Ponder this: Could Apple (AAPL) be valued as a consumer-products company someday? Could it be valued as a device business with a never-ending stream of merchandise running through it?
Yesterday we learned that Trian, the investment firm run by Nelson Peltz, took a hefty stake in Procter & Gamble (PG) , the world's foremost consumer packaged-goods company, with its star being Gillette. Why do we like Gillette so much? Because when you study businesses, the ultimate model, the one so many want to emulate, is the razor-blade business where you pay once for a device and then you spend a fortune over a lifetime buying blades, the only break being when a new device comes out that forces you to buy even more expensive blades.
P&G with its steady stream of consumer products with huge market share deserves to sell at a premium price-to-earnings multiple. Its business is pretty impervious to economic slings and arrows. It has a fabulous dividend and buyback record. It's got competitors nipping but it's a dominant player.
Isn't that what Apple is, though? It produces a device with a built-in steady stream of revenue that grows and grows and grows.
Yet it sells at a paltry 15x earnings, better than the 13x earnings it sat at when CEO Tim Cook came to Mad Money two quarters ago when so many analysts had written it off.
It's ironic that Peltz goes after PG given its high multiple versus, say, an Apple, but then again Peltz knows more than anyone I have ever met about how to get engaged and produce real cost savings, as many of these big, old-line companies haven't given nearly the thought to expense control and unallocated costs in particular.
Still, in keeping with this notion of the consumer-products company, something I first read about in a terrific Eric Jhonsa column in TheStreet, you have to wonder why the discount. I think the answer is the analyst coverage. If you were to move Apple over to those who cover Clorox (CLX) and Procter & Gamble and Kimberly Clark (KMB) , or perhaps more likely, those who opine on Newell (NWL) or Masco (MAS) or Stanley Black & Decker (SWK) , other household-products companies with nowhere near the service revenue stream that Apple has, yet all of which sell at a much higher price-to-earnings multiple, you would have analysts salivating to throw a buy on it.
Instead, Apple gets covered by people who follow social, mobile and cloud companies or communication companies, where it is lumped into much faster-growing but, I would argue, less consistent companies as the service revenue stream takes on a bigger and bigger portion of the company's earnings profile.
This isn't just an Apple problem. Facebook (FB) and Alphabet (GOOGL) have seen their stocks trapped by the four walls of advertising. They aren't thought of as much more than that. Yet I think Facebook could easily become the world's largest entertainment company, worthy of a far higher multiple than it gets -- and that, frankly, is using the most prosaic of visions for that beast of a company with incredible gross margins. Alphabet? It's a data center and cloud company that's great at ad-sponsored search but even better at self-driving cars, which we may all be in a few years from now. I seriously wonder if we don't have to start factoring the numbers from autonomous vehicles into the out-year projections. Why not? If you are investing for the long term, it would be silly not to. (Apple, Newell, Facebook and Alphabet are part of TheStreet's Action Alerts PLUS portfolio.)
Sometimes it's just about storytelling. Those scribes who tell the story of Apple are looking at it as a dead end, an innovative cul de sac. But if we looked at it as Gillette, it might very well be the best stock a man can get.