Lion of the Blogosphere

Is AAPL a buy?

With the stock price at $439.98 the P/E ratio is less than 10. That’s an unheard of low P/E ratio for a company as dominant as Apple and that has a huge hoard of cash.

The price dropped last week because profits didn’t increase despite higher sales. But that’s just the normal cost of making sure that Apple maintains its dominance over Android. Once Android is crushed, Apple can raise prices.

What do you think?

Written by Lion of the Blogosphere

January 27, 2013 at 8:43 PM

Posted in Investments

31 Responses

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  1. Stick to HBD. Check % market share (units) for each. Think of Aapl’s pipeline or lackthereof. The app ecosystem is duplicated in Android already. Aapl quality is slipping. Etc etc etc.

    Anonimnikoff

    January 27, 2013 at 8:55 PM

  2. On average, the stock with the highest market cap with underperform the market as a whole. Last week’s drop puts Apple almost dead even with Exxon-Mobil, more than 50% ahead of the next group. I’d skip both. Whatever puts Apple ahead today, isn’t really monopolizable, and the whole industry is dedicated to making products 75% as good as theirs for 25% the price.

    WmarkW

    January 27, 2013 at 9:08 PM

    • XOM has a PE <10, and they sell a product that is vital to the functioning of the world economy, and their products will rise in price as the fed floods the economy with money. in contrast, apple's products are only going down in price, because of the nature of technological/manufacturing competition. i think the world will someday find it pretty funny that a manufacturer of commodity technology devices was ever considered more valuable than XOM, but it did happen.

      lion of the lionosphere

      January 27, 2013 at 10:11 PM

      • The majority of my money is already invested in oil companies, I’m looking to diversify.

        Lion of the Blogosphere

        January 27, 2013 at 10:13 PM

      • Lion says:
        “The majority of my money is already invested in oil companies, I’m looking to diversify.”

        If that’s the case, you need to do more than invest in Apple to diversify. Put your money in a low cost index. I agree with Lion of the Lionosphere. Fashion trends don’t last forever. What devices will there be in five years?

        de Broglie

        January 27, 2013 at 10:32 PM

  3. Somethings wrong with aapl. I haven’t really paid attention to it because it’s a glamour stock. My expectations would be a rally to the $480 level, thereabouts then a decline to $300 maybe $250. It’ll take a year minimum to get back to the $400 level at that point and I’m fairly certain they don’t pay a dividend.

    The market makes lot’s of mistakes on the daily and sometimes weekly level but 4 months (peaking September)? It’s not the midlevel IT goofs dumping the stock, I don’t think the funds are dumping the stock in a signifcant way, it looks more like a drying up of demand.

    Still though, last week is an ugly harbinger, strong decline on average volume indicates more declines to come.

    So what’s wrong with aapl? I have no idea but something is. A better bet is cray once it pulls back to the $17 or so level. Personally I like the idea of ddd more than the actual stock but I don’t know how else to play this 3d printing thing.

    Prediction-AAPL will meander around for the next 10 years, any investment in it will underperform unless you time it perfect. DUK will outperform by a factor of 4

    S_McCoy

    January 27, 2013 at 9:14 PM

  4. Still a risky buy, even at its current price.

    There is no guarantee that Apple will come out on top of the smartphone wars. If it loses the smartphone wars, it will be back to being a regular computer maker, and that means significantly smaller margins. Samsung is actually winning the current smartphone war because it offers high-end phones (like the popular Galaxy S3 and Galaxy Note 2) and low-end phones (that sell well in developing countries), and a bunch of mid-level phones (that sell well to budget consumers in developed countries that need pre-paid smartphones). Add to that the technology and breath of products that Samsung is coming out with, like the Galaxy S4, tablets, next-gen TVs, etc, and Apple is still not a great buy. Too much risk to go “all in” at the current price.

    Jay

    January 27, 2013 at 9:15 PM

    • Jay, I agree with your analysis. It is important to note that if Samsung wins the smartphone wars it will not have the same sort of advantages as Apple. People don’t have loyalty to Samsung more than they do to any Android phone manufacturer.

      de Broglie

      January 27, 2013 at 10:36 PM

  5. “But that’s just the normal cost of making sure that Apple maintains its dominance over Android.”

    Not true. Samsung is the top smarphone maker in the world. See link below:

    http://news.yahoo.com/samsung-electronics-sold-63-million-smartphones-fourth-quarter-022804140–finance.html

    Jay

    January 27, 2013 at 9:22 PM

  6. Android is not going to be crushed. It has the largest market-share, and while admittedly most of its manufacturers haven’t made much profit, Samsung certainly has. Of course Samsung’s margins are lower than Apple’s, Apple’s niche is that minority of the market willing to pay a large premium.

    teageegeepea

    January 27, 2013 at 9:47 PM

  7. Well, that seems contingent on the phrase “Once Android is crushed”. I agree that this was a stunning drop and probably a bit out-of-proportion, but I can’t foresee Apple attaining a monopoly over the smart phone market.

