A Glimpse Into Apple’s Future

Beholding the dramatic ascendancy of Apple’s (AAPL) stock makes for great sport and Adam Penenberg wading in with a bearish view only to be countered by a posse of heavyweight commentators adds extra spice. The spotlight is locked on January’s MacWorld convention, and Goldman Sachs has kindly let the cat out of the bag.

2008 - Can they do it again?

Goldman’s celebrity analyst David Bailey said in a research note, cited in AppleInsider, that the next 12 months could see new iPhones, new-spec Macs, new Apple TV, and also speculated on a new, ultra mobile addition to the Mac family. One that intriguingly isn’t the rumored Apple Tablet device.

A lot hinges on a strong winter retail campaign immediately being followed by the unveiling of some of these ‘killer apps’ at Steve Jobs bi-annual hype-fest, MacWorld 2008. Last year Jobs’ keynote, where he unveiled the iPhone, sent stocks to what was an all-time high. Fund managers and fan boys across the globe hope for a similar result come Monday January 15^th 2008.

Price and value

It’s been a wonderful year for Apple, stocks up well over 120% and a big cash reserve ready to be tapped. But is the price momentum sustainable? The two camps have made their positions clear:

The Believers - Mac fanatics and half of Wall Street who buy into Jobs’ vision and the consumer electronics market’s longevity.

The Infidels - Statisticians and stock market historians saying the end is nigh, all trying to call the top.

To play devil’s advocate, and in fairness to the skeptics, it is an inescapable fact Apple has an alarming P/E, up there with Google. However, it’s more digestible looking at the forward ratio, around 15 points lower.

The skeptics would like Apple to follow business partner AT&T’s lead and put some of that $15bn war chest to buy back some stock and boost earnings. Though questions over prudence and opportunity cost arise when a firm engages in a buyback at such a hefty (valuation-based) premium.

Personally, Apple’s unique situation falls outside of any strategy I, as a low-risk mechanical investor, follow. I’ve previously worked researching and building fundamental and technical stock screens and interestingly Apple did not get through 12 of 16 filters. Not on value (obviously), volatility or yield. The humans vs. the robots stock picking argument can be saved for another post but in the current climate I’d rather be pre-emptive than reactive to major growth plays.

All the best to Apple stockholders and I hope you’ve reserved your tickets for the 15^th January (Viewing suggestion - one screen on the keynote and one screen on the stock price). May you continue to reap the gains. Apple remains a hot stock to watch, but a little too rich for my blood.

Disclosure: none

Comments

[Brandon:]

I don't own a single Apple product, but I am definitely a "fanboy" of the stock.

Normally I would think market cap alone would catch up with them, but the growth is there. You can't deny it. Apple's going to grow 1st quarter earnings by at least 40%...at least. The P/E doesn't look so bad at that point.

I see Apple hitting $220 when they report.

2007 Dec 14 03:33 AM

[Jon T:]

Sounds like you are a trader, not an investor.

I am in Apple for the long term and expect to see rich rewards for their astounding creativity by the time I might need to realise my investment - in 10 years time.

I think the partnership(s) between Google and Apple are a far more powerful combination than ever Microsoft was in its heyday. P/E's are less relevant in that situation because the rewards in 2 and 3 years time will be what matter.

2007 Dec 14 04:58 AM

[wagonjumper:]

I am sad today.
Somebody broke into my car and stole my iPod touch last night. I had just purchased it a few weeks back; I reported the theft to the police but I am not hopeful I will ever see it again. I will keep the sweet memories ...

2007 Dec 14 09:47 AM

[Donkey:]

Sorry Wagon_jumper i didn't know that was your car.. j/k
here you can have my old ipod nano so i can buy myself a new one

I raise APPL 09 Target Price from $225 to $912 because I can see the future

2007 Dec 14 11:30 AM

[holycow:]

I love the way you call them infidels.

2007 Dec 14 11:44 AM

[Apple Boy:]

At this point there is only one bite out of the apple!

2007 Dec 14 12:00 PM

[brewer:]

You sound a little sad, perhaps because you didn't buy 3-4 years ago when the stock was $12 and before it split twice. That's understandable though!

2007 Dec 14 12:33 PM

[Davey:]

I did buy four years ago... my purchase price was $11 and change... I still hold the stock in spite of advice from many "experts" who were advising that I sell at $35, then again at $50, then again at 80, then again...

Oh, by the way, that stock I bought at $11... it split two for one.

2007 Dec 14 01:38 PM

[Tom B:]

"I still hold the stock in spite of advice from many "experts" who were advising that I sell at $35, then again at $50, then again at 80, then again..."

Eventually, the "experts" may be right. Of course, eventually, I'll be retired, too. Apple still has less than 10% of the PC markets. The "experts" consider this a problem; I consider it an opportunity.

I bought AAPL at various prices. I bought some just before the 2001 split. I bought a big chunk in March, at $85, when the "experts" were trashing the idea of Apple doing a phone in the press. While their lips were flapping in the breeze, Andy Ikhnatko (Chicago Sun Times) had actually had a half hour in a room with a pre-release iPhone (He mentioned this in the "MacNotable" podcast). He said it worked. That's all I needed to hear. I admit to being a bit of a "fan boy", but that doesn't mean leaving my scepticism at the door. I was pleased to hear that some had actually picked one up and played with one a while.

