In the long run, valuations always matter. Furthermore, Apple's cash at this point is probably close to $150 billion, and when such cash is excluded, Apple's PE ratio is between 5 and 6. What does that mean? It means that if Apple's earnings expected for this year stay the same for the next 5 to 6 years, in 5 to 6 years, with Apple's existing cash, it would have generated as much as its current market cap.
Many seem to forget that the reason Apple traded at 12 PE ratio and not 14 PE ratio despite its above average growth was due to the fact that analysts were expecting such growth to slow. In other words, at its previous 12 PE ratio, Apple's price had already taken into consideration the risk of a slow down in net revenue growth...
The bottom line line is as follows: with interest rates at 0, and even negative, and your money not even safe in a bank as we saw in Cyprus, would you invest it in a company which within 5 to 6 years will have as much cash generation as its Market Cap?
For me the answer is an absolute YES. As a matter of a fact, I would even do so even if it took as much as 10 years, which would imply 10% return on my capital...
You are right that theoretically, Apple can go lower. However, such direction would be slow and grinding. At the same time, the stock can also double in a very short time, when investors realize that valuation is indeed extremely attractive....
Apple Is Trading At 60-75% Premium To Its Sum Of Parts Valuation [View article]
I agree. This is incredibly flawed. Consider the following:
A- You did not even take into consideration the fact that AAPL had $117 billion in cash for the quarter ending in June, and has since generated additional profits and cash
B- The current forward P/E ratio for Apple is not 15. You do not even provide a source. If you retrieve the average forward P/E multiple for next year from Yahoo Finance, which is $53.37 for the year ending September 2013, and using a closing price of $638.17, you get a forward P/E ratio of 11.96
C- You compare Apple to the average P/E ratio of companies whom Apple itself has caused them to almost be out of business, and then you claim Apple should trade at comparable ratio... This is most ridiculous! I guess if Apple had taken all business away from them, and caused them to have zero p/e, you would claim Apple should also have a P/E ratio of zero because the competitors average is zero....
It's Okay To Fight Fed Intentions, Just Not Fed Actions [View article]
Very good article.
It is also important to note that inflation has become "digital" in nature. I will explain:
Bernanke has also been known as "Helicopter Bernanke" because his original thesis is that it is not necessarily bad to fly over in a helicopter and drop money on the masses, hence providing needed cash for consumption and avoiding deflation. Such concept would actually result in steady rising inflation, depending on how much money you dump out of the helicopter. In case you dump endlessly, you will then end up in hyperinflation Germany in the Weimar Republic around 1923.
However, today money is not being showered onto the masses. It is actually given to the few elite. Who are the few elite? The bankers. Not necessarily all bankers, as within a certain bank, there is only a handful of executive individuals who actually drive major decisions. Similarly, cash in corporate America also exceeds over $1.2 trillion. Such money is simply sitting there, again awaiting disbursement. Once again, who can disburse such cash? A few elite executive managers within those corporations who actually make the majority of decisions.
So at the end of the day, the decision of the transfer of money to the average citizen, whether originating from the Fed, or whether originating from corporate profits, actually resides within an elite group of executive managers who probably number just a few thousand at most, and within such a few thousand, probably under 500 would account for over 70% of the available liquidity.
It is also the case that such elite act as a heard. They typically act together, or not at all. Hence, at the end of the day, such elite are the actual deciding factor for inflation. No matter how much money is stached into the system, either they decide to let it out, or they decide not to let it out. Hence, the "digital concept", whereby in such concept the outcome is either 0 or 1.
Once such elite decide to disburse the cash, most likely after they have adequately positioned themselves to benefit handsomely from such step, inflation will pick up and will pick up quickly, and much faster than any Fed or government can reign it back in. Why? because the ability to reign it in again will be in the hands of those elite,
Maybe if Bernanke really wants to improve matters, he should go back to his original thesis of dumping money in a controlled manner out of a helicopter. Such concept is much better than dumping money to a few elite who simply accumulate it, until one day they may decide to let it all out at once.....
Gold And Silver Prices Have Further To Fall [View article]
Confidence in money has eroded for "many" people, and not all people. Those people are buying gold, on anticipation that once everyone else has realized what a mess the financial system has become, it would be too late to buy gold.