    The Reluctant Apostate

    January 27, 2013 at 10:06 PM

  8. “Once android is crushed” – is that a joke? Android has >50% market share and new jellybean devices have closed the gap to ipad/iphone. go buy a nexus 7 tablet for $199 and see it yourself, before you put money into apple. If after using the nexus 7, you still think that apple is going to win market share and raise margins, then by all means buy the stock. (the ipad mini was introduced as a response to the 7″ tablet market – apple following, not leading. think about what a shift that is.)

    As far as the “low PE” – come on. P/E is a function of the expected growth rate, not market share. apple’s quarterly growth has been slowing since 2011. plus, you need to factor in the fact that a large portion of their earnings come from overseas, are washed through tax shelters, and the cash is held offshore. so technically, their taxed-USD earnings would be lower, making the PE higher. the cash is not all usable in its current form. if they repatriated the cash to pay dividends, they’d have to chop off 1/3. congress would need to give them a tax holiday to avoid that. could happen but also hard to see when they just jacked rates on everybody.

    for a trade – it’s possible we get a snap back to 500 before resuming any further decline. (i think we had an overreaction on earnings.) but the only way i could see 650-700 again would be if an apple TV product was made that became the replacement for a cable box. if it could work magic for a time warner cable customer, i would definitely buy one. but without another category defining product, the company is going to get ground down by just about everyone.

    lion of the lionosphere

    January 27, 2013 at 10:07 PM

  9. Seems a few billion trades keep the analysts away.

    $600 Billion In Trades In Four Years: How Apple Puts Even The Most Aggressive Hedge Funds To Shame
    Submitted by Tyler Durden on 01/27/2013 – 20:36

    Everyone knows that for the better part of the past year Apple was the world’s biggest company by market cap. Most also know that AAPL aggressively uses all legal tax loopholes to pay as little State and Federal tax as possible, despite being one of the world’s most profitable companies. Many know, courtesy of our exclusive from September, that Apple also is the holding company for Braeburn Capital: a firm which with a few exceptions, also happens to be among the world’s largest hedge funds, whose function is to manage Apple’s massive cash hoard with virtually zero reporting requirements, and whose obligation is to make sure that AAPL’s cash gets laundered legally and efficiently in a way that complies with prerogative #1: avoid paying taxes. What few if any know, is that as part of its cash management obligations, Braeburn, and AAPL by extension, has conducted a mindboggling $600 billion worth of gross notional trades in just the past four years, consisting of buying and selling assorted unknown securities, orsome $250 billion in 2012 alone: a grand total which represents some $1 billion per working day on average, and which puts the net turnover of some 99% of all hedge funds to shame! Finally, what nobody knows, except for the recipients of course, is just how much in trade commissions AAPL has paid on these hundreds of billions in trades to the brokering banks, many (or maybe all) of which may have found this commission revenue facilitating AAPL having a “Buy” recommendation: a rating shared by 52, or 83% of the raters, despite the company’s wiping out of one year in capital gains in a few short months.

    map

    January 28, 2013 at 12:04 AM

  10. If I were you, then I would diversify into oil and natural gas infrastructure: pipelines, LNG transportation, crude oil shipping. There is a big pricing discrepancy in natural gas between the US and the rest of the world. Infrastructure is being built to export this.

    Master Limited Partnerships (MLP’s) are required to pay their profits in dividends to investors. Look into those.

    I’ve never understood this index investing business as anything more than a place to park idle cash. The EMH may be true, but it is trivially true. It’s promotion has more to do with convincing the pubic to avoid remittances than a method of actually making money.

    map

    January 28, 2013 at 12:25 AM

  11. Not to mention the fact that all of these index funds are weighted indexes, which value the firms by market cap (number of shares X price.) In effect, the S&P 500 is probably an S&P 50.

    map

    January 28, 2013 at 12:33 AM

  12. Short-term, $RIMM is going to get all the fawning attention this week with their Blackberry 10 rollout, and they will probably announce several gov’t agencies/Fortune 500 companies are staying with or switching back to Blackberry instead of going to iPhone. This will mostly be smoke & mirrors, but it will still reinforce the “meh AAPL” narrative of late.

    Medium-term, I’m pretty sure Wall St is due for a “Holy crap, we’re about to break thru record highs just 4 1/2 years after the crash!” moment and will pull back. Remember, the media has tried to shoosh up the news of “millionaires and billionaires” like you and me getting our payroll taxes hiked by 2 percentage points, but regardless of their reticence, this will hit the consumer spending numbers pretty soon.

    If I had any balls I’d put 25% of my portfolio in a bear-market fund.

