Every year many professional investors begin by reviewing the past year's performance and deciding where to place their money for the next year. 2013 was a blowout year for managed money, with the total market as represented by the Standard & Poor's 500 up about 35%. That sort of performance happens infrequently and every manager is a hero. But post December 31st, the champagne is gone and the bonuses paid and it is time to look ahead to another year. One of the worst things about a great year is the expectations it builds among clients for another one.
Big tech is in vogue. There seem to be more articles written on SA about Apple (AAPL), for example, than any other company and authors are limited in the number of Apple related articles they can publish in a given timeframe. The other big tech names don't seem to generate the same emotion from investors as Apple.
I am an unmitigated Apple bear and make no apologies for being one. I think the company has amazing strengths but is on the wrong track and investors who buy into it will pay a price. I wrote a few bearish articles on Apple in 2013 and was pretty well vilified by the readers on SA for presenting my analyses and views.
I also wrote about other big tech names like Netflix (NFLX), Twitter (TWTR), Amazon (AMZN), and Microsoft (MSFT) to name four. I also took time to read articles by other SA authors on Yahoo (YHOO), Facebook (FB), LinkedIn (LNKD) and eBay (EBAY), all interesting names. It seemed to me that none of those companies engendered the hate mail that came with a negative view on Apple.
I thought about developing a new market predictive indicator based on the number of negative comments on SA articles attacking the integrity, honesty or intelligence of the author without reference to any factual contribution to advance discussion. The more attacks on authors, the more likely the stock in question was a good short.
How would that have worked in 2013? First, for the companies I listed above, we should take a look at their stock market performance.
Netflix was the winner by a country mile. Apple was dead last. Of the list, only Apple and eBay did not beat the S&P Index for the year. The "hate" indicator would've worked well, at least in Apple's case.
The same factors that limited Apple's performance in 2013 are present in 2014. Apple is losing market share worldwide. Apple's markets are maturing quickly and competition exists. The bulls suggest Apple can counter those trends through "innovation."
Apple's smartphone "innovation" in 2013 amounted to making the same devices in different colours with a fingerprint reader and with a 20-year old 64-bit technology hailed as the next big thing (presumably since it was the first appearance of a 64-bit processor in a smartphone). The fact that Apple shipped the device with 1GB of RAM and the benefit of a 64-bit processor was wasted with so little memory was lost on the Apple fans who hailed it as if it were the equivalent of world peace or the Nobel prize, but in fact it was not an earth shaking advance.
In tablets, Apple made the devices smaller, then thinner and then with a more impressive display. I am not sure anyone could really tell the difference while using the new devices, although Jimmy Kimmel was able to get some Apple users to confuse the new iPad mini with the soon-to-be released iPhone 5S at the time he did his hilarious "man of the street interview."
For 2014, the rumour mills are full of Apple's plans. It seems it will now make a thinner iPhone with a larger screen. Whoopee! No doubt it will call the new device something amazing like "the iPhone 6" or "the iPhone Air." The Apple fans will be shrieking with delight and may choose to conveniently ignore the tom-tom drums signaling that carrier subsidies may go the way of dodo birds meaning iPhone owners might have to shell out the full $600 or more for a new iPhone.
Apple's much ballyhooed entry into China Mobile (CHL) was to be the company's next phase of growth. In the end, they sold what seems like a few hundred thousand iPhones on pre-order causing some observers to question whether the iPhone in China was a "dud." In any event, the China Mobile launch did not quite match competitor Xiaomi's sell out of 150,000 of its new smartphones in China in a cool ten minutes only a few weeks earlier. Apparently some Chinese are attracted by a lower price.
Despite all of the excitement and the widely held view that Apple had a very strong Q1 in the Christmas quarter, the stock market has not really jumped for joy just yet. Apple stock has simply drifted lower on the positive news falling 35 points in the past three weeks to punctuate the view that Apple's best days are behind it and smart money is going elsewhere. Really smart money went elsewhere a year ago.
SA Author Bret Jensen recently wrote a solid article arguing that Apple will hit $650 a share in 2014. Bret is one of the best authors on SA with a formidable track record of getting it right and a wonderful writing style that gets to the point crisply and cleanly so investors know precisely what facts underlay his conclusions.
In this case, I think he is wrong. My prediction is that Apple will hit $450 before $650. I am short Apple through April 2014 puts at a $500 strike. I paid $11.53 a share for them, sold half at $18.16 and will keep the other half or add to the holding if Apple should pop higher on its Q1 earnings.
If it turns out Bret is right and I am wrong, I will be pleased to buy the beer.