With speculation swirling around where Apple
(NASDAQ:AAPL) may go next, and what the long-term trend might hold, we turn to our community of Minyanville writers and expert investors for some direction and sound analysis. We invite you to join the conversation by leaving a comment below.
The numbers are tempting, but Apple needs to find the next big idea.
By Chris Dixon
Valuation is compelling. With AAPL trading below 8x trailing 12-month EBITDA, and below 12 times earnings, much of the concern about declining growth and difficult headwinds appears to baked into the stock price. That said, the company is now entering a more mature phase where it will be unlikely to replicate the extraordinary success of the iPhone, iPad or iPod. The next “big idea” is clearly going to be the development and introduction of an Apple TV product. I, for one, don’t believe that a new display will make a big difference given the success of Samsung
(PINK:SSNLF) and the highly competitive market for flatscreens. What will make a difference is the introduction of a device that functions as a next-generation combined remote control and set-top box. It is already possible to use the Comcast
(NASDAQ:CMCSA) Xfinity application on a tablet, and it can do everything from lighting control to heating control using a variety of applications across the Apple platform. The next generation of phones and tablets will mark further automation within the home, and Apple’s unique ability to design and distribute consumer-friendly hardware and software should continue to place it on the cutting edge of the ongoing integration of entertainment, telecommunications, and shifting consumer behavior, providing core underlying multiple support for Apple stock at current levels.
Disclosure: Dixon owns AAPL.
Chris Dixon has over 30 years experience in operating and investing roles in the media and entertainment industry. He served as strategic advisor and managing director, media investments, for Gabelli Group Capital Partners where he focused on investing in privately held emerging media companies. He is currently Minyanville's Non-Executive Vice Chair.
Once a growth stock, Apple is joining the value camp.
By Lloyd Khaner
Let’s start with the basics. Apple is one of the strongest, most respected, most trusted brands in the world. It has revolutionized mobile computing and communication in the last 10 years. It has enviable profit margins for any company in any industry. And lastly, the company has no debt and a massive pile of cash. So what’s not to like? The stock market is now sending a few messages, some fundamental, some technical, and some portfolio-related.
Fundamentally the company is in good shape. Its products are the gold standard for the areas it competes in, and while competition is heating up, it doesn’t look like Apple is about to pull a Research In Motion
(NASDAQ:RIMM) or a Nokia
(NYSE:NOK) product-miss face-plant. Revenues are growing well and earnings are estimated to increase 10%-plus in 2013. Selling at roughly 10 times 2013 estimates it is hard to say th
e stock is expensive. The market message here is as follows: We love the company’s fundamentals, but question if it can come up with new, innovative products that will revolutionize other areas of technology, thereby driving earnings growth in excess of 10%. We don’t know what the company will do with its cash, so we will not give it credit nor punish it for its balance sheet.
Technically the company has been a star for a few years. Buying the dips has been a successful strategy as it has bounced off support levels efficiently -- at least up until the last few months. Very simply put, with technicals, the trend is your friend, and most recently, Apple’s stock price has “broken trend.” That leads many market pros to back away and at best, look to take small, short-term trades out of it rather than a big-bet trade. The added pressure of some analyst price targets being lowered also adds to the technical uncertainty. The market message here is this: We are buying, holding, and trading Apple with “weaker hands” than we have for the last few years. The technical backdrop is hurting confidence, not helping it, for the time being.
As for the portfolio-related impact on Apple’s stock price, we point to the “over-owned” nature of the stock for the last couple of years. Apple was a growth stock that worked, and investment managers stayed with it. Positions were allowed to “run” or were bought and held without trimming as they become outsized in relation to the rest of a portfolio; they were added to buy growth, GARP, value, technology and index oriented managers; and while individual investors mostly left the market in 2008, they did find a place for owning some Apple stock. Basically, if you wanted a reason to own Apple stock, you could find one, and many portfolios did. So the market message here is this: I owned the stock and did well, but it has become too big a percentage of my portfolio; I don’t want to give back the profits I made, I want to lock in gains because tax rates go up and most importantly, the stock price is dropping and my friend told me he sold it already and I don’t want to look and feel dumb.
