United States of Apple
I guess I’ll make the compulsory mention of Greece and the endless euro crisis to start this week’s letter. But let’s take a different tack this week.
Comparing market capitalization to GDP is apples to oranges (please forgive me for that one) but as I pointed out before, back when Apple AAPL +1.84% was about half the price it is now — Apple is bigger than the entire Greek economy. With Greece faltering badly since I wrote that article and with Apple booming $300 billion in GDP and Apple at $490 billion market cap (and growing) the comparison in not without merit.
Apple hit another all-time high yesterday ($530 at the time of this writing). I mention this because I think you’d be crazy to sell the stock right here. Are you listening, I’m saying don’t sell. Got it? But let’s check in with the experts and get their take:
1. “Apple’s problem is it still believes the way to grow is serving caviar in a world that seems pretty content with cheese and crackers,” gripes former Chief Financial Officer Joseph Graziano.
2. “Several institutional investors are starting to sell even though they still think Apple’s fundamentals are strong. And if you’re sitting on a hefty gain in Apple stock, it’s probably not a bad idea to follow suit,” John Buckingham, manager of the Al Frank fund.
3. “There are lots of balls in the air, and the expectation is things might slow,” Erick Maronak, chief investment officer of Victory Capital Management’s Victory NewBridge portfolio.
4. “The progression is going well, but they’re only selling a portion of their product lineup,” Apple’s stock “indicates that the current price captures the opportunities that are visible today. New products and innovative strategies from Apple should keep coming. However, we can’t quantify them in our valuation model since we don’t know what they are,” Needham & Co. analyst Charles Wolf.
5. “We still like the story, but the recent run-up … has left us less comfortable recommending putting new money to work,” Bank of America analyst Keith Bachman wrote about Apple.
Analyst Andrew Neff also took a slice out of Apple, saying the shares reflect most of the near-term optimism about the company’s prospects.
6. “Morgan Stanley and RBC both downgraded the stock this morning … Both note that the crappy economy means lower multiples for growth stocks like Apple — which means things could get worse before they get better.”
RBC’s Mike Abramsky says his bank’s latest consumer survey shows Mac purchase intentions for laptops and desktops “suddenly moderating.” — Business Insider
7. Apple was cut to “neutral” at Goldman Sachs and removed from the Americas Buy List.
8. Risk associated with the notable deceleration in its primary manufacturing partner Hon Hai (Foxconn) that was emerging … Analyst notes they don’t know the source of the Hon Hai deceleration, but possible causes could include simply in-line iPhone sales due to more significant Android competition, weakness in computing products as tablet demand grows, and/or product transition risk around the iPad — JMP Securities
Alright loyal subscribers, I just pulled a fast one on you. None of those quotes were from this week, but are statements from years past. Here are the links with prices when all these prescient calls were made at.
1. http://www.businessweek.com/magazine/content/01_21/b3733059.htm $12
2. http://money.cnn.com/2004/12/02/technology/techinvestor/lamonica/index.htm $67.79
3. http://money.cnn.com/2006/03/16/technology/apple_shares/ $65.92
4. http://www.macobserver.com/tmo/article/Needham_Downgrades_Apple_to_Hold/$60.45
5. http://articles.nydailynews.com/2005-12-15/news/18316973_1_apple-shares-ipod-bear-stearns-analyst $72.01
6. http://articles.businessinsider.com/2008-09-29/tech/30101565_1_apple-shares-app-store-iphone $140
8. http://notablecalls.blogspot.com/2011/03/apple-nasdaqaapl-downgrading-on-odm.html $351
(And interestingly, the anti-buyback-to-juice-the-stock Warren Buffett told Steve Jobs to repurchase shares back when it was around $200. Makes you wonder about tech experts when a guy who uses his computer only to play bridge beats them all).
And I may have been long apple at my hedge fund and personally from $7 but I’ve never been one to be affected by Reality Distortion Fields. I was irate when Jobs & co. stole billions of dollars from shareholders with the backdating scandal .
But you can just about hear everyone praying that Apple has a misstep, or a newer, cooler kid takes the block. They talk about how unsustainable Apple’s profitability really is. AAPL really does have the ultimate Champagne problems of business, too high profitability, too loyal of a user base, too efficient of a supply chain, too much market share and too high of a growth rate .
This company isn’t infallible, because no company is infallible. To use that general principle and extend it to Apple, uncritically, is rookie stuff.
On the dividend issue, I love a company with $100 billion in cash (they even had more on hand, briefly, than the U.S. government ) but I do expect that an Apple dividend, perhaps up to a 2% yield, is coming sometime this year or next.
With Apple, as always, it seems that you want to pick your spots, and use weakness to build a position. If the stock is down because the New York Times, NBC, ABC & The Wall Street Journal have all just run stories about the company’s labor practices in China, you can buy a little. If the stock is down because the iPad 3 premiering in early march doesn’t have a glucose meter and holograms and can fold up and fit into your wallet, consider buying a little. And if the stock is down because everyone is pointing out that nothing good goes on forever, you can buy a little.
Speaking of March, I’ll be at the Apple investor’s conference in Los Angeles on March 15 and 16 (I’ll be talking about how Apple gets to $1,000, just before Jobs biographer Walter Issacson gives the keynote.
A respected investment writer on a respected investment site that shall go unnamed (hint: sounds like ParkitSwatch) recently wrote:
I would not be surprised to see AAPL near $100 (+ cash) in three years as the company experiences a post-Jobs contraction and searches for a new identity.
If Apple’s at $100 in three years it will because of a Maddoff level fraud, not a midlife crisis. He says $100 by 2015, I say $1,000.
That’s a bet I’d make all day long.
