Apple fact of the day

From Matt:

Courtesy of Ajay Makan and Dan McCrum at the FT, Barclays Capital estimates that based on reporting thus far earnings growth for S&P 500 companies was 7 percent in Q4. But if you strip out Apple, that plummets to 2.9 percent.

One company, in other words, is responsible for most of the earnings growth among the large cap firms in the index.

(Pulls out Albert Hirschman for re-read…)

Comments

Re-reading Hirschman is a good strategy in most circumstances, I find.

This is one of the reasons you buy index funds.

This may also be relevant :

http://pages.stern.nyu.edu/~xgabaix/papers/granular.pdf

thanks for the link, agreed that was relevant

let them eat Ipads

The more I think about this, the more it sounds fishy. According to what I could find, 296 companies of the SP500 have reported 4Q earnings. Weighting them I get (295 times 2.9% + Apple) / 296 = 7%. Solving for Apple I get an increase of 1213.6% for Apple, which sounds way too high. They must have done this calculation based on the total increase, not the individual percentages. I don't have time to look this up right now.

Concur. That jumped out at first glance. "Apple brought up the average for 500 companies by THAT much? Really?"

The S&P is cap-weighted so it doesn't quite work out like that.

Crap, I see this comes up below. Sorry.

Yes, the blog-mind marches on (sometimes down dead ends, like in Animal House).

Rich Berger:
your math is wrong.
It would only work that way, if 2010 earnings of all SP500 companies would have been identical, which they weren't.

I don't have time to look up the numbers. So here is just a theoretical example:

295 companies each had profit in 2010 of 100 Mio and in 2011 of 102.9 Mio.

Apple had a profit in 2010 of 10 Billion and in 2011 of 11,9 Bio.
That's an increase of just 19%.

Total profit for all 296 in 2010: 39,5 Billion.
Total profit in 2011: 42,2 Billion.
That's an increase of 2,9%.

I guess you didn't read to the bottom of my comment. I did a little further research and it appears that the percentages are share-weighted (market cap). If you look at the breakdown, you see that the 2.9% is net of some pretty bad results for financials, for example. If you look at a single number, you might think that the companies are some monolith, but segments are doing well (Apple), and others very poorly (financials).

This is one of those terrible statistics. I could just as easily be the case that Apple accounted for *more than 100%* of the SP500 earnings increase. If the other 499 firms had (in sum) earnings of -$1 (because some were positive and others negative) but Apple had earnings of $3, then the total SP500 earnings growth would be $2 with AAPL accounting for 200% of the growth!

Correction: 150% (not 200%), but the point remains.

Apple is no surprise; but apparently AIG was the other company doing very well.

Yes, but did you read why AIG impacted growth so much? Comparing normal against one-time write downs just makes for funny math.

Ok, I hadn't realized that. There's more in that report that puzzles me: e.g. 100% of Telecom sector companies had earnings below estimates yet 100% of the same sector had revenues above estimates.

What sort of situation causes a systematic under-prediction of earnings and over-prediction of revenues across an entire sector?

The difference is Apple has no debt and roughly 100B in cash. AIG was leveraged up to the gills and had derivatives contracts that were set to blow up.

Shrug. That's been true several times over longish periods in the last 20 years iirc.

Looking at the breakdown of earnings increases and decreases, and the wide variations, I wonder if the idea of "aggregate demand" is completely meaningless. Some industries are doing poorly and need to shrink, and others are pushed to expand. There is no undifferentiated demand.

Another reason that AD is such an idiotic concept.

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