    ATC

    January 28, 2013 at 12:52 AM

  13. No. And Apple longs who hedged could have saved a few bucks.

    DaveinHackensack

    January 28, 2013 at 1:37 AM

  14. AAPL is a sell, even at todays price. They used to be unique, but since then the other manufacturers have been catching up, today they’re about par. And consumers are catching on to the fact that buying into apple means putting up with the proprietary nonsense: apple brought part of this on themselves by changing the proprietary connector to -another- proprietary connector thus instantly obsoleting the millions of accessories people have bought.

    Furthermore, it used to be the case that Iphone has all the apps. That’s no longer true, the Android marketplace is competitive. (and not a monopoly)

    agrajag

    January 28, 2013 at 1:55 AM

    • Your whining about “proprietary” reminds me of Slashdot circa 2000. The connector was about a decade old, it had to be updated. That it breaks a bunch of chintzy accessories is neither here nor there.

      ntk

      January 28, 2013 at 7:18 AM

      • The problem isn’t that it’s proprietary as such. The problem is that Android is gaining market-share at the cost of Apple — they used to be dominant, but no longer are. One of Androids advantages is choice: choice of screen-size, choice of supplier, choice of app-store, choice of features/price. Apple has none of those: there’s only Iphone, take it or leave it. Forcing hiertho loyal customers to make changes to all their accessories in order to get iPhone 5, is a tiny detail, nevertheless it’s one more reason you might as well buy an Android — they all use USB for a connection.

        Notice: I’m not claiming USB is somehow better, I’m just claiming that it’s -standard- and supported by -everyone-, with the exception of Apple. I’m also not claiming this is the sole, or even the main reason people are abandonining apple. It’s just one reason, among many.

        Apple had dominance. They lost it. Give me one reason to believe they’ll somehow magically regain it ? (AND regain their huge thick margins, which they used to enjoy)

        agrajag

        January 28, 2013 at 11:49 AM

      • Customers don’t like choice as much as economists think they do.

        I think what happened is that after Apple demonstrated the demand for smartphones with touchscreens and apps, a bunch of Android imitators came in offering lower prices. Apple did nothing wrong except charge such high prices that they allowed an opening for competitors.

        Lion of the Blogosphere

        January 28, 2013 at 12:18 PM

  15. Not sure about Apple’s stock price, but I am more than certain that Apple has and will continue to stagnate for the next few years. Actually, the tech industry will stagnate in general. There’s not much more that can be done to improve what we already have except for very small and incremental changes.

    bobo

    January 28, 2013 at 5:35 AM

  16. Given Apple’s enormous negative net debt position, you probably should be using EV/EBIT instead of P/E.

    Given a market cap of $413b and net cash of $137b (speaking from memory), that’s an enterprise value of $276b. Divide that by their trailing 12-mo EBIT of whatever and you’ll probably get something no higher than ~7x or so.

    That means that Apple’s current earnings multiple of 10x understates their value.

    ntk

    January 28, 2013 at 7:16 AM

  17. If Apple was going to crush Android, it would have been when Apple had dominant market share over Android, which was a long time ago. If they couldn’t keep it, what makes you think they can get it back?

    Personally, after having gotten used to big android phones, I couldn’t go back to a teeny tiny iphone. My wife insists on a physical keyboard, which is not available for iPhones. If we did change our minds, it would have to be early in Apple’s upgrade cycle, when the iPhone is usually better than the Android competition. A few months letter, there’s usually something better for Android, since there’s always something new for Android.

    aisaac

    January 28, 2013 at 8:51 AM

    • That did indeed use to be the case. These days it’s not clear, and is more of a “a matter of taste” kind of thing. The SIII came out a quarter to a half-year (depending on country) before iPhone5, it’s got bigger screen, thinner case, better battery-life, 4G that works in more countries, NFC, and a superior accelerometer.

      Sure, you -can- argue that the iPhone5 is still superior, but it’s certainly not slam-dunk like it used to be around iPhone-releases half a decade ago.

      agrajag

      January 28, 2013 at 11:53 AM

  18. So, let’s hear some top oil stock picks or ETFs. Infra or developer. I am starting with XOM. What else?

    bungle2

    January 28, 2013 at 10:47 PM

  19. AAPL earnings will drop next quarter.

    JJ_Cardone

    January 28, 2013 at 10:50 PM

  20. You should be looking for high risk/reward stocks IMHO if you are playing the stock market, if you’re looking for safe investments don’t use the stock market. Companies on the stock market are prone to massive dislocation because of the acceleration of technology.

    If I were a betting man right now I would have gotten in on AMD when it went below $2. Intelligent people know they don’t want to leave the chip industry to giants like Intel and Nvidia who will just raise prices if AMD is pushed out. I expect someone to come to AMD’s rescue in the future because these companies are critical to have to balance each other out.

    AMD is currently @ 2.87. It’s a cult stock so if you can hang on for the ups and downs and be patient it will come back eventually since it’s not in anybodies interest to leave Intel as a monopoly on chips.

    supper8888

    January 30, 2013 at 8:26 AM


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