people (Warren Buffett aside) buy Apple for the 0.5% dividend? 

You could buy Apple at $175 a share and get $0.96 a share as an annual dividend. Or buy JP Morgan at $150 a share and get a $4 annual dividend (2.7%). 

I know I said not much is directly comparable between these two companies. But the dividend rate is one that we can compare. And if I had to choose, I think I’d go with JP Morgan.

That’s it for me today, take care and I’ll talk to you Wednesday  

Briton Ryle
Chief Investment Strategist
Pro Trader Today