Apple: Priced for Perfection

CNBC's Jim Cramer was interviewed yesterday on his TheStreet.com video. He had a take on the iPhone that struck me as familiar.

Now, he was talking about the Apple (AAPL) trade before the release of the iPhone. I am going to skip the "trade" part of his talk because that is not what I do. As for his analysis, he speculated that Apple's stock is priced for perfection of the phone meeting or exceeding the hype surrounding it and said that if the phone fails to meet the hype, the "stock gets crushed."

The chance of the iPhone exceeding expectations was only 20%, which meant there was an 80% chance the phone meets or fails to meet the hype, either of which will not benefit the stock at its current levels. He then speculated that people will not want to switch carriers to AT&T, which he claimed "is an inferior network" as easily and as fast as many people seem to believe they will. He also said that many people currently have cell calling plans that "are not easily undone" and that will slow sales.

Now, where have we heard those arguments before?

One also has to take into account that in the NY Times reported yesterday "The anticipation, which is intense even by Jobsian standards, has led to some quiet, behind-the-scenes anxiety at Apple. Some Apple executives worry privately that expectations for the one-button phones may be too high and that first-generation buyers will end up disappointed."

I said before that Apple shares are "priced for perfection" and it would seem at least seem that Jim Cramer agrees.

Disclosure: Author has no position in AAPL

AAPL 1-yr chart:

Comments

[John Lazerow:]

When the market fully understands the business model of the iPhone, the stock will look cheap and not priced to perfection. I like that Apple insiders have some anxiety - it will keep their heads down creating and innovating. Just look at what complacency does (MSFT anyone?).

2007 Jun 05 11:29 AM

[John Lazerow:]

and this guy really does have a bone to pick with Apple - I think the stock is probably up 30% since his first negative piece. as far as I'm concerned the more doubters the better. short this stock, please. put your money where your mouth is. i have on the long side for a number of years in this stock and have been pretty happy with the results. the foray into the global handset market is an exciting opportunity that can drive profitability on top of the computer business that is doing pretty well.

2007 Jun 05 11:33 AM

[Todd Sullivan:]

John,

I have "no bone" with Apple. I have said many times it is a great company, i just do not think a $600 phone from only 1 provider on a lousy network will be anything more than a bit product...

simple

I also believe I said "lower the price to $299" and it will sell big?

2007 Jun 07 08:13 AM

[Hayweed:]

I don't think Todd has a problem with AAPL or GOOG. Just read his posts and go the opposite. On his AAPL call on May 24th, where he said the AAPL commenters were fanatics, the stock has run about 12 points (a 10% return in less than 2 weeks). Now he seems to be anti GOOG which is also finally having a run to a new 52 week high/all time high.

He is just a pessimist in a rising stock market.

My question for Todd is what do you think about RImm which I think gets hurt the most by the new iPhone?

2007 Jun 05 12:15 PM

[Tom B:]

"My question for Todd is what do you think about RImm which I think gets hurt the most by the new iPhone?"

I think RIMM may survive longer than MOT, Nokia, LG, etc. I would consider playing them for a 1 year time horizon or so.

2007 Jun 05 12:56 PM

[Todd Sullivan:]

there was an interesting blog post out there about this. he speculated that RIMM is actually the big winner because the iphone will draw attention to the whole smart phone spectrum.

since RIMM has the most economical products available on ALL networks, they will benefit..

I agree

No position in RIMM, do own a blackberry

2007 Jun 07 08:15 AM

[BSM74:]

Coming from the guy that hasnt even figured out the pricing of the Iphone: "it will sell for $599 with a one year or $499 with a two agreement"

And the guy who tried to bash the stock back at 100, I really have no choice but to take the opposite position.

2007 Jun 05 01:14 PM

[Alan Brochs...:]

Todd, I agree with you and Jim Cramer on this one. AAPL is one of the few large stocks working this year in Technology, up 43% year-to-date compared to the QQQQs up 10%. A quick perusal of all of the Tech stocks in the S&P 500 with market caps in excess of $100 billion shows a range for the 7 stocks of 15% down to -1%. As 4% of the QQQQs, a pullback could be just the catalyst to some consolidation finally.

