On Tuesday, the Dow Jones Industrial Average crossed and closed above 13,000 for the first time since 2008. Not to be outdone, on Wednesday the Nasdaq traded above 3,000 for the first time since 2000. Although the index quickly fell back below 3,000 and never closed above that level, an eleven year high is nothing to sneeze at. AAPL, which might as well be its own index these days, also crossed the $500 billion market cap threshold.
So what’s working these days? Interestingly, the 50 stocks with the lowest P/Es and the 50 stocks with the highest P/Es are significantly outperforming everything else. While everyone is awestruck by the 34% gain this year in Apple shares, no one seems to have noticed the 117% gain in Sears Holdings (SHLD) or the 36% in Priceline (PCLN).
During the Humphrey Hawkins testimony, Bernanke suggested that QE III might not be necessary going forward. This interpretation walloped Gold (GLD). Rumors circulated that a single large seller may have been behind the almost 3.5% drop. Year to date, Gold is still up over 9% and it’s still above the 50-day moving average. We at Alhambra are getting whiffs of inflation. I’m sure Joe Calhoun will expand more on this in his weekend update. I agree with something someone said last week, own gold but don’t trade gold.
The best performing security in our client accounts this week was Apple (AAPL), up 4.36%. Next week, they are holding the iPad 3 event in San Francisco. It is likely the stock will “sell on the news”. However, I’d like to put Apple’s valuation into perspective.
At a current price of just over $545, AAPL trades at 11.5 times next year’s expected earnings. The S&P 500 currently trades at 13.5 times earnings on a weighted basis, while the average P/E ratio of the 500 stocks in the index on an unweighted basis is 17.7 times earnings. Given the fact that AAPL has one of the highest individual growth rates of any stock in the S&P 500, it isn’t too much of a stretch to assume that the stock should have a ‘market’ multiple. To get there, though, AAPL would need to rally to just under $574 per share, while an average P/E ratio would send the stock close to $800 per share.
While AAPL is a member of the S&P 500 Technology sector, it is often considered one of the best retailers in the country as it boasts one of the highest sales per square foot of any chain. The average retailer in the S&P 500 trades at 16.4 times earnings, and based on that multiple, AAPL would be worth $700 per share.
Below, I have included a list of new highs last week, an economic calendar and key interest rates. Have a pleasant and productive week.
New highs last week
|MSFT||Microsoft Corporation||Technology||Application Software||269133.95||11.62||32.08|
|T||AT&T, Inc.||Technology||Telecom Services – Domestic||182966.49||46.77||30.87|
|PM||Philip Morris International, Inc.||Consumer Goods||Cigarettes||145925.7||17.43||84.55|
|ABT||Abbott Laboratories||Healthcare||Drug Manufacturers – Major||90237.74||19.13||57.39|
|EMC||EMC Corporation||Technology||Data Storage Devices||58302.06||25.98||28.58|
|USB||U.S. Bancorp||Financial||Regional – Midwest Banks||55932.92||11.9||29.27|
|NKE||Nike Inc.||Consumer Goods||Textile – Apparel Footwear & Accessories||49901.87||23.24||108.74|
|LOW||Lowe’s Companies Inc.||Services||Home Improvement Stores||35234.51||20.53||28.13|
|PCLN||priceline.com Incorporated||Services||General Entertainment||32150.91||34.17||645.86|
|TJX||The TJX Companies, Inc.||Services||Department Stores||27968.7||19.11||37.08|
|COH||Coach, Inc.||Consumer Goods||Textile – Apparel Footwear & Accessories||22011.53||23.9||76.49|
|EP||El Paso Corp.||Basic Materials||Oil & Gas Pipelines||21863.52||945||28.35|
|ISRG||Intuitive Surgical, Inc.||Healthcare||Medical Appliances & Equipment||20340.41||41.99||516.91|
|RTN||Raytheon Co.||Industrial Goods||Aerospace/Defense – Major Diversified||17459.64||9.71||51.37|
|M||Macy’s, Inc.||Services||Department Stores||15868||13.12||38.31|
|GR||Goodrich Corp.||Industrial Goods||Aerospace/Defense Products & Services||15854.57||19.91||126.03|
|FAST||Fastenal Company||Industrial Goods||General Building Materials||15679.37||43.88||53.1|
|WFM||Whole Foods Market, Inc.||Services||Grocery Stores||14933.95||40||82.81|
|AZO||AutoZone Inc.||Services||Auto Parts Stores||14895.79||18.47||378.45|
|SLE||Sara Lee Corp.||Consumer Goods||Processed & Packaged Goods||12914.41||75.28||21.83|
|CMG||Chipotle Mexican Grill, Inc.||Services||Restaurants||12328.63||58.34||394.39|
|DISCA||Discovery Communications, Inc.||Services||CATV Systems||12243.03||16.91||47.36|
|ORLY||O’Reilly Automotive Inc.||Services||Auto Parts Stores||11233.81||23.74||88.33|
|TDC||Teradata Corporation||Technology||Diversified Computer Systems||11147.17||32.48||66.59|
|SHW||The Sherwin-Williams Company||Industrial Goods||General Building Materials||10671.18||24.8||102.44|
|ICE||IntercontinentalExchange, Inc.||Financial||Diversified Investments||10113.96||20.19||139.33|
|FMC||FMC Corp.||Basic Materials||Chemicals – Major Diversified||6984||18.12||100|
|WYN||Wyndham Worldwide Corporation||Services||Lodging||6449.53||17.54||44.19|
Key Rates by Bloomberg.com
|CURRENT||1 MO PRIOR||3 MO PRIOR||6 MO PRIOR||1 YR PRIOR|
|Fed Funds Rate||0.12||0.10||0.07||0.12||0.16|
|Fed Reserve Target Rate||0.25||0.25||0.25||0.25||0.25|
|US Unemployment Rate||8.30||8.50||8.90||9.10||9.10|
Mortgage* (National Average)
|CURRENT||1 MO PRIOR||3 MO PRIOR||6 MO PRIOR||1 YR PRIOR|
|30-Year Fixed Jumbo||4.66||4.64||4.66||4.79||5.40|
|15-Year Fixed Jumbo||4.03||3.99||3.93||4.08||4.69|
|5/1-Year ARM Jumbo||3.26||3.31||3.15||3.17||3.82|
Economic Calendar by Econoday.com
Clients, principals and/or employees of Alhambra Investment Partners may have long or short positions of any above-mentioned securities. For information on Alhambra Investment Partners’ money management services and global portfolio approach to capital preservation, Joseph Gomez can be reached at email@example.com.
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