Apple Is Trading At 60-75% Premium To Its Sum Of Parts Valuation [View article]
Qinept, you are entitled to your opinion. Hence, if you believe Apple stock has peaked, you are entitled to say that your opinion is that Apple shares have peaked.
However, that is not what you have done. You actually said: "Apple Is Trading At 60-75% Premium To Its Sum Of Parts Valuation "
You presented as a fact, and then you proceeded to back it with flawed logic and wrong numbers. This is the issue that most people who have commented on this article are trying to bring to your attention, but to no avail.
Now, as far as Apple's problems, my father had actually taught me at the age of 5, that when I take a photo, to make sure that the light source is behind me. If you conduct a little research, you will find that all cameras will experience problems if you take a photo with the light source facing you head on... Even with some of the most expensive Leica lenses....
As far as "scratches", who does not know that stainless steel scratches?
As far as assembly line strikes, it is a short term phenomenon. When a manufacturer has as much as 1 million workers, as I believe Foxconn does, it is statistically impossible not to have some labor issues. However, blowing them out of proportion is what is wrong....
As for the $30 per share in cash, that was outright wrong....
In any case, Apple is expected to sell as many as 250 million iPhones over the product cycle of the iPhone 5. Hence, even if there are some glitches in the first 10% of production, which is not unusual, it will most likely fix them as additional production carries on....
Apple Is Trading At 60-75% Premium To Its Sum Of Parts Valuation [View article]
Qinept you are making it extremely difficult for the rest of us not to believe that there is some kind of conspiracy against Apple....
Your profile states you managed a hedge fund of $10 billion. Yet you write an entire article stating that Apple is trading at 65% premium to its value, and yet without even knowing how much cash they have per share? Better yet, actually using a wrong number?
As cash is the most integral part of a valuation of the parts of a company, I suggest to preserve your credibility you may want to consider retrieving the article....
In any case, this article is an indication that there is desperation there for Apple shares to go lower, so maybe they have actually bottomed....
4 Reasons Stocks Can Move Significantly Higher [View article]
You seem to ignore one main factor which would otherwise affect your first 3 reasons.
Suppose the Fed prints $100 Trillion, and then places all such printed money in a vault, and locks the door until further notice. What will happen? Nothing, until the door is open, and the printed money is showered upon the masses....
All of the USA and European QE and money printing has been aimed at a select crowd. At the end of the day, the printed money is used to buy securities from banks, and banks are merely locking up the money. Credit is still abysmal... In other words, most of the printed money is sitting in the locked vaults of the banks, or in some cases, the banks are simply depositing it back into the locked vaults of the Fed. If that had not been the case, inflation would have already gone through the roof.
In addition, corporate America has over $1 trillion in cash, also sitting in its vaults.
As a matter of a fact, let's consider the printed (to be printed)money so far. Let's assume it is about $2.5 trillion. Let's assume 130 Million US households. If such money was distributed as a $40,000 payment per household to 50% of households, consumption and GDP growth would be through the roof....
In summary, it is my opinion that as long as credit is anemic, and the printed money is targeted to select institutions who merely lock it up, don't expect the economy to go anywhere. If such money does ultimately flow to the masses, from a short/intermediate perspective, the resulting inflation and higher interest rates may cause a pullback in the stock market..... Or, indebted companies will falter, and cash rich companies will shine...
For the time being, consumers are weak, unemployment is high, printed money is locked up, and companies are revising down their future earnings. That does not bode well for the stock market for the time being....
Last time the author wrote a similar article, I did not agree with him, as I expected Apple to possibly approach 700 by September, as illustrated in many of my Apple articles.
This time around, there are indeed some troubling signs being ignored, and regardless of whether the move is parabolic or not, there is some downside risk to Apple.
Consumers do seem to be stretched, and most technology earnings and outlooks have been poor. Apple's own earnings during last quarter also missed. Everyone seems to believe that it is a temporary phenomenon due to new products expected to be rolled out by Apple. Regardless, Apple's market share in Asia has actually halved, and there is indeed some viable alternative products out there such as Samsung.
