AAPL

Water Cooler Investing
#21

Well you are clearly an Apple Fanboy.

I’m noticing in my social networks people slowly switching. At the end of the day, the IPhone just isn’t as relatively impressive as it once was. There are extremely powerful and user friendly phones out there now that also can retail cheaper with a contract. Remember Blackberry was the phone for lazy people for a while as well.

The fact is Samsung retention rates are incredibly high without having to be an annoying closed ecosystem. And Samsung is favored by those who switch brands. Now in terms of value, I don’t know if APPL has this priced in. But they aren’t the only default choice anymore.

#22

And individuals want Apple. At least the kind of individuals who make repeat customers, regularly buy Apple products, spend money on apps. I would prefer to have those customers than those who sit and obsessively compare features.

#23

“APPL” has never been the default choice…sure there are other great phones out there, but typically, those who have money to spend, prefer Apple. One thing holding Apple back was their screen size, but that’s looking to increase this year.

#24

I posted this back in October 2012, so I’ve been a bit of a bear on AAPL for a little while. http://www.analystforum.com/forums/water-cooler/91315672

“I think AAPL is kind of a neutral. They have high recurring revenue, but the smart phone vertical will, in my opinion, be commoditized much like the PC was in the 90s. Don’t really have time to go into it a lot more, but I see some of the headwinds eroding growth over the next few years. Great company though, and if you think the market is getting ahead of itself than AAPL is about as quality as it gets.”

Obviously, the market was not ahead of itself and went on an absolute tear while AAPL cratered. Now, from a relative perspective AAPL looks better. Additionally, this company trades on product cycles and consumers are attuned to those cycles. The release of the smart watch (iWatch?) will make a spash. GPS watches will see major market erosion following its release (how annoying it is carrying your smartphone with MapMyRun?). APPL hasn’t launched a new product in four years, and consumers can’t wait to stand in endless lines and buy as many as they can.

iHome (or whatever they’re calling it) is another category, but the runway, while long, has a shallower grade. It will take people some time to adopt boring stuff that makes life easier but isn’t as flashy as a new piece of wearable hardware.

I also think that, although from an investment perspective irrelevant, the split helps psychologically. Psychology is important when investing, especially in a company with a valuation that nobody can seem to make sense of.

Disclosure: I cover intl/em, not AAPL whatsoever.

#25

it is very true that AAPL’s coolness is fading. to argue otherwise is to live in a bubble. but all smartphones are losing their coolness. as much as commercials depict groups of people gathering around a guy with a new phone, the reality is that smartphones in general are getting less and less exciting every day. this is what people mean when they’ve become commoditized. phones simply help us get through the day and soon enough, they will all effectively act in the same way. a proper valuation for AAPL is anyone’s guess. i’d have a hard time feeling confident owning any smartphone maker.

#26

This.

#27

But I do think that there are marked differences in the cell phone market in terms of quality and retention. Before it was just Iphone and Galaxy – but now the HTC One has entered and is equally impressive. I imagine the retention rate for the M8 will be much higher than the rest (excluding Samsung and Apple). The segments are getting better refined and what phone is preferred in USA will likely not be the one preferred in China. Or even in different segments of USA. Apples advantage in UI is slipping away as everyone else catches up.

#28

Don’t say that too loud to the Apple apologists.

#29

These are exactly the type of arguments I hope the market believes in, but sadly it doesn’t. If it was, I would be buying hand over fist, but until then, I’ll be happy to collect the massive gusher of free cash flow thanks to those iPhones that you say “aren’t cool anymore” as the bubble I’m living in is quite happy.

#30

you still don’t understand the argument. no phones are cool. period. AAPL isn’t BBRY but AAPL isn’t any better than Samsung and many others. earnings and cash flow multiples are very deceptive and often useless for companies in rapidly changing sectors. investors hate revenue and earnings volatility and uneven earnings trajectories. i’m happy to sit idly by as this tech cycle and phone cycle matures.

#31

Cool story bro.

#32

where do you live? cupertino?

#33

He must be one of those guys that camps outside an Apple store before the launching of a new phone.

#34

I prefer to prescribe to the idea - why argue with a fool when you can bet against him? So far I’m up more than 50% on my position in Apple while the peanut gallery keeps piping away with the usual dumb arguments. No complaints, keep it up, but I wish the market agreed with you more!

#35

and what are your arguments? simply that the stock is trading at a discount to market so its cheap?

#36

Looking for serious advice:

I’m a long-term investor in both Google and Apple. I need to sell one of them to loose up some cash for another investment; this one more short to medium term trade. Then I’ll likely go back and buy whichever one I sold.

