Apple Will Be the Most Valuable Stock in the World by 2012

Jul.21.11 | About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) reported another stellar quarter after the market closed Tuesday. That probably wasn’t a big surprise to anyone. What was surprising was how dramatically Apple exceeded even the most bullish expectations.

Wall Street consensus expectations called for EPS of $5.80. Even the most bullish estimate reported by Yahoo Finance was $6.62 per share. The actual results from Apple were $7.79 EPS. That’s nearly 18 percent above the most optimistic estimate.

Revenue growth was an astounding 82 percent! A lot of small companies are able to generate high growth rates off their small revenue base. However, Apple’s revenue base was nearly $16 billion (and it grew in 12 months to over $28 billion). That type of growth rate from a large cap stock is almost unheard of.

Even more impressive than the 82 percent growth rate, is the fact that revenues could have been even higher. Apple sold 9.25 million iPads in the second quarter, but management pointed out that they sold every iPad they could build during the quarter. The lack of credible alternative [ahem, Research in Motion (RIMM), Hewlett Packard (NYSE:HPQ), etc.] continues to drive incredible demand for the iPad.

Apple also sold over 20 million iPhones in just the last 3 months. That’s despite not releasing a new version of the phone in June like they have done in the past.

Despite their 82 percent growth rate and growing demand for their products, Apple stock is not trading at premium. Even before their blowout earnings results, AAPL was trading at only 13x consensus 2012 earnings. Those estimates are certain to go much higher as every analyst on Wall Street scrambles to raise their forecasts. Apple also has zero debt, $76 billion in cash sitting on their balance sheet and did I mention their 82 percent growth rate.

Google (NASDAQ:GOOG), which reported a nice 33 percent growth in revenues, is currently trading at 15x consensus 2012 earnings.

Netflix (NASDAQ:NFLX), which reported 44 percent revenue growth in the first quarter, is trading at 43x consensus 2012 earnings.

Qualcomm (NASDAQ:QCOM), Yahoo (NASDAQ:YHOO), Salesforce.com (NYSE:CRM), Juniper Networks (NYSE:JNPR), etc. all trade at much higher multiples than Apple despite having much lower growth rates.

The investment case for Apple is not only intact, but it is growing more intriguing each quarter. Apple stock briefly traded above $400 per share following the earnings report before closing at $387 today. It is only a matter of time before it permanently crosses that mark and starts heading towards $500 per share.

Right now ExxonMobil (NYSE:XOM) is the most valuable stock in the world with a market cap of $410 billion. However, with their current market cap of $358 billion, Apple is gaining fast.

At approximately $445 per share, Apple will surpass XOM as the most valuable company in the world. Even assuming that Exxon stock price continues its current pace, Apple will still overtake them by year end. By 2012, we will be talking about Apple being the most valuable stock on the planet and it's hard to see them giving up that title for a long time.

Disclosure: I am long AAPL.