2007 Dec 14 03:23 PM

[adeweyan:]

What goes up... must come down. It is a fact that at some point, Apple will come back down the Earth.

The funny thing is, the naysayers have been saying that since 1982. Even when the stock was $13 (1997 is when I bought for that), the naysayers labeled the company "beleaguered" and began a death watch.

So, yes, it's true that some day the Apple will fall -- but I'm not sure it's accurate to say that the skeptics are correct because of that inescapable fact.

2007 Dec 14 04:06 PM

[Shawn King:]

"A Glimpse Into Apple’s Future"

How about a glimpse into a fact/spelling checker?

"The spotlight is locked on January’s MacWorld convention"

It's "Macworld". No capital "W".

"the next 12 months could see new iPhones, new-spec Macs, new Apple TV,

It could also see world peace, a comet striking the earth and moon ponies...

"Steve Jobs bi-annual hype-fest"

Macworld is not "Steve Jobs" anything. It is for the Mac market. Jobs is only there one day.

And are you sure you know what the word "bi-annual" actually means? I bet you don't.

"Fund managers and fan boys across the globe hope for a similar result come Monday January 15th 2008."

They'll wait in vain. Steve Jobs' Macworld keynote is on a *Tuesday*.

"Viewing suggestion - one screen on the keynote and one screen on the stock price."

Good luck with that - Apple doesn't broadcast the Keynote live any more. You'll be staring at a blank screen.

--
Shawn King
Host/Executive Producer
Your Mac Life
www.yourmaclifeshow.co...

2007 Dec 14 05:17 PM

[Max G:]

I'm an Apple fanboy, but don't hold the stock unfortunately. I agree with the P/E comment, looking forward, as the market does, things aren't that bad at all.

I've been mulling over the idea of buying some Apple stock for a while, and do feel, using last year's macworld as a judge, that I will have to decide soon. I certainly have a good understanding of Apple's market, or at least I do own a lot of their gear!!!

Bring on January!

As much as anything else I like to see the turtle neck hero. Steve's showmanship is something else... he's one of the best performers of our time.

Steve Jobs for President!

Good grief, I am a fanboy.

2007 Dec 14 06:16 PM

[RonaldRWL:]

I bouth Apple stock at $12 :)
But sold it at $19 :(

2007 Dec 14 08:06 PM

[jcrash:]

Just mentioning Apple is sure to get comments...but this article is very short on any real prognostication and seems just like a title with some words under it.

Apple is a stock for the ages. You can watch on the sidelines or not...your call.

2007 Dec 14 08:21 PM

[Max G:]

Ronald,

Are you thinking to get back in? I'm looking at the analyst chat... the techno chat... the SA articles... everyone has a lot of good to say about AAPL.

I will if you will.

2007 Dec 14 08:27 PM

[Donkey:]

I like Orange better than Apple.

2007 Dec 14 08:37 PM

[Max G:]

Not researched them, though have been looking at tech-ETFs, what's the headlines on Orange Donkey?

2007 Dec 14 09:06 PM

[spaceage:]

"To play devil’s advocate, and in fairness to the skeptics, it is an inescapable fact Apple has an alarming P/E, up there with Google."

A 48 PE (or whatever it is this week) isn't "alarming" for a company growing earnings at 70%+ annually...it is actually low. With a forward PE of 30, the current price is cheap if you believe that they will grow earnings another 70% this year. That is a pretty realistic expectation just on iPhone residuals and with the rest of the business holding serve from this year's levels, which is unlikely since the company is expanding market share in computers..."skeptics" are just the uninformed about the fundamentals of the company who are living in a perpetual "once ailing Apple Computer" mindset.

Check back at this time next year when FY09 EPS estimates are $9+ and the same 30 forward PE has the price at $270+. $190 will seem cheap.

2007 Dec 14 09:36 PM

[Jimmy:]

Let's hope in 2008 Apple finally does something to its tired computer line. Apart from a few cosmetic trims to the iMac, the range has stayed pretty much the same for a good few years. Have they hit perfection or is it more a case of running out of real ideas? Either way, the stock performance may be encouraging the company to rest on its laurels a little too much on the PC side. "Hey, if lots of people are still buying it, why change?" Not the Apple of old, to be sure.

2007 Dec 15 07:44 AM

[Danthemason:]

The ride on AAPL started a few years ago. You can still buy a ticket. There are happy investors on this train. Many say the end of the ride is near. I read many positive and negative reports on Apple. The positives tend to state facts about market share increasing, customer satisfaction stats, new product's sales numbers and those earnings.
The negatives state that Apple just has to stop somewhere because it has to stop sometime. You decide which one to follow.

2007 Dec 15 10:39 AM

[mashny:]

One thing no one has pointed out is the state of the market: given the fundamental weakness of our economy, it's quite possible the market will get crushed in the next year, which could take AAPL much lower. On the bright side, if the market does fall, AAPL will be one of the first stocks to rise when the market recovers, which should allow for a nice entry price.

2007 Dec 15 04:31 PM

[reinharden:]

> stayed pretty much the same for a good few years

With the possible exception of, you know, changing out everything that was on the inside of the box?

The first Intel iMac shipped in January, 2006.

Yeah, it might be worth tweaking the products now that the Intel transition is truly done. But AAPL did quite a lot of work to make those boxes look like they hadn't changed.

reinharden

2007 Dec 15 05:16 PM