Long-term I like both Google and Apple so I don’t need to be sold on them (nor will anyone likely sway me from holding them over the long-term); rather I’m asking you all - Looking over the next six months, who do you think is going to perform better, Google or Apple?

I’m leaning toward selling Google, even though I like the company better. I think they have some near-term issues the market needs to get comfortable with. Anyway, I’d appreciate anyone’s thoughts.

#37

Sweep the Leg, I would definitely sell AAPL as a short to medium term trade. As noted earlier in this thread, I think it’s overbought. I’m willing to stand by that opinion.

In looking at the two companies, AAPL is trading at two-year highs across any valuation multiple you can think of. Also, looking at a variety of technical indicators including moving averages and RSI’s, I thought the stock was overbought about two weeks ago. GOOG doesn’t strike as being overvalued – most likely fairly valued in fact – it screens at 20x P/E and 12x EV/EBITDA on NTM consensus numbers that have been coming down. If you take a longer term view of both businesses, I think both have moats but GOOG’s is wider and so the fact that it’s trading at pretty average multiples at this time, and technical indicators don’t really suggest GOOG is either oversold or overbought, tells me GOOG is probably fairly valued.

I am not going to argue about stuff like whether the Apple ecosystem is “better” or “cooler” than Google’s because that is just crap that doesn’t matter to how a buy-sider should be making investment decisions. So, in thinking out loud, here’s how I would evaluate AAPL’s prospects…

First, why is AAPL up 20% over the last three months? A big reason for AAPL’s run in recent months (beyond positive correlation with major indices) is that the investment community became very sanguine on March quarter iPhone sales and GM improvement. Bulls suggest buying ahead of the iPhone 6 and iWatch launch later this year, and it seems that there’s potentially excessive jubilation around the Beats acquisition to drive iTunes growth and subscription music business. The accelerated buyback does provide some margin of safety for bulls, or at least a perception that shares aren’t overvalued, but that seems mostly priced in.

Maybe all of the aforementioned bullish points materialize, but valuation multiples imply that a lot of the excitement is already priced into the name. Maybe there’s another 5-7% near-term upside but I could see 15-20% near-term downside. Two things I worry about are (1) iPhone expectations getting ahead of reality and (2) China risk. On point #1, iPhone sales (which are ~57% of total revs) grew +17% y/y in the most recent quarter, but that was against an extremely tepid December quarter so the stacked growth was actually just +9% y/y in F1H14. In contrast, the overall high end handset market is basically not growing at all, and some would say it’s declining. Is it possible that the iPhone is actually regaining share? Maybe…in which case, the bulls are correct and AAPL’s valuation is justified. However, I actually think the surprising acceleration in iPhone sales in the recent quarter is most likely an aberration, as AAPL appears to have capitalized on a really mediocre S5 launch by Samsung. On point #2, China is like 20% of AAPL’s revenues and I worry a ton about country risk. Maybe you’re bullish on China in which case AAPL is actually a good thematic play, but I definitely am not.

I could be wrong but I was a seller of AAPL at $94.60/share and whether you own GOOG or not, I would definitely consider taking profits on AAPL.

#38

Very well thought out post Numi. Unfortunately, my continued and complete domination of you in the 3D printing market leaves me no choice but to do the exact opposite of what you recommend.

jk. Good points. I’ll take it all under advisement.

#39

Personally, I love AAPL. In addition to it’s obvious value it has potential for so much more.

Vague, right?

If AAPL earns gov contracts for it’s soft or hardware or design in military/defense/grids then $$->$$$

Gen Y’s kids will grow up using AAPL how many of us are familiar w/ MSFT. That’s a big deal - especially as more kids mean more schools adapt to those children, rather their future-thinking, executive functioning parents, demand via cupcakes and twitter that the said school get with the times.

The quantity of small-caps in tech who inevitably resolve their company through AAPL’s products will become Mid then Large then Blue. That means more AAPL products integrated in business.

Europe needs to appreciate the mac. When EU business start hiring en masse - their people can afford Mac; europeans love American fashion. AAPL as a fashion symbol is something which they yearn to have eaglery (in my experience living abroad - Tubingen, Germany)

How I explain to my fam: AAPL = Future $$$ cuz kids, jets, and apple pie.

#40

In ‘The Intelligent Investor,’ Graham begs a rather satirical question that goes something like, do you plan on being alive in 25 years? If so, stop-loss at your comfort level then buy back the fear. If not, stop-loss at your comfort level then sell 6 month calls.