Sean Williams of the Motley Fool makes a bold claim when he names three stocks he believes have better long-term potential than Apple (AAPL). Apple has had an amazing ride, but this has also happened to others:
Peak Market Cap
Current Market Cap
|General Electric (GE)||$601||$209.3||(65%)|
|Cisco Systems (CSCO)||$557||$107.6||(81%)|
Sources: CNN Money, Bespoke Investment Group, and Yahoo Finance. Market values current as of April 27.
The question is whether, in a couple of years, Apple will be another name on this list. Each of these companies had its time in the spotlight, and now they are in the wings watching as others have their 15 minutes of fame. I think that Apple could see the same level of competition in the tablet market as it is seeing from Samsung and others in the phone market. Apple has made a significant contribution to the ease of use of complex devices, but I am not sure it can maintain its position at the top of the pile.
In the above-mentioned article, Williams then mentions three companies that he thinks will beat Apple to the $1,000 mark:
1. MasterCard (MA)
One key point comes from CFO Martina Hund-Mejean, who noted that 85% of all transactions worldwide are still executed using cash, which leaves credit processors with a huge pool of untapped customers. A large part of this market has to be the emerging markets, and it seems to me that we need some new technology to make this real.
2. Intuitive Surgical (ISRG)
The maker of the da Vinci robotic surgical system keeps producing, year in and year out. This is not a market or company with which I am familiar. However, with an aging population in the developed world, there is certainly growth that is almost built in. The question will be whether competition will drive down prices without expanding the size of the market.
3. White Mountains Insurance Group (WTM)
A property and casualty insurance holding company is an unusual bet to beat high-growth Apple to $1,000. The company is well-run, but I simply don't see the growth that will bring it to $1,000.
My goal is not to back the winner to $1,000, but rather to look at a combination of this selection of three names as part of a long-term investment portfolio. This is a relatively diverse selection, although MasterCard and White Mountains are in the financial sector. However, these are not the usual suspects and, as such, are worthy of comparison with our broadly diversified dividend-bearing ETF portfolio.
|Asset||Fund in this portfolio|
|REAL ESTATE||(ICF) iShares Cohen & Steers Realty Majors|
|FIXED INCOME||(TIP) iShares Barclays TIPS Bond|
|Emerging Market||(VWO) Vanguard Emerging Markets Stock ETF|
|US EQUITY||(DVY) iShares Dow Jones Select Dividend Index|
|US EQUITY||(VIG) Vanguard Dividend Appreciation ETF|
|INTERNATIONAL EQUITY||(IDV) iShares Dow Jones Intl Select Div Idx|
|High Yield Bond||(HYG) iShares iBoxx $ High Yield Corporate Bd|
|INTERNATIONAL BONDS||(EMB) iShares JPMorgan USD Emerg Markets Bond|
- Total of $10,000 invested equally in each stock.
- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes).
- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum).
Portfolio Performance Comparison
|Portfolio/Fund Name||YTD |
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Will These 3 Stocks Will Beat Apple to 1K||13%||52%||165%||40%||147%||23%||58%|
|Retirement Income ETFs Tactical Asset Allocation Moderate||1%||6%||48%||13%||107%||7%||55%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||2%||-0%||-15%||11%||92%||1%||3%|
Remember that with only three equities in the selection, you will see higher risk -- the Sharpe ratio for five years is the same for the tactical asset allocation and the three equities, even though the equities give you higher returns -- and so it proves you are taking more risk. This is an interesting selection of stocks that give good returns and have done a fair job of weathering the tough conditions.
I don't subscribe to the theory that these stocks will beat Apple to $1,000. But that's a catchy idea and worth considering.
I think that Apple will start running into heavy weather. Today, if I had the choice between an iPhone and a Galaxy III, I would take the latter. As it is now, I will most likely stick with my BlackBerry. That might rightly place me with the dinosaurs, but in any case, the gap between iPhone and Android has closed in my opinion from a hardware perspective -- and surely the apps will follow. I can't see why the same thing won't happen with tablets.
I also think that the theory that each of these stocks has a strong niche is interesting. I don't think that any of them have either a long-term market lock or enough realistic growth potential. That's all conjecture.
What is clear is that, for now, this is an interesting selection of stocks and worth further investigation.
Additional disclosure: We do not have any business relationship with the company or companies mentioned in this article. We do not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.