Great expectations for Apple and its main suppliers

STOCKTAKE:"APPLE fever is spreading like a wildfire around the world," said a Topeka analyst last week.

Days after Piper Jaffray predicted the stock would top $1,000 and become the first US company to have a market cap of $1 trillion, Topeka slapped a $1,001 price target on Apple.

Of 54 analysts covering Apple, 47 label it a strong buy or a buy, with just two having a sell or underperform rating.

Credit Suisse, meanwhile, has compiled an Apple supply chain basket, a list of companies that have a two-year correlation to Apple and a strong supply chain relationship with the company.

Even if individual investors don’t buy into the hype, they can’t ignore it. Apple has contributed 15 per cent of the SP 500’s gains in 2012. Not since 1991 has the index been so reliant on one stock.

Contrarian indicator goes all bullish

BANK of America’s Savita Subramanian notes that recommended equity holdings have been reduced in six of the last eight months. The average recommended holding – 55.8 per cent – is the lowest since 1998, with the exception of early 2009, and compares with a 15-year average of 60.7 per cent.

Subramanian views that as a bullish contrarian indicator.

Recommended stock holdings remained below 65 per cent from 1985 until 2000, during which time the market rose 15-fold before crashing. The 65 per cent threshold was again topped in 2007, just before indices halved.

Recommended allocations fell to a 12-year low of 51.6 per cent in March 2009. Indices have doubled since then. As the old adage puts it, you don’t need analysts in a bull market and you don’t want them in a bear market.

Wall St whiner warns of reform

JP MORGAN chief Jamie Dimon described the global mortgage bust as a “collective brain freeze” in his letter to shareholders last week. “We need to write a letter to the next generation that says, ‘Never forget: 80 per cent loan to value and verify appropriate income’.”

An atypical banker? Perhaps not. Reforms would cost the bank $3 billion, he noted, warning that “regulatory reform and requirements” must not create “excessive bureaucracy”; the US had “the best financial system on the planet” and regulators “must be very careful not to throw the baby out with the bathwater”.

Even CNBC host and Wall Street cheerleader Jim Cramer wasn’t impressed. “He’s a whiner,” said Cramer, who then launched into one of his rants.

Keynes bettered market by 8%

NO ONE can deny John Maynard Keynes’s investing ability. A UK study of Keynes’s investments between 1924 and 1946 finds that he outperformed the UK market by an average of 8 per cent a year.

But Keynes couldn’t time markets and didn’t foresee the 1929 crash. He changed his style thereafter, instead focusing on stock-picking, where he bought undervalued small and mid-sized companies. He bet big, with up to half his assets stuck into his five favourite holdings, and typically held stocks for over five years.

Keynes remains “of great relevance to investors today”, the study concludes. His willingness to “depart dramatically” from consensus opinion “exemplifies the opportunity” for long-term investors to be “unconventional in their portfolio choices”.

The study is at iti.ms/I5NvvH

Don’t discount the boredom factor

HIGH risk, high return? Not so, says Société Générale’s Dylan Grice.

“Higher quality stocks carry the sort of lower risk which is supposed to attract a low return,” he says, but “we’ve consistently found them to be higher return.” Grice calls it the boredom discount – quality stocks “do tend to be quite boring” and investors are “hard- wired to overvalue excitement and undervalue boredom”.