Most troubling could be the market itself. With little short interest in Apple, if the overall market stalls, while accompanied by European jitters, Asian slowdown, and a possible disappointment in overall device demand due to overstretched consumers (who now have alternative choices at a lower price), there could be a noticeable correction in the price of Apple shares.... The risks of the broader market stalling are huge; we have only seen an appreciation recently in anticipation of fed easing. Meanwhile, the fed will only ease if there is a sustained slowdown in the economy. This does not bode well for the markets. The bottom line is that the consumer has indeed slowed down, and easing or no easing, the fed's action is unlikely to trickle to the consumer anytime soon...
In short, the market has been rising on air, with no fundementals. Apple has caught some of that air, and has caught additional air due to upcoming product release, while ignoring both current economic fundementals, Apple's last earnings, and actual slowdown in consumer demand, in addition to additional competition... Indeed, some of that air could soon be let out...
The Age Of The Dollar Is About To End [View article]
Fiat, Shaun,
Before we speak of alternatives, and sing goodbye to the dollar, it is important that we put "cause" and "effect" into perspective:
The US is not the only major superpower because of the dollar.
The dollar is a "supercurrency" because the US is the only major superpower.
History does tend to repeat itself, and the U.S. will always flex its might if it faces economic catastrophe, as past superpowers have always done.. Many have already said that Iraq was not about Saddam, Iran is not about nukes, etc...
In short, to predict the end of the dollar, you must first predict the end of the U.S. as a major superpower.
I certainly don't think that's going to happen anytime soon, not in five years, ten years, nor 30 years... The U.S. technological might simply continues to expand.
So folks, for the next several decades, the dollar is here to stay...
Well, bubbles are full of air. Apple is full of about $120 billion in cash holdings, and about $160 billion in annual revenues, and still an acceptable P/E ratio....
There is a flaw in your price/sales ratio analysis.
Suppose a company has a market capitalization of $200 billion, and has annual sales of $40 billion and cash holdings of $150 billion, with no debt. According to your argument, the price/sales ratio of 5 would be a phenomenal sell signal. The truth of the matter is that once you subtract the net cash position, its price/sales ratio is merely 1.25
On the other hand, I do believe that Apple's risk/reward scenario is not necessarily in its favor at this time. There are substantial indications that the economy is slowing down, consumers are still suffering, and product competition is heating up.
Hence, although I agree that from a risk/reward perspective one has to be careful about being long Apple, and booking profits may be a good strategy for the time being, I wouldn't quite characterize matters in the way you have; I would say "take the money", but rather than say "run", I would say "wait for another entry point once some of the prevailing risks have subsided, and risk/reward is in your favor again"...
I agree with FRPTsaveslives point regarding the PE ratio. As a matter of a fact, I believe that AAPL's current forward PE ratio is till rather low.
As already discussed in http://seekingalpha.co... Apple has beaten last year's earning estimates by as much as 20%. If during the next year it beats by 10%, it will earn more than $47.
With a potential stock split, potential dividend announcement, Ipad 3, resurging economy, etc...., it is indeed a risk play to try to pick a top.... It may be better to wait for $600 to $700 before trying to play a pullback.
Gold And Silver Prices Have Further To Fall [View article]
Good and informative article.
From an asset allocation perspective, equities are more attractive than gold in the long run.
However, despite low velocity, the aggregate amount of money that has been printed by all western central banks during the past few years is absolutely phenomenal, and eventhough the Fed may have printed less than the ECB, it still printed a lot.... Gold can still appreciate against all currencies, although less against the dollar than against the Euro, and less than equities... At the end of the day, it is a matter of confidence, and unfortunately for many people confidence has eroded in the modern monetary system....
Apple Could Take Another Beating [View article]
Many seem to forget that the reason Apple traded at 12 PE ratio and not 14 PE ratio despite its above average growth was due to the fact that analysts were expecting such growth to slow. In other words, at its previous 12 PE ratio, Apple's price had already taken into consideration the risk of a slow down in net revenue growth...
The bottom line line is as follows: with interest rates at 0, and even negative, and your money not even safe in a bank as we saw in Cyprus, would you invest it in a company which within 5 to 6 years will have as much cash generation as its Market Cap?
