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Apple Nears $1 Trillion Valuation; Here's The Story Of The Company First To Break The $1 Billion Mark

AAPL, AMZN, GOOG, MSFT, X, META | May 13, 2017

IConic Apple Inc. (NASDAQ: AAPL) is approaching yet another milestone event. Apple's shares, which had a lackluster run in 2015, turned the corner in mid-2016 and began to trend broadly higher subsequently.

The company's fiscal second-quarter earnings release gave further momentum to the rally and the stock's market capitalization shot above $800 billion for the first time ever. It took the stock a little over two years to add $100 billion to its market capitalization and scale the $800 billion mark.

No mean feat, indeed.

To put things in perspective:

The valuation of Apple is now more than 45 of the 50 U.S. states, with only Illinois, Florida, New York, Texas and California boasting of economies of size bigger than Apple's valuation.
Based on IMF's nominal GDP estimate for 2016, if Apple were a country and its market cap, GDP, it would have ranked 18 among the 191 nations the agency surveyed.

Some Contributing Factors

Apart from the strong market position, product appeal, solid fundamentals, the company's shares have also been beneficiaries of massive stock repurchases. From 6.61 billion in early 2013, the number of outstanding shares has fallen to 5.21 billion currently, a 21 percent drop over a timeframe of a little over four years.

Source: Y Charts

Billionaire investor Warren Buffett, for his part, has added fuel to Apple's recent rally by increasing his stake in the company in a big way. The 13D filing done by Buffett's Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) following the end of the fourth quarter of 2016 showed that it had nearly quadrupled its position in Apple.

$1 Trillion Valuation In The Offing

Given its product momentum, it wouldn't be a surprise if the stock quickly gallops toward the $1 trillion market cap mark in the near to medium term.

Apple's much-hyped iPhone 8, its tenth-anniversary product, which is expected to be launched later this year, and its plunge into Augmented Reality, are considered to be catalysts that can expedite the stock's march towards the $1 trillion mark.

Meanwhile, a Fortune article, quoting Barclays, said Apple might have serious competition in its race towards the $1 trillion mark, with Amazon.com, Inc. (NASDAQ: AMZN) being considered as a contender.

Amazon is currently valued at only $455.16 million.

Among the others in the fray are Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL), with a market cap of $650.77 billion, Microsoft Corporation (NASDAQ: MSFT) ($536.62 million) and Facebook Inc (NASDAQ: FB) ($433.95 million).

The Original $1 Trillion Company

Even as there is a scramble toward achieving $1 trillion market cap, Benzinga looked at United States Steel Corporation (NYSE: X), which was the first company ever to be capitalized at over $1 trillion. The history of the steel maker is a checkered one, and over the years, it has lost its shine and appeal and is currently looking a pale shadow of its old self.

U.S. Steel now commands a paltry valuation of $24.75 billion.

Source: Y Charts

A Brief History

U.S. Steel was founded in 1901, when John Piermont Morgan and Elbert Gary combined Andrew Carnegie's Carnegie Steel Company, Gary's Federal Steel Company and William Henry Judge Moore's National Steel Company.

Morgan visualized establishing a steel behemoth and convinced Carnegie, whose steel company was then the biggest and most efficient producer of steel, to sell his company for $492 million in stocks and bonds of the new company.

Though the company was valued at over $1 trillion, its tangible assets were valued at only $682 million, with goodwill accounting for the remaining amount.

In 1907, U.S. Steel bought Tennessee Coal, Iron and Railroad company, its biggest rival, with the purchase eliciting anti-trust scrutiny. At that time, it produced 67 percent of all the steel produced in the U.S.

The bulking up strategy did not work well for the company over the years, as it saw its market share dwindle and profitability erode. In 1982, in a diversification bid, the company picked up Marathon Oil Corporation (NYSE: MRO) and renamed itself as USX.

A six-month lock-up of most of the plants following a strike by United Steelworkers of America in 1986 hurt the company further. During this time, corporate raider and activists investor Carl Icahn had launched a hostile bid for the company, which was later withdrawn.

To unlock value and to focus on its core business, U.S. Steel spun off Marathon Oil in 2001 and forayed into international markets by making some overseas acquisitions. With fundamentals deteriorating, the company announced layoffs in 2014.

The company, which was one of the original members of the S&P 500 when it was formed in 1957, was removed from the index in July 2014, as its market cap contracted.

Risky Proposition

The company is now considered a risky proposition, given the fundamentals woes of the industry and company-specific issues. The industry is facing competition from cheap imports from China, which is glutting the market and bringing down prices.

Additionally, the demand side of the equation is also suffering amid uncertain global macroeconomic conditions.

Recently Cowen downgraded the shares of the company to Market Perform, citing a lack of earnings visibility following its first quarter results. The company is facing issues at its flat-rolled segment, with the management responding with a dramatic revitalization.

With all the negativity, it looks like U.S. Steel's valuation could only head southward, even as some of newbie tech stalwarts are battling it out for achieving market cap supremacy.

Operational Issues Reemerge At U.S. Steel