Is Apple a Cult Stock?

By David Berman

Gary Weiss, writing for The Street, makes an interesting argument: Apple Inc. (AAPL) is a cult stock, and he doesn’t mean this as a compliment.

“The difference, and the reason for the near-hysteria and the mammoth market reaction, is that Apple isn’t just any old stock, it is the quintessential cult stock,” he said. “One of the reasons that Apple is a cult stock is what we're seeing today: an unhealthy obsession with its founder and CEO.” (Hat tip: Crossing Wall Street)

He is referring of course to the ongoing concern about the health of Steve Jobs, who announced on Monday that he is taking a medical leave of absence from Apple. Clearly, Mr. Weiss’ suggests that a chief executive’s health should not have a big influence on a stock’s direction – and for most non-cult stocks, this is the case.

But it seems to me that Apple is a different case from, say, McDonald’s Corp. (MCD), whose chief executive died in 2004. For many companies – that is, the non-cult ones – a chief executive plays an important leadership role. But his or her vision might not be essential to the company’s success, or at least not as important as it is with a company like Apple which is on the cutting edge of so many products and services.

Is Apple a cult stock? Maybe. But I think this just means that its chief executive remains vital to the organization.

In the meantime, this cult status is by no means translating into an absurd valuation for the stock. Apple shares trade at a ho-hum 16-times estimated earnings, even as its latest quarterly results showed earnings up 78 per cent over last year.

Disclosure: None