The Performances of Apple and Aramco Speaks Volumes About This Market


Long-term investing is about staying the course no matter what but at times like this, when the market is dropping and the financial media is full of doom and gloom, it can be hard to maintain the kind of perspective that long-term investors need. A story caught my eye this morning that, when you consider it dispassionately, may help with that and that shed some light on why this drop, like all the others in the past, is destined to be temporary.

It was the news that Apple (AAPL) had been overtaken by Saudi Aramco, the Saudi state owned oil company that launched a much anticipated IPO in 2020, as the world’s biggest company. The reasons for that are obvious and to some extent understandable, but they also give a good insight into where the market is currently focused and why that has to change.

As I’m sure you know, oil has been on a tear and while it is off from its highs of a couple of months ago, the benchmark WTI is still well over $100 a barrel. Saudi Aramco controls around 193 billion barrels of oil reserves, so has inevitably gained massively in value as that has played out. Meanwhile, growth stocks, and tech stocks in particular, have been hit hard as inflation has taken hold around the world and central banks have begun to respond by rate hikes and other tightening measures that suggest slowing growth or even a recession.

As I said, perfectly understandable, then, that the two stocks have been moving in opposite directions. If, however, you think about where those two companies are likely to be twenty, ten, five, or even two years from now, it is obvious which is the better long-term investment. Apple is not really a tech company anymore. It is the world’s largest maker of consumer goods, and has shown on multiple occasions that demand for its products, while sensitive to some extent to global economic conditions, will always rebound.

Aramco, on the other hand, owns a massive amount of a commodity that the world is moving away from at a rapid pace. We still need oil and will do for some time to come, but sustained growth in demand for the industry’s core product is a thing of the past.

The dynamic here is clear, and there is one other thing that demonstrates the long-term prospects for the two companies. Think for a minute about why the Saudi government decided to sell shares in their oil company. It could be because they felt a surge of altruism and decided that it was only fair to allow others to benefit from the asset they owned, but it is probably more likely that, from a long-term perspective, they could see the end in sight, and selling seemed like a good idea. Contrast that with Apple, which has been buying billions of dollars of their own stock for a few years, and you get an idea of how the people best placed to know view each company’s long-term prospects.

The point here is that both the selling of Apple and the buying of Aramco led to the latter overtaking the former as the world’s largest company are about short-term factors, not their long-term viability or prospects. It may seem right now that the outlook for a company like Apple is terrible while oil companies are in a great place, but that cannot and will not last. As this continues to play out, investors should remember that buying low and selling high is a much better strategy than doing things the other way around.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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