Healthcare Matters

All the talk about the “dog days of summer” certainly applies to the news cycle. There just isn’t a whole lot going on out there. But the summer season for Apple investors has always been an interesting period. Apple always launches in time to kill it over the Holiday Season and, according to all reports, this year will be no exception.

Not long after reading that Apple was no longer the world’s most valuable company (PetroChina wins the prize/valued at greater than $1 trillion), Apple set a US record for its market value yesterday.  In fact, Apple even blew past the high water mark set by Microsoft during the tech bubble days. Apple shares rose 2.6% to $665.15 at the close in New York, for a market value of $623.5 billion. That overtook Microsoft’s $616.3 billion closing market capitalization on Dec. 27, 1999, according to data compiled by S&P Dow Jones Indices.

Anticipated demand for the next version of the iPhone on Sept. 12 is the obvious value driver, despite the fact that the rumor mill regarding the iPhone 5′s newest product features isn’t producing any revolutionary “tech news.” Ho hum, Apple will still sell as many as 250 million units over the life of the device, according to analysts at FBR Capital Markets. Apple gets about 70% of its profit from the iPhone. The company’s stock has risen an average of 11% in the two months before previous iPhone updates have been released.

The new iPhone will have a larger screen and thinner body, and is expected to work with faster, long-term evolution wireless networks being introduced by carriers such as Verizon Wireless and AT&T Inc., according to analysts including Piper Jaffray Cos.’ Gene Munster.

Because Microsoft’s record was set during the internet boom, when valuations were ridiculously inflated, Apple’s current value and its prospect of achieving a market cap of $1 trillion is truly remarkable. David Yoffie, a Harvard Business School professor who has written about Apple, said: “We’re in a period now of much more normalcy, which makes Apple’s accomplishments even more impressive. But it doesn’t take much to miss a cycle… right now this valuation is premised on iPhone 5 and a new smaller iPad coming out, and if these are very good or great products then the valuation will be easily justified. If for any reason they have a hiccup on any of these products, then Apple would be vulnerable.”

Allow me to correct Mr. Yoffie: Investors who jumped in at about $650 a share would be vulnerable. Like the Yankees, the company cannot be expected to win the world series year in and year out, but it can still remain one of the world’s most valuable franchises.

—Tom Finn