2007 Jun 05 01:42 PM

[Todd Sullivan:]

alan,

time will tell

when any stock runs this far this fast, any stumble leads to a rush to the exits..

apple will stumble, everyone does

2007 Jun 07 08:17 AM

[Jon T:]

Todd might have been right if the only plank of Apple's success rested on the iPhone. Just look at the new MacBook Pro's announced today - they are well priced and state of the art! And that is without the iPhone being the most incredible new iPod, which it plainly is.

And they didn't even feel the need to announce this at WWDC in a weeks time. There will be plenty of other news we can expect at WWDC to get excited about.

I would say that Apple is only now beginning to be recognized for the leader it is. And in partnering Google there is much upside over the next years.

Sorry Todd, too often you get it way wrong.

2007 Jun 05 01:47 PM

[Tom B:]

"Todd might have been right if the only plank of Apple's success rested on the iPhone."

last I checked, people are still buying iPods, as well (I bought a second Nano this week, for my wife).


And don't forget Logic, Shake, Filemaker Pro, Final Cut Pro.

2007 Jun 05 02:16 PM

[Richard Alv...:]

and Macbooks, iMacs, and Xserve

I think Todd has a thing for Companies that print money....

2007 Jun 05 02:57 PM

[shagghie:]

Yeah, Xservers about to invade fortune 500 in a way that few people can even fathom. So much power, reliability, security and ability to xGrid to infinity... this company is only getting started. I wish I would have learned about what Apple was doing months ago. The more I've studied, the more blown away I become.

I don't think Jim Cramer's thinking about iTunes and media distribution either. Folks, this is ONE company we are talking about here...and EVERY space they are in, they have the single best products and customer service! Apple is NOT the same company it was just 12 months ago. Time to treat the stock like a brand new IPO, starting today, and going well into the future, where a little white apple logo will be on every cool piece of tech any one owns.
Other companies are still figuring out how to code a friggin' GUI still, let alone hiring the world's foremost design engineers and forward thinkers. Their roster is unprecendented.... do your homework, before you start comparing 'AAPL' to companies like Microsoft. Ultimately, they are not even in the same league! Flip their market cap, and you have an inkling of what Apple will become over the next 5-10 years.

2007 Jun 05 07:51 PM

[Todd Sullivan:]

ipod sales are already baked into the share price,

iphone sales are too..... should they not materialize, poooof....

2007 Jun 07 08:18 AM

[spinetta:]

Once again, I humbly direct Gentle Readers to Mr. Sullivan's citations. Mr. Sullivan cites his own widely ridiculed essay (ce.seekingalpha.com/ar...) while attempting to parallel his gifted insight with the wit and whimsy of The Most High and Mighty Cramer.

This investor prefers to ignore cults of personality, founded and unfounded. This investor prefers the subtle charms of long term business case studies and solid financial underpinnings. Or, in a nutshell, less Cramer, more solid research.

Those of us who purchased Apple in the dark days when rumors of the Biondi Blue iMac first rumbled through Cupertino ought to harvest some gains. Those of us who anticipate the logical integration of several clever gadgets in one well designed new appliance will maintain a position in AAPL and wait for what comes next.

2007 Jun 06 11:55 AM

[Lord Farkward:]

I'm becoming more and more convinced that it is absolutely pointless posting our comments here as Todd doesn't seem to address/respond to them (eg. the "1 in 5 AT&T users will buy the iPhone? I think not! Therefore I'm right in saying that Apple won't sell 10 million by 08!" problem that us readers have pointed out). I believe seekingalpha is merely a medium for him to increase his own exposure and nothing more. I think that if you actually want him to respond, you gotta actually go to his own blog, which is something that I will certainly not do as I'm not willing to increase his pageview and (therefore) revenue.

2007 Jun 07 05:50 AM