Is Apple Worth More Than Gold? (AAPL, GLD, SPY, QQQQ)

Apple Inc. (NASDAQ: AAPL) and gold have both been major gainers this year.  That makes it hard to ignore the notion that the gold trade may have become almost the same as the Apple trade.  After looking at the pros and cons of this comparison, it looks like there are far more similarities than differences.  To keep things simple, we are using the SPDR Gold Shares (NYSE: GLD) as the comparison.

The obvious difference between the two is that gold is a commodity and Apple is a public company.  Traditionally, each would appeal to a different class of investors. In this special case, however, the outlook for the economy and investments are such that each has been and may continue to be among the best investments in any market available to retail investors. 

Analysts are bullish and then some. The degree of the bullishness is nearly the same between Apple and gold.  Thomson Reuters has a consensus price target of roughly $366.00 on Apple.  That implies 14% upside from the $321.00 current share price.  Goldman Sachs recently showed a 2011 gold price peak of $1,690.00 per ounce and a peak price of $1,750.00 per ounce in 2012.  These gold targets would imply $167 or so for the GLD in 2011.  These numbers imply about 20% upside in the GLD.   Almost any portfolio recommendation from Jim Cramer or other financial professionals, is likely to include both gold and Apple.

Outperforming is the norm. 2010 has been a stellar year for both Apple and for gold, with each outperforming the S&P 500 measured by the SPDR S&P 500 (NYSE: SPY) and the NASDAQ 100 measured by the PowerShares QQQ (NASDAQ: QQQQ).  Using $321.00 for Apple and using $139.00 for the SPDR Gold Trust generates 2010 year-to-date performance of 52% for Apple and 29.5% for the GLD.  The year-to-date performance for the SPDR has risen 11.9% and the QQQQ has been 19.1%.  Apple has outperformed gold, but each has outperformed their relative markets substantially.

Zero income is paid out by both. Apple does not pay a dividend, and Steve Jobs has no plans to start paying one.  To get a dividend in gold, you have to either look at special investment fund invest in the gold miners and take the execution risk which comes with any corporate management.  Neither gold nor any other precious metal commodities send investors checks in the mail for income.  Apple investors own a share in the growth model of Apple’s massive success.

Both gold and Apple are under-owned by investors. After it issued its annual report we wrote that Apple was grossly under-owned by investors and it is still frequent that market pundits say Apple is under-owned by institutions even though it is now #2 by market cap in our own Real-Time 500.  Gold also s expensive,  costing more than $1,390.00 an ounce.  The supply argument is somewhat the same.  The value of the GLD alone has now reached $59,256,028,637.42 per the SPDR Gold Shares website (changes daily of course), and the inflows and capital appreciation in other gold ETF and gold vehicles has grown as well.

Both are at new highs or challenging highs routinely. Apple hit a new all-time high of $323.99 on Tuesday and the GLD hit a new high of $139.54 on the day.  As noted, analysts are bullish on both.  The number of bullish calls on each increases almost daily.  One analyst has a $500 target on Apple.  It is possible to find $2,000 calls on gold and a few are even higher

Both investments are nominally expensive, options rule. Gold is not affordable to many investors.  Apple has a high enough share price that it has become out of the reach for many retail investors.  That probably accounts for why both are under-owned.  That has led to investors using options to “speculate on the speculation” by purchasing call options to get exposure to the upside moves on each.  Investors (ergo speculators) have even resorted to buying and selling the weekly options rather than the traditional options which expire monthly.

Currencies matter big time. There is a currency aspect to this analogy as well, one that goes far beyond nations racing to devalue their currencies.  As nations rush to protect their currency, the price of gold and other commodities are rising.  If you think currencies do not matter to Apple, guess again.  In the latest earnings report Apple said that international sales grew to 57% of the quarter’s revenues versus 52% the prior quarter.

Other differences exist. There are some obvious differences here and we do not want to get carried away with thinking that Apple and gold are the same.  Foreign central banks will never hoard shares of Apple.  Apple’s appeal is based on the power of its products and brand and extraordinary earnings power that has made it such a phenomenal  growth investment, while gold’s increase in value is based on the depreciation of currency and the panic trade.  Investors also may have different taxation on the two investments because gold is taxed as a collectible.

There are a few other point worth of examination in any analysis of the two investments.  There is a finite amount of gold in the world, and there is only one Apple.  Both have become real industries with a core following and fan base that has turned each into a sort of cult.  Both have many dedicated websites for investors and fans.  Both are premium or luxury items, at least based on price.

Whether Apple is better than gold or whether gold is better than Apple depends upon what your opinion is about stocks, the economy, the effects of quantitative easing and more. Gold is a hedge against currencies and inflation and it is a hedge against politicians and central bank actions. Apple represents a paradigm shift in consumer electronics and its ability to dominate the post-PC era.

There is a growing industry in forecasting the fortunes of both investments.  Apple’s revenue is expected to grow revenues 33.7% to $87.24 billion for its fiscal year-end of September 2011 and that is expected to grow another 15.4% to $100.67 billion for its fiscal 2012.  If the effects of quantitative easing do not cause inflation and the economic growth can continue, then it is very likely that Apple will outshine gold.  If the panic trade continues, gold’s rise can continue indefinitely.

JON C. OGG