For me the answer is an absolute YES. As a matter of a fact, I would even do so even if it took as much as 10 years, which would imply 10% return on my capital...
You are right that theoretically, Apple can go lower. However, such direction would be slow and grinding. At the same time, the stock can also double in a very short time, when investors realize that valuation is indeed extremely attractive....
Apple Is Trading At 60-75% Premium To Its Sum Of Parts Valuation [View article]
A- You did not even take into consideration the fact that AAPL had $117 billion in cash for the quarter ending in June, and has since generated additional profits and cash
B- The current forward P/E ratio for Apple is not 15. You do not even provide a source. If you retrieve the average forward P/E multiple for next year from Yahoo Finance, which is $53.37 for the year ending September 2013, and using a closing price of $638.17, you get a forward P/E ratio of 11.96
C- You compare Apple to the average P/E ratio of companies whom Apple itself has caused them to almost be out of business, and then you claim Apple should trade at comparable ratio... This is most ridiculous! I guess if Apple had taken all business away from them, and caused them to have zero p/e, you would claim Apple should also have a P/E ratio of zero because the competitors average is zero....
D- There is no point in me going any further....
It's Okay To Fight Fed Intentions, Just Not Fed Actions [View article]
It is also important to note that inflation has become "digital" in nature. I will explain:
Bernanke has also been known as "Helicopter Bernanke" because his original thesis is that it is not necessarily bad to fly over in a helicopter and drop money on the masses, hence providing needed cash for consumption and avoiding deflation. Such concept would actually result in steady rising inflation, depending on how much money you dump out of the helicopter. In case you dump endlessly, you will then end up in hyperinflation Germany in the Weimar Republic around 1923.
However, today money is not being showered onto the masses. It is actually given to the few elite. Who are the few elite? The bankers. Not necessarily all bankers, as within a certain bank, there is only a handful of executive individuals who actually drive major decisions. Similarly, cash in corporate America also exceeds over $1.2 trillion. Such money is simply sitting there, again awaiting disbursement. Once again, who can disburse such cash? A few elite executive managers within those corporations who actually make the majority of decisions.
So at the end of the day, the decision of the transfer of money to the average citizen, whether originating from the Fed, or whether originating from corporate profits, actually resides within an elite group of executive managers who probably number just a few thousand at most, and within such a few thousand, probably under 500 would account for over 70% of the available liquidity.
It is also the case that such elite act as a heard. They typically act together, or not at all. Hence, at the end of the day, such elite are the actual deciding factor for inflation. No matter how much money is stached into the system, either they decide to let it out, or they decide not to let it out. Hence, the "digital concept", whereby in such concept the outcome is either 0 or 1.
Once such elite decide to disburse the cash, most likely after they have adequately positioned themselves to benefit handsomely from such step, inflation will pick up and will pick up quickly, and much faster than any Fed or government can reign it back in. Why? because the ability to reign it in again will be in the hands of those elite,
Maybe if Bernanke really wants to improve matters, he should go back to his original thesis of dumping money in a controlled manner out of a helicopter. Such concept is much better than dumping money to a few elite who simply accumulate it, until one day they may decide to let it all out at once.....
Gold And Silver Prices Have Further To Fall [View article]
What Has Changed For Apple? [View article]
Apple Is Trading At 60-75% Premium To Its Sum Of Parts Valuation [View article]
However, that is not what you have done. You actually said: "Apple Is Trading At 60-75% Premium To Its Sum Of Parts Valuation "
You presented as a fact, and then you proceeded to back it with flawed logic and wrong numbers. This is the issue that most people who have commented on this article are trying to bring to your attention, but to no avail.
Now, as far as Apple's problems, my father had actually taught me at the age of 5, that when I take a photo, to make sure that the light source is behind me. If you conduct a little research, you will find that all cameras will experience problems if you take a photo with the light source facing you head on... Even with some of the most expensive Leica lenses....
As far as "scratches", who does not know that stainless steel scratches?
