Beyond Trading has been bullish on Apple (AAPL) stock for several years. "Apple is an extraordinary successful company, a case study worth to be analyzed in detail by every single University and investors. We are fans of the company and its products, we use them, however we became NEUTRAL on the company given the equation risk/reward going forward", said Sergio Vieira, President & CEO Beyond Trading Corporation.
Apple's stock is not particularly expensive, and in fact we believe there is room for upside to the $166 level. This makes the stock a good trading vehicle for the short term, but not necessarily a good investment having in mind the equation risk/reward going forward.
In our opinion, the iPod story is gone - if you want an iPod, you buy an iPhone, it is as simple as that.
About the iPhone - we do not believe Apple's competitors will improve for some years to come since companies such as Research in Motion (RIMM), Nokia (NOK) or even HTC have done a lousy job of trying to follow up Apple rather than innovating. How could they innovate against the iPhone? Simple: Create it before Apple. In our opinion, Nokia has proved to be incompetent in its sector.
Why are we NEUTRAL on Apple stock at this point?
- The iPod market is gone.
- The iPhone market is terrible: crowded, very intense competition, profit margins squeezed. We do not believe Apple will be able to sustain profit margins in some European countries for so long, maybe 9 months. We consider the price of the iPhone in some European markets a "scandal" (this aspect is particularly important providing support for the stock short term and a potential upside to the $166-172 level).
- Mac sales: The company did actually very well in our opinion, but again we consider the price of those great products very high and there will be a profit margin squeeze going forward. Apple has already announced price cuts across different models.
- Probably the most important matter to be considered mid to long term: we do not believe in companies without visionaries, and for us Steve Jobs has been the man behind Apple's tremendous success. Maybe we are wrong on our assessment, but we rather prefer to be wrong than to place our bets at risk at this point.
What do we believe Apple can do to justify a higher stock price going forward?
- Enter the ultra portable market, not with a low cost product but a superior product compared to the competition.
- Bet on Asian markets, though this will take time. We believe the future might be in these markets going forward. Apple should invest aggressively in these markets.
- Terminate its contract with AT&T (T).
- Show that Steve Jobs can be replaced going forward. In our opinion, Apple should already have prepared the market for a successor, to have a clear detailed plan on this matter.
We recommended to close 100% of long positions in Apple at $157 after-hours, and we are downgrading Apple from BUY to NEUTRAL having a maximum target on the stock in the range $166-172.
We are buyers of the stock at lower prices.
Disclosure: no position in Apple.