The Financial Press and the “Rational Investor”

While waiting for the Oracle numbers after the close, we just happened to pick up the Financial Post dated March 20, 2012. (One of Canada financial newspapers, to our US readers.)  The reporter, Christine Dorry, strikes the title, “Why Apple is ‘Cheap’ at US$601 a share”.  Stating that Apple (AAPL) is trading at 16.9x earnings, cheaper than Philip Morris (PM) at 17.6x, Coca-Cola (KO) at 18.3x and McDonald’s (MCD) at 18.5x. Really!

Isn't the Financial Press suppose to help me?

What is the “Rational Investor” to think?  Simply dividing the price of the stock by last year’s earnings and you get what actually?   Well let’s use our Facebook database and have some fun!

Close 03/20/2012 $605.96 $86.54 $70.59 $97.65
Model Price $506.34 $24.08 $62.94 $82.09
Differential -16.44% -72.20% -10.83% -15.93%

(All data in the above table is as of March 20,2012, model price computer run)

Hum…. They all expansive, including Apple!

Christine goes on to quote, Mr. Ben Reitzes, an analyst at Barclays Equity Research in New York City, in a note to clients, “We believe Apple deserves a higher multiple vs. the group [which we will put in a table below] given our view that it is the best growth story in IT hardware over the long term”.

Close 03/20/2012 $31.99 $20.57 $27.75 $30.10 $204.25
Model Price $41.83 $28.47 $39.71 $39.17 $155.94
Differential 30.77% 38.39% 43.10% 30.15% -23.65%

(All data in the above table is as of March 20, 2012, model price computer run)

What does the “rational investor” do?  When the “rational investor” knows what a stock is worth, versus what the stock costs investing should be a little easier.  Also, doing just the opposite of what the financial press (and some analysts) advises, priceless!

Grab me a newspaper, I want to look up some other stocks on the Facebook Model Price app.

2 responses to “The Financial Press and the “Rational Investor”

  1. Charles Couch March 21, 2012 at 10:21 am

    Microsoft worked for me. I picked it up some time ago when it appeared in your US top ten.
    While I was trolling for opportunities I came across Dundde Corp (DC.A) I plugged it into the Facebook Model Price and viola I came up an Model Price of $136.54 a positive differential of 465.4% to March 20th closing price of $24.15. It came out of the blue around mid 2009 however the blue EBV has been rising and DC.A has just recently passed thru the blue again. Very interested in your observations in this case.
    Regards CC

    • ModelPrice Guy March 21, 2012 at 11:28 am

      Thanks for sharing Charles! We will double check the data on the DCA chart. First, it’s a September balance sheet. See if they have a December b/s for us to update. Also we only have one earnings estimate recorded. Which is skewing our model price calculation. We will double check this as well. We will keep you posted.

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