Where does this leave us? My best work tells me that Apple is going from being a growth stock to a value stock. Now, it was never a ridiculously priced, high-multiple growth stock and I do not expect it to wind up in the value basement at five times earnings. I expect Apple to land in the GARP category as a reasonably priced growth stock. There will always be a focus on new products, and more and more their impressive and growing recurring revenue streams will gain appreciation. As far as the long-term future of the company, I point to the growing embedded positioning in the schools of America as a strong positive. Today’s kids are tomorrow's consumers, and in some respects, they're today’s consumers as well. They know, respect, and perhaps love Apple products and will likely stand by them for many years to come. They might even start buying the stock when they come of age.
Lloyd Khaner is the General Partner of Khaner Capital, LP, a long-short hedge fund based in New York. He is also the author of Lloyd’s Wall of Worry, published every Tuesday on Minyanville. Check out Lloyd's recent columns, here. Vanilla investors should consider $425-357 a long-term buy range.
By Peter Prudden
I wrote the majority of this piece in a note to clients back in late September. I believe it's still relevant.
Materialism and monetization are synonymous with Apple's brand and its vast product line. It has evolved from an experience designed to simplify end consumers lives, and it now touches almost every one of use through business or personal leisure. With the growth of obsession, the stock price has followed suit and dominated investors' mindsets. A fine pairing, the products and the acceleration of the stock price have clouded our judgment and we love them both unconditionally. Rightfully so; there has never been a faster monopolization of the consumer electronic market place. I challenge you to find another business industry that transforms our lifestyles into a general consensus so extreme it's not a choice; this is it.
Peter Prudden is the General Partner of SISU Advisors LP and the Managing Member of Prudden & Company LLC. Read more of his commentary, here.
Don't pull the trigger today.
Apple has effectively put Research In Motion out of business and RIMM dominated the wireless phone market 18 months ago. RIMM is nothing more than a portfolio of patents looking for a buyer. Motorola Mobility (NYSE:MSI), Nokia, and formerly Palm, all were dying products and unable to take on Apple as stand-alone entities. They were bought for design and/or patent portfolios in order for Hewlett Packard (NYSE:HPQ) and Google (NASDAQ:GOOG) to gain access to actual retail channels and get in the game. You have got to own the product and the stock must be a part of a personal or institutional portfolio. Fund managers are nervous. The retail and institutional crowd have pressured managers by boxing them in and making it a top holder on their sheets.
Steve Jobs' successor, Tim Cook, has opened the door to the institutional world. There is no turning back, and it will morph into an animal that isn't controllable. The closed oyster is no longer. The shark, a Wall Street analyst or prominent institutional shareholder, will always want a higher dividend, larger buyback, and a stock price to support it. It will be demanded. If there is an issue with product line, recall, or failure in production line, the shark will own you.
It has been eight years without a hiccup; serious adversity has never touched Apple. This has created a no-fear-just-buy-it moment in the market. The weighting of Apple in the Nasdaq (INDEXNASDAQ:NDX) has trapped it and it must be owned based upon benchmarks. This is a lightbulb moment, but no one notices what it is.
Apple's key analysts have taken the baton and raised the bar to a level where a bubble will be constructed; $1,000 price targets for Apple's stock have begun to surface in recent weeks, and frenzy will mount from here. It began with $400, then $700, and now $1,000 -- what's next? With a $1,000 target on Apple, the valuation would arrive at north of $1 trillion, which is double the current enterprise value.
With the stock trading at all-time highs, the Street had 23 'strong buy' and 23 'buy' recommendations and only one 'sell' recommendation. At the time of this writing, the median price target on 43 analysts polled was $725. Still, the stock appears to be cheap with a PEG ratio of 0.60, trailing 12 month P/E of 13.1 while producing year-over-year revenue growth of 94%. This has been accomplished by "the phenomenon." A sub-$500 marketplace comprised of the iPhone, iPod and iPad, of which I own two out of the three. The key to future valuation is growth, which is directly tied to its product cycle and introduction of the latest must-have offering. The next vision in the product line is an Apple flat-panel TV.
During the end of the bull market in 2007, Google (NASDAQ:GOOG) was the darling of the Nasdaq. It was the world's fair, overly loved and overly owned by the investment community. A clear separation from the fundamentals of the company and the stock has occurred and the tree must shake speculators.The stock has undergone a significant pullback, and I would advise paring down a short position and/or hedging a position. If the broader tape moves higher, be it on a fiscal cliff deal or year-end rally, AAPL should limp along higher. This may place a larger right shoulder in the chart. Vanilla investors should view $425-375 as a long-term buy point. The selling is hitting near-term exhaustion. Bears should be careful, and bulls need bravado to press the buy button.
By Michael Comeau
The correct answer to, "Why is Apple down so much?" is this: There are more sellers than buyers.
The stock is 'cheap' from a valuation perspective, and maybe we'll one day look back at this time frame as a huge buying opportunity, but that doesn't make it easy to pull the trigger today.
Apple is suffering a twofold problem. A lot of people already own the stock (it's not possible for a stock with a ~$500 billion market cap to be underowned), and the general public is no longer interested in the stock market, despite the
S&P 500 more than doubling off the 2009 lows.
That means Apple needs marginal buyers when marginal buyers are hard to come by, and this problem is magnified by the fact that Apple is a momentum stock exhibiting serious downside momentum.
To get the stock moving again, Apple needs to generate some new excitement, either through upside earnings surprises, or through some sexy new products -- a TV may be key here. Otherwise, it is at risk of heading down the same path of multiple compression that's held back stocks like Intel
(NASDAQ:INTC) and Microsoft
(NASDAQ:MSFT) over the past decade.
For now, I'm still holding onto my very large position in Apple, but I'll readily admit that I'm wondering whether we've already seen the peak in investor sentiment toward the company.
Disclosure: Comeau has a position in AAPL
Michael Comeau edits Minyanville's Buzz & Banter, and is also a regular columnist on Minyanville.com, focusing on technology and consumer stocks. Read his recent articles, here. Uh-oh -- another "stupid" moment.
By Sean Udall
I think we are seeing one of those "stupid" moments again.
I just noted this link
on Apple cutting component orders, and this seems to be causing a bit of panic. But I look at what is already in the stocks and what the other factors are. Notably, where was the stock already trading, and how much business is each of these companies doing with Apple?
I posted a longish note yesterday
(subscription to TechStrat required) on Skyworks
(NASDAQ:SWKS) and Cirrus Logic
(NASDQ:CRUS). I felt a trade was setting up and added some SWKS and could increase that name further. As for CRUS, I don't view this one as an investable name, but it's looking very good as a trade again and I now feel very vindicated for taking my last short-term gain off even though I saw more upside.
Now I see this Qualcomm
(NASDAQ:QCOM) selling this morning and once again the "stupid" word rings true. I had felt that QCOM was just on a ride to $70-80 as the growth drivers here had finally become apparent to everyone. And I don't see any notable news to account for this move other than what is the continuing AAPL freak-out fear festival. I'll note that AAPL reducing orders might sound bad, but are those orders being picked up by another supplier?
Bottom line, it feels like we are seeing partial capitulation in the AAPL-related semiconductors, and frankly that makes less sense than the capitulative-type move we have been seeing in AAPL. As stated previously, AAPL is now a fiscal cliff proxy and it's poised for a violent move higher on any deal. However, from a longer-term perspective, I'm thinking the diversified semis, which are also viewed as AAPL foodchain stocks (Broadcom (NASDAQ:BRCM), QCOM, SWKS and Avago Technologies
(NASDAQ:AVGO)), are not just poised for a 10-20% bounce, but a much bigger sustained move. This first leg could emanate from a the fact that people will realize AAPL is not dead. But the bigger drivers will be continued strong business from all the other customers and the renewed spending in networking, fiber optics, and storage.
Disclosure: Udall has a position in AAPL.
Sean Udall is an Investment Strategist, Portfolio Manager, and Proprietary Trader with extensive experience across a wide variety of asset classes, including equities, fixed income, currencies and derivatives. He’s a recognized trader, prolific writer, and the founder of the TechStrat Report, a Technology Focused investment newsletter at Minyanville. Read more of Sean's commentary, here.
Five important observations
By Todd Harrison
1. On a short-term chart, $500 represents the right shoulder of the (potentially negative) head & shoulders pattern we've been flagging for a few weeks (click here to view
). Should Newton prevail and gravity take hold, this pattern "works" through a pure technical vacuum to in and around $400ish.
2. On a long-term chart, $500ish represents an uptrend line that's been in place for four years.
I bring this to your attention for two reasons; the level, naturally, is defined, and in the absence of clarity, price points assume added importance for those who look to justify equity movement. will note that even at $500—28% lower than where the stock was a few short months ago—the stock remains 550% higher than it was four years ago.
3. One of our contributors notes that the daily DeMark pattern is triggering a buy signal in Apple. I know Tom DeMark and have tremendous respect for his work, so I would be remiss if I didn't share this fare in the interest of seeing both sides.
4. Finally, and while this is not specific to Apple, although it may well have something to do with the decline, Research In Motion is getting set to unveil its snazzy new BB10 operating system, as previewed in the 'Ville a few months ago
RIM reports on Thursday, and should the stock gets smacked -- which wouldn't be a shocker given the 130% rally since September (which was when Apple topped, by the way) -- I would be a buyer (at the right price) into the January 30 launch of the new operating system, and perhaps beyond.
Check that chart here; if you believe there are no such things as coincidences, a picture speaks 1,000 words.
5. So, what does this mean for the stock market? A lot, unless we've witnessed a sudden divorce between Apple and the
Nasdaq, which would be a massive departure from when Apple was The Most Important Stock in the World
I've updated the Apple vs. NDX chart below as a graphical representation.
Sir Isaac Newton didn’t earn his reputation as one of the smartest folks in the history of mankind as a function of his handsome looks and chiseled abs. Keep this stock on your radar as it probes $500, and remember that the animal spirits are alive and well as we trickle toward year-end.
Taking profits along the way might work.
By Steve Birenberg
I got caught way long on Apple and stubbornly have held it all the way down. Even today it crossed my mind that it would be down $20 and I could have sold it down $8 easily and bought it back, at least in my hedge fund. I do think Apple faces some challenges that I had underestimated as recently as a few weeks ago. However, I think the selling is way overdone, and I will get a chance to adjust position sizes lower in the $600s soon enough, but it sure does feel like it has to trade in the $400s first.
As a portfolio manager, I have owned Apple since 2005 in the $30s. I’ve trimmed it many times on the way up in my long only accounts including as it got to $100, $200, $300, $400, and $600. It went so fast from the $400s to $700 that I skipped $500!
The winners, 10 baggers, don’t come along that often. And they do sometimes end rudely. I’ve had several in my career, including Westwood One, Cisco Systems
(NASDAQ:CSCO), Liberty Media
(NASDAQ:LMCA), and Apple. Only Liberty is anywhere near its high and it traded below $3 in 2008! The lesson I take from Apple as a portfolio manager is that it is OK to take profits along the way. It works for me. I suspect that would work for most investors, but especially those managing their own money or handling separately managed accounts for individuals.
Steven Birenberg is president of Northlake Capital Management, an SEC-registered investment advisor utilizing a unique strategy combining index ETFS and media and communications stocks. Birenberg is also co-owner and co-portfolio manager of the Entermedia Funds, long/short equity hedge funds focused on media, entertainment, communications, and related technologies. Read Steve's articles for Minyanville, here.