As far as assembly line strikes, it is a short term phenomenon. When a manufacturer has as much as 1 million workers, as I believe Foxconn does, it is statistically impossible not to have some labor issues. However, blowing them out of proportion is what is wrong....
As for the $30 per share in cash, that was outright wrong....
In any case, Apple is expected to sell as many as 250 million iPhones over the product cycle of the iPhone 5. Hence, even if there are some glitches in the first 10% of production, which is not unusual, it will most likely fix them as additional production carries on....
Apple Is Trading At 60-75% Premium To Its Sum Of Parts Valuation [View article]
Your profile states you managed a hedge fund of $10 billion. Yet you write an entire article stating that Apple is trading at 65% premium to its value, and yet without even knowing how much cash they have per share? Better yet, actually using a wrong number?
Foxconn strikes, Scratches, $30 cash per share. Purple Flares. What's next?
As cash is the most integral part of a valuation of the parts of a company, I suggest to preserve your credibility you may want to consider retrieving the article....
In any case, this article is an indication that there is desperation there for Apple shares to go lower, so maybe they have actually bottomed....
4 Reasons Stocks Can Move Significantly Higher [View article]
Suppose the Fed prints $100 Trillion, and then places all such printed money in a vault, and locks the door until further notice. What will happen? Nothing, until the door is open, and the printed money is showered upon the masses....
All of the USA and European QE and money printing has been aimed at a select crowd. At the end of the day, the printed money is used to buy securities from banks, and banks are merely locking up the money. Credit is still abysmal... In other words, most of the printed money is sitting in the locked vaults of the banks, or in some cases, the banks are simply depositing it back into the locked vaults of the Fed. If that had not been the case, inflation would have already gone through the roof.
In addition, corporate America has over $1 trillion in cash, also sitting in its vaults.
As a matter of a fact, let's consider the printed (to be printed)money so far. Let's assume it is about $2.5 trillion. Let's assume 130 Million US households. If such money was distributed as a $40,000 payment per household to 50% of households, consumption and GDP growth would be through the roof....
In summary, it is my opinion that as long as credit is anemic, and the printed money is targeted to select institutions who merely lock it up, don't expect the economy to go anywhere. If such money does ultimately flow to the masses, from a short/intermediate perspective, the resulting inflation and higher interest rates may cause a pullback in the stock market..... Or, indebted companies will falter, and cash rich companies will shine...
For the time being, consumers are weak, unemployment is high, printed money is locked up, and companies are revising down their future earnings. That does not bode well for the stock market for the time being....
Apple: Too Far Too Fast, Again [View article]
This time around, there are indeed some troubling signs being ignored, and regardless of whether the move is parabolic or not, there is some downside risk to Apple.
Consumers do seem to be stretched, and most technology earnings and outlooks have been poor. Apple's own earnings during last quarter also missed. Everyone seems to believe that it is a temporary phenomenon due to new products expected to be rolled out by Apple. Regardless, Apple's market share in Asia has actually halved, and there is indeed some viable alternative products out there such as Samsung.
Most troubling could be the market itself. With little short interest in Apple, if the overall market stalls, while accompanied by European jitters, Asian slowdown, and a possible disappointment in overall device demand due to overstretched consumers (who now have alternative choices at a lower price), there could be a noticeable correction in the price of Apple shares.... The risks of the broader market stalling are huge; we have only seen an appreciation recently in anticipation of fed easing. Meanwhile, the fed will only ease if there is a sustained slowdown in the economy. This does not bode well for the markets. The bottom line is that the consumer has indeed slowed down, and easing or no easing, the fed's action is unlikely to trickle to the consumer anytime soon...
In short, the market has been rising on air, with no fundementals. Apple has caught some of that air, and has caught additional air due to upcoming product release, while ignoring both current economic fundementals, Apple's last earnings, and actual slowdown in consumer demand, in addition to additional competition... Indeed, some of that air could soon be let out...
The Age Of The Dollar Is About To End [View article]
Before we speak of alternatives, and sing goodbye to the dollar, it is important that we put "cause" and "effect" into perspective:
The US is not the only major superpower because of the dollar.
The dollar is a "supercurrency" because the US is the only major superpower.
History does tend to repeat itself, and the U.S