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Whether through its Apple Pay mobile wallet or a new, person-to-person payments network reportedly in the works, Apple [stckqut]AAPL[/stckqut] wants to be at the center of consumers’ financial lives in the same way it has changed the way people communicate, listen to music and, if other ventures are successful, watch TV and even drive. Given Apple’s track record of disruption, the company’s plans could put the traditional financial services industry on the defensive.

The gadget maker is said to be in talks with several major banks to launch a personal payments service that would allow, say, friends to split a check or emigrants to send money back home via their iPhones. It would compete with existing services like Square, Android Pay or Venmo, which is operated by PayPal [stckqut]PYPL[/stckqut]. PayPal has seen its share price tumble since reports about Apple’s initiative emerged.

The Wall Street Journal said that Apple may launch the venture in partnership with JPMorgan Chase [stckqut]JPM[/stckqut], Capital One Financial Corp. [stckqut]COF[/stckqut], Wells Fargo [stckqut]WFC[/stckqut] and U.S. Bancorp [stckqut]USB[/stckqut].

The service could be a boon for those financial institutions in the short term. Although they would have to cede a portion of so-called interchange fees to Apple, likely about 15 percent, they could make up the difference in volume if an Apple-branded service encourages a spike in electronic payments. But longer term, market watchers say, the banks risk becoming an anonymous transaction engine rather than the all-encompassing service providers that currently play a central role in consumers’ financial lives.

Source: Apple Inc. Wants To Be Your Bank, And The Big Banks Should Be Worried

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I recently came across this list on Forbes on the largest 25 tax payers. Forbes does a bit of analysis on each of them. It is probably worth your time to jump over, but I thought I would give the highlights here:

 

Rank of tax expense

Company

Symbol

Effective Tax Rate
1 ExxonMobil XOM 39%
2 Chevron Corporation CVX 43%
3 Apple Inc. AAPL 25%
4 Wells Fargo & Co. WFC 31.2%
5 JP Morgan Chase & Co. JPM 26%
6 Wal-Mart Stores WMT 31%
7 ConocoPhillips COP 51.5%
8 Berkshire Hathaway Inc. BRK 28%
9 IBM IBM 24%
10 Microsoft Corporation MSFT 22.8%
11 Philip Morris International Inc. PM 29.5%
12 Goldman Sachs GS 33%
14 Comcast Corporation CMCS 32%
14 The Procter & Gamble Co. PG 23.5%
15 Johnson & Johnson JNJ 23.7%
16 Intel Corporation INTC 23.6%
17 Occidental Petroleum Corp. OXY 42%
18 UnitedHealth Group UHG 35.9%
19 The Walt Disney Company DIS 32.7%
20 AT&T T 27.8%
21 Oracle ORCL 21.4%
22 The Coca-Cola Company KO 23.1%
23 The Home Depot Inc. HD 37.2%
24 McDonald’s MCD 32.4%
25 Google GOOG 19.4%

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CNET recently put out an article discussing the most profitable US corporations. The article shows that even with Apple’s disappointing quarter that caused a major drop in stock price, Apple is still had more income than anyone else. The issue is that the analysts thought that the results were going to be even better, so the analysts were disappointed. When you disappoint analysts, they punish you by saying bad things. I am borrowing the great CNET chart below.

 

Apples disappointing quarter in context chart

 

To this analysis, I would like show how cheap these stocks really are. While I try to not compare the P/E ratio of non-competitors, I think it is valid for this one exercise.

If we look at the P/E and EPS of these companies, it is quite telling how cheap Apple really is among this peer group.

 

Company

Symbol

P/E

EPS

Apple Inc.

AAPL

9.78

44.10

Exxon Mobil Corporation

XOM

9.17

9.69

Microsoft Corporation

MSFT

15.39

1.82

Pfizer Inc.

PFE

22.36

1.26

International Business Machines Corp.

IBM

14.57

14.41

JPMorgan Chase & Co.

JPM

9.64

5.20

Wells Fargo & Co

WFC

10.85

3.36

The Procter & Gamble Company

PG

19.76

3.90

General Electric Company

GE

17.08

1.39

 

It might not be obvious from looking at the above table of values. Looking at P/E as a chart shows that Apple is one of the cheapest stocks by comparing its price to the earnings of the company.

Apple's PE compared to the most profitable companies

 

It really becomes obvious then by looking at the earnings per share in chart format!

Apple's EPS compared to the most profitable companies

 

So if you think that Apple’s days are done, you may want to think again! In fact, the biggest complaint that you can say about Apple is it seems that they are not getting enough shareholder value! 

If you think that IBM is fairly priced for its earnings then it would be realistic that Apple could increase its share price by 50% if you focus on P/E! By looking at Microsoft, you could say that the price could go up 60%! This means that it is likely that Apple has more upside potential than downside risk.

My disclaimer on this site consistently says that I ‘might’ be long any stock I talk about. In this case, I am long on Apple as I write this article. However, as I consistently point out in my book, The Confident Investor, I didn’t pay for those shares! My current Apple holdings are all free.  If you want to know how to get free stock in great companies, I suggest that you read my book. You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

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Company name Wells Fargo & Company
Stock ticker WFC
Live stock price [stckqut]WFC[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Fair
Sales growth Poor
EPS growth Good
P/E growth Poor
EBIT growth Good
ANALYSIS
Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $52.07
Target stock price (averages with growth) $63.29
Target stock price (averages with no growth) $48.65
Target stock price (manual assumptions) $33.84

The following company description is from Google Finance: http://www.google.com/finance?q=wfc

Wells Fargo & Company is a bank holding company. The Company is a diversified financial services company. It has three operating segments: Community Banking Wholesale Banking and Wealth, Brokerage and Retirement. The Company provides retail, commercial and corporate banking services through banking stores and offices, the Internet and other distribution channels to individuals, businesses and institutions in 50 states, the District of Columbia and in other countries. The Company provides other financial services through subsidiaries engaged in various businesses, principally wholesale banking, mortgage banking, insurance agency and brokerage services, mortgage-backed securities servicing and venture capital investment. In September 2011, the Company acquired ISU Stetson-Beemer Insurance. On February 1, 2012, the Company acquired Burdale Financial Holdings Limited and the portfolio of Burdale Capital Finance Inc. from Bank of Ireland.

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.