The Week: Apple versus the UK

Investors can buy the whole of the UK market for the same price as Apple. Does that look like a fair trade?

  • Apple has persistently attracted a premium valuation, but it is particularly high today
  • The MSCI UK trades at a p/e of just 11.1x, with a dividend yield of 3.9%
  • Apple is the ‘safe’ option, while the UK is overlooked

In a sign of the enduring popularity of big tech, and the weakness of the UK market, Apple now persistently trades at a premium to the entirety of the UK market. The tech giant has a market cap of $2.9trn , while the UK market hovers around $2.6bn . Where should investors focus their attention?

Apple has persistently attracted a premium valuation, but today, it is particularly high. It trades on a p/e of 31x. As recently as the end of last year, it traded at just 22x earnings. Pre-2020, it was consistently below 20x. Its dividend yield is an anaemic 0.5%. 

This is in spite of some uninspiring results. Revenues fell by 1% in the third quarter, the fourth quarter of contraction. It also said that the next quarter would be in line with the current quarter, dispelling any hopes of a bounce. It is trading into an increasingly stretched consumer market, particularly in the US, and faces challenges from its reliance on Chinese manufacturing. While it showed some strength in its higher margin services business, it was still a disappointing outcome. 

The UK market, in contrast has been notably unloved. The MSCI UK trades at a p/e of just 11.1x, with a dividend yield of 3.9% . Equally, its weakness may have been overplayed. The FTSE All Share has actually performed in line with the Nasdaq since 2020, a combination of a strong showing from the mining, banking and energy companies in 2022, plus weakness from the tech giants over the same period. However, unlike the Nasdaq, its strength has come from an improvement in earnings, rather than any change in valuations. 

On any normal appraisal, the UK market looks like the more compelling option. The problem is that Apple has become the ‘safe’ option. It is the largest stock in most global indices, it has the same mark of quality as its (also expensive) products. The UK, on the other hand, is just 4% of the MSCI World index and no-one needs to pay attention to it. 

However, it does seem an extraordinary anomaly that investors can buy a basket of global companies – from HSBC, to Unilever, to GSK – for the price of a company selling whizzy bits of consumer technology. At some point, surely, investors will take note.