I'm long AAPL (AAPL). I wrote two bullish articles on the Apple stock, one on how ridiculously cheap the stock was at $450/share (priced prior to the recent dividend), and another urging investors to ignore the short-term volatilities and to hold on tight. So why am I bashing Apple and smearing applesauce all over myself?
Apple is one of my investments, but it isn't my favorite pick. In fact, I have violated one of my investment rules to invest in Apple: never invest a company where I can't imagine its existence 50 years from now.
Sadly, I can't imagine Apple's existence 50 years from now (note, I said "imagine," not "predict"). Don't get me wrong, Apple might be hugely profitable 50 years later … or it can go out of business. In the fast changing tech world, I just don't know. (On a side note, I have a very good friend who likes to do discounted cash flow analysis on companies like ORCL going out 50 years - I think he should get fired.) Here are my concerns:
"Triple-Declining" Asset Depreciation
If we can possibly break up Apple into bits and pieces and sell it to the likes of Google (GOOG), Lenovo (OTCPK:LNVGF), Microsoft (MSFT), Samsung (GM:SSNLF), HP (HPQ), Silver Lake (GM:SVLKF), etc., I think it'd be a good bet that we can at least recover the current market value of the stock (i.e. you subtract the cash, then you sell off its individual businesses like its phone, table, laptop, and various software businesses). Now, I'm not an M&A specialist, so if you think I'm wrong, please provide your reasoning below. Given Apple's current valuation and financial strength, it can afford to make a few mistakes and still do well for shareholders in the medium term - just not too many.
The only problem is that in 10 years, excluding cash and assuming "all else constant" (imaging freezing Apple for 10 years), its assets would worth nearly 0.
As a counter example, if we freeze Coke (KO) - the company, not the drink, silly - for 10 years, the company won't come back completely devalued. Yes, maybe Pepsi (PEP) will take market share and maybe some new shops will pop up, but I'll be craving Coke for 10 years and will drink Coke until I explode once it comes back. And the business of making and selling soft drinks won't change all that much either. Now, that is true staying power.
When we buy Apple stocks, we are assuming the company will do something to keep its assets - its creative minds, its patents, its products, etc. - relevant and valuable. Assuming this, for me at least, is speculation. Yes, I confess, I am speculating on Apple.
I think the reasoning above is why Warren Buffett is not buying Apple (darn, I promised myself I wouldn't mention Warren Buffett in any of my articles).
Untested Without Steve Jobs
As far as I know - again, if I'm wrong, fill me in below - nearly all of Apple's successes were under the leadership of Steve Jobs, and we all know the sad state of the company when Steve got kicked out of the company. OK, so what if Steve stole a few ideas here and there from his employees and from others, it was he who led shareholders to victory. Jobs was the corporate equivalent of Genghis Khan and Alexander The Great, and as a tiny shareholder, I felt safe fighting by his side. Now, this Tim Cook guy took over and I don't feel safe anymore. I'm sure the 2nd in command under Alexander was good, but he ain't The Great. Tim might cook up something good, but if our expectation is for him to fill Steve's shoes, he probably don't get the job done.
Too Many Competitors
Samsung is the most obvious threat, but it isn't the competitor I'm most worried about. I'm worried about Google - which, unlike Apple, is still lead by its visionary founders - and I'm especially worried about the other Asian companies like China's Lenovo, Huawei, and ZTE (OTCPK:ZTCOF), and Japan's Sony (SNE), just to name a few big boys. 10 years down the road, each one of these companies can be as fierce of a competitor as Samsung is now. Also, keeping in mind the revolving elephants of the tech world, what are the chances another Google will IPO by 2023?
So, these are my three biggest concerns, and I'll leave my part of the discussion at that. Now it is the reader's turn to extend this conversation in the comment section below (don't forget to follow me if you want updates on follow-up articles).
Thank you for reading, and happy investing!