Could This Be The First Ever $1 Trillion Company?
I stumbled across a prediction last week that would impress even Mad Money's Jim Cramer. According to a recent report from Oxfam, an international charitable organization, Bill Gates has a shot at becoming the world's first trillionaire. Oxfam speculates that if the returns on the tech mogul's $75 billion fortune in the next 25 years are similar to those in the last 25 years, Gates has a shot at jumping the $1 trillion mark.
That got me thinking, if one man has a shot at becoming a trillionaire, certainly one of the S&P 500's biggest companies has a shot at becoming the world's first $1 trillion company?
Turns out, a few do. I see five S&P 500 companies with a shot at breaking the $1 trillion mark in the next five years.
--Amazon (Nasdaq: AMZN ) has a market cap of $400 billion. Shares would need to hit $1,980, up 125%.
--Microsoft (Nasdaq: MSFT ) has a market cap of $498 billion. Shares would need to hit $130, up 100%.
--Alphabet (Nasdaq: GOOG ) is currently worth $570 billion. Shares would need to hit $1,431, up 70%.
I believe every one of these companies will eventually be worth $1 trillion. However, one other company will beat them all to it.
Thanks to a variety of factors, Apple (Nasdaq: AAPL ) is set to become the first $1 trillion company in the world in the next five years.
The company has been on a roll. After beating fourth-quarter earnings by 4%, shares just hit a new all-time high above $135.
That gives Apple a market cap of $710 billion, making it the largest company in the S&P 500. It has also placed Apple within striking distance of the $1 trillion mark. Shares of Apple would only need to climb 50% to $200 to give it a market cap of $1 trillion.
That is well within reach.
If its current valuation stayed the same, Apple would need to grow earnings by 8% annually in the next five years to hit that target. As it stands, Apple is expected to grow earnings by 8% this year and another 13% in 2018. Those two years alone get Apple almost half way to 50% earnings growth.
But even if Apple's earnings grow slower than expected, it has an ace up its sleeve.
Apple Has $246 Billion In Cash On Its Balance Sheet
Apple's cash position is larger than the GDP of most countries. In recent fourth-quarter results, Apple's reported a cash position of $246 billion. Some of that cash is already accounted for in Apple's $700 billion valuation. But not all of it.
Using as little as half of its cash balance to repurchase shares adds another $125 billion to Apple's market cap.
Apple's Is One Of The Most Undervalued Stocks In The S&P 500
Apple is one of the most undervalued stocks in the S&P 500. Its forward P/E ratio of 15 is a discount to the S&P 500s 20. That lower valuation exists despite the fact that Apple is projected to grow earnings faster than the S&P 500 in the next five years.
Technically speaking that means Apple should be trading with a higher P/E ratio than the S&P 500. If Apple traded with the same P/E ratio as the S&P 500, shares would shares would climb 25%, giving Apple a market cap of $887 billion.
Warren Buffett Just Made A Huge Investment In Apple
Apple's pursuit of the $1 trillion threshold has attracted the attention of the world's greatest investor. In recent regulatory filings, Berkshire revealed it had quadrupled its ownership in Apple to 57 million shares. Buffett's stake was worth approximately $6.6 billion at the end of 2016.
With shares of Apple already up 17% on the year, Buffett has pocketed a quick $1.1 billion gain in less than six weeks.
Risks To Consider: Apple has struggled to launch new hits in the last few years. Although sales growth in its most important product the iPhone is still strong, Apple isn't the innovative company it was under Steve Jobs.
Action To Take: Apple is on pace to become the world's first $1 trillion company. Even though shares are trading at an all-time high, I see plenty of growth and gains ahead. Buy shares anywhere below the all-time high and hold until Apple becomes the first $1 trillion company in the world.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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