7 Expert Takes on Apple Shares at $500
Opinions from seven investing professionals and Minyanville contributors on Apple's current dip.
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 the 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.
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