Time to Sell Apple

No, not all at once. I will be looking for action, trying to figure out trend. But sell I will.

I've been holding Apple (AAPL) since 1999. My greatest pick ever. I started having some doubts last May, which I wrote about here. Those reasons are still valid. Apple is becoming almost mainstream in computers, The iPod is so mainstream it's hard to see any growth there.

Of course, Apple is a great company. It has great products and a religious following among customers. It has a great balance sheet: $25 billion of cash and short term investments is a nice pile to have, especially now, when cash is king.

But there is one problem with Apple which is becoming way too important. Steve Jobs is Apple. Without Steve, this would be a completely different company. There will be nobody to say about a new product, "There is no sex in it!". There will be no end of so-so products which will be released just because it's Christmas, or MacWorld, or something else.

Steve is seriously ill. I wish him a fast recovery and excellent health, I wish him a long and happy life. I hope he spends more time at Apple torturing developers and bringing great products to us.

But I don't invest on hope. The health of Steve Jobs is not a private matter, not when he is the soul of Apple. We never had good information since his cancer scare. Jim Cramer says that accounting irregularities mean "sell". I say that any information irregularities mean "sell". I am selling at least half of my position on Thursday. Remaining part will be sold depending on action, but no later than May.

I always claim the right to be wrong. I can be wrong about Apple. The company can stay great without Steve. Maybe. If I see something to change my opinion, I will buy Apple back.

Full disclosure: At the time of publication author had a long position in AAPL. Positions can change any time.

Comments

[Daniel Eskin:]

Good point .. but I have to argue on the fact that the founder of the company is not a necessary requirement for the company to continue and thrive.

You mentioned that the market has become saturated with Apple products, but if you are arguing that, Alex, then one can also argue that Steve Jobs can't really do anything else either in this market since its so saturated already, which leads to the conclusion that Apple is no longer growing as fast, Jobs or no Jobs.

And consequently, you could say the same about Berkshire when Buffett reaches an old enough age to pass away. Will the company dismantle? No, of course not.

There's a reason they call it succession planning. As much hope and "sex" Jobs put into Apple, I'm sure that he HIMSELF will ensure that the people he leaves in charge will be able to maintain the "sex" in Apple.

Jan 15 09:01 AM

[michiganjake:]

The company will live on and changes at the top will make it stronger. Speed bumps occur in life and in companies. Great men and great women get great things going, and other great people improve what has gone on before. Uncertainty has plagued Apple all year, and now it has been replaced with the cruel reality of serious illness for Steve. Hopefully he will recover, and live a long and happy life. Perhaps it is not in his or Apple's best interest for him to return to his position. Only he can make that decision, but in the meantime, Apple will move forward with sound leadership, and in my judgement, it will continue to prosper. Steve carefully surrounded himself with quality people, and they will continue to get the job done. The upcoming quarterly report will be proof of the continued soundness of investing in Apple.

Jan 15 09:10 AM

[FreeRange:]

Moronic. If sell is your strategy, you are too late. Further, now is not the time to sell but to buy on this dip. Apple has a fantastic team of managers and employees working within a culture that focuses on developing innovative products and services, the customer like no other, and excellent service and support. This will not change. There is also a long term vision of innovative products already in place that will drive the innovation pipeline long into the future. We all hope the best for Steve, but he has built an incredible ecosystem of hardware and software that consumers will still be passionate about no matter what happens here. So doomsaying is just plain ignorant and shows a complete lack of insight and knowledge about this company, its products and its customers.

Jan 15 09:43 AM

[Anthony J. ...:]

I will buy Apple on weaknes. The creative culture Steve inspired will live on. Apple can buy design talent and Apple has plenty of cash. The Apple future will not fall far from the Steve Job legacy.

Jan 15 09:52 AM

[Gauston in DC:]

As an Apple share holder ON MARGIN long I'm not worried -- The argument with Sculley and Amelio doesn't hold water because the company at that time was losing money every quarter and didn't have the enormous cash reserve of $25 Billion it does now. I'm seriously considering picking up many more shares after all the morons sell.

Jan 15 10:00 AM

[Tom B:]

There were three things wrong with Scully: 1) he fired jobs 2) he was incompetent 3) Apple was in the midst of its biggest challenge: transitioning to a 21st Century-ready, industrial-strength OS.

Here we sit, in 2009, and OS X is the most capable AND the most usable OS on the planet, by a wide margin. the LINUX world remains fragmented. And MSFT has STILL, after over 20 years FAILED to make the upgrade to UNIX. Further, MSFT can't break the law s flagrantly as it once did, due to its antitrust bruises. And it is run by an ignorant jack*ss. I'd say AAPL has picked up a lot of momentum. And Job's choice of Cook indicates he thinks he's coming back.


On Jan 15 08:08 AM captainccs wrote:

> Apple is Jobs. Remember Apple under Scully and Amelio? By-the-numbers
executives
> can't run an innovative company like Apple.

Jan 15 10:15 AM

[brewer:]

How cheap are you wanting to unload your shares after you so stupidly did not sell at 202? You didn't sell at $200, so now you think it's a good idea to sell at 80? Good one! This company has the earnings in the bank already, on deferred iPhone revenue. And the pickup rate on it's new devices is literally out of the ballpark.

I guess you think everyone at Apple is going to just quit working because Steve isn't there? If anything, I think this will make them work harder to prove people like you are wrong. People who have no idea about technology, for instance. Apple is so close to owing the entire enchilada, it's not even funny.

Jan 15 10:31 AM

[Jax3:]

If you are selling now you are betting against Jobs recovery by June. What's in the pipeline will sustain Apple a long time. If jobs pops back in June the stock will both celebrate and at the same time realize it has a winning formula with or without jobs.

Jan 15 10:43 AM

[Mac Daddy:]

Sell here? Please do. Right here at or near the bottom. Very smart. Stock has lost more than 100 points since Steve's appearance got all this started. Don't you think the market has already factored in an Apple without Steve? Furthermore, everyone says that Apple is Steve Jobs. In fact, it has been said so often that I guess it now is accepted as fact. The people who point this out remind us that Apple was close to failure under the direction of John Sculley and Gil Amelio. I might argue that Steve, genius that he is, has taken too much credit for the turnaround at Apple. His domineering personality is well documented and he was the pitchman during this period of incredible product innovation. People quite naturally assume that all of this is Steve's doing. While no one knows, it is quite possible that Apple might do as well or better with Steve on the sidelines. Perhaps Apple will now do a better job of managing Wall Street's expectations and will cease giving its ridiculous quarterly guidance. Perhaps the company will now be more forthcoming with all aspects of its business. It certainly is wrong to assume that just because Steve is not running the company that the company will release crummy products with shoddy workmanship. Don't you think that Steve has taught his people what it is that makes Apple great? Don't you think Johnathan Ive knows how to design great products? Don't you thnk Tim Cook knows how to manage the company's financial affairs? Don't you think that Steve has shared his thinking with his team even if he has not with the rest of us? I do.

All of this subjectivity aside, Apple is trading at approximately $50 per share net of cash. The iPhone is a giant annuity for the company, delivering an additional $2 or so of free cash every quarter. I daresay that were the economy not so troubled, Apple would be trading at a much, much higher price. The company had the bad luck to introduce one of the most innovative products in history just before the onset of the worst economic shock since the Depression. Ipod sales may have flatlined, but the iPod Touch, with it far greater profit margin, is now an ever-increasing percentage of those sales, meaning that the company is making more money in selling the same number of units. At it's current price, Apple gets no credit from the investor community for the iPhone or the cash that the iPhone has generated for the company. Ridiculous.

Take a quick survey. Almost every family I talk to had someone get an Apple gift of some sort, with the iPhone and iPod Touch being the most frequently mentioned.

Alex, if you want to sell at this price, fine. Not me. I am buying LEAPS. Since I am not so prescient as to know exactly when Apple will regain favor with investors, I am buying myself some time. But I am buying here, not selling.

Jan 15 10:45 AM

[Alex Filonov:]

On Jan 15 10:31 AM brewer wrote:

> How cheap are you wanting to unload your shares after you so stupidly
> did not sell at 202? You didn't sell at $200, so now you think
> it's a good idea to sell at 80? Good one! This company has the
> earnings in the bank already, on deferred iPhone revenue. And the
> pickup rate on it's new devices is literally out of the ballpark.
>
>

If you read my blog, you'd know that I sold some at 175 and 190. You are always welcome to bet against me, I report all my trades in my blog.

> I guess you think everyone at Apple is going to just quit working
> because Steve isn't there? If anything, I think this will make
> them work harder to prove people like you are wrong. People who
> have no idea about technology, for instance. Apple is so close
> to owing the entire enchilada, it's not even funny.
>

Jan 15 10:52 AM

[RationalMan:]

The jump on the negative Apple train is plain out stupid and just shows how ignorant and myopic invetsors have become in this environment. Anyone with their eyes open and more than a one day time investment horizon just needs to spend 15 minutes with people under 30 (be they young professionals, college students, younger kids) and they'll see that Apple has done what no one thought was possible: they have turned the "installed base" game in thier favor. We're only at the beginning of that cycle. I hear people over and over come up to me and say I think I'm going to jump over to a Mac. Installed base means long term loyalty, it means committed apps developers, it means strong margins. This is the game Microsoft won at for 20 years before it took a revolutionary change by Apple to shift the balance of power. Apple is in year 2-3 of its leadership and there's nothing out there that can challenge it for many years ... and they have $24 billion in cash to combat whatever challenger does arrive. Wake Up.

Jan 15 11:25 AM

[brewer:]

You did read this blog. You didn't say anything about selling when it would have made sense. INSTEAD, you said you are going to start selling now. I think that's dumb, now is the time to buy. What do you expect us to go off and read some other blogs you wrote before we can comment on your idiocy here?


On Jan 15 10:52 AM Alex Filonov wrote:

>
> On Jan 15 10:31 AM brewer wrote:

Jan 15 05:05 PM

[HK:]

Ok, let me get this straight, APPL drops a little margin, gains market share, beats the crap out of every other computer maker on profits. The stock drops. Jobs gets the sniffles the stock drops. Jobs is ill the stock drops. APPL selling product at a nice margin, still making money, more than any other company, the stock drops. Morons without a clue as to the depth of the management team scream sell the sky is falling. Oh please do sell, Please Please Please, then shut the **ck up.

Jan 15 10:43 PM

[sleepy:]

"Apple is Steve Jobs" is simply a popular superstitious rationalisation to save the bother of properly understanding Apple. Steve Jobs surely made the new Apple, but Apple is not Steve Jobs. Plenty of people outside and inside Apple understand exactly where Apple is going, including, by now, most of Apple's competitors. There will be no problem to engineer Apple's continuing leadership.

Cramer didn't say "Apple accounting irregularities" mean you can't own Apple; it was SJ's health. And that's only because Cramer is all about short term trading, not insight or value.

Maybe Apple domestic growth rate will soften, even though there's plenty of space to grow. But Apple has its past five years domestic growth still ahead of it internationally.

Finally, the fact that you may have bought your AAPL cheaply years ago is completely irrelevant to the wisdom of selling at this point, so why mention it?

Jan 16 04:38 AM

[jjcantar:]

i'll be buying apple just as you're selling it.

Jan 16 05:31 AM

[301k:]

Yes there are a lot of good people at the company. However leadership has a huge impact, both good and bad. And leadership includes the heads of functional business units.

One datapoint I haven't seen here yet is the fact that an Apple prod dev exec, Jon Rubenstein, is now over at Palm, who just scored huge buzz at CES with their new Pre. (See blogs.eweek.com/applew... for details). Basically an iPhone with a keypad that corporate types can actually use. It's not his fault they are stuck on the Sprint network - he just came over and drove the release of Palm's best product in years. Might save the company. He supposedly was behind AAPL's main products during the resurgence. Who's doing that job at AAPL now?

They already lost the head of prod dev, now potentially SJ? Are you sure the product pipeline will continue to wow beyond what they already had in place, especially at current price/margin levels? Worth considering as you look around for long-term growth investment options...

Jan 16 11:49 AM

[Stone Fox C...:]

Apples balance sheet and cash flow are the reasons you hold. Stocks just don't get much cheaper. The Mac still has a long way to go in gaining market share along with the Iphone. Jobs being gone will take away some future premium, but AAPL is still worth double or more.

Now isn't the time to sell any stocks.

Jan 16 05:41 PM

[RLLH:]

I agree that Apple's best days are behind it, but prefer to wait until it goes up again to sell. The third wave of computers is about to crest: IBM in the 1980's. Microsoft in the 1990's, Apple in the 2000's. Now if we only knew who will own the 2010's!

Jan 16 07:43 PM

[Did U Think...:]

The only thing you did wrong was to hold it this long. AAPL stock chart is a mania chart. Manias do not correct sideways. AAPL was $7 in 2003 and it will again fall to $7 within 36 months.

Yes, it's that bad.

Jan 16 07:53 PM

[Chubbs:]

Held Apple since 1999 and now is the sell time?

Jan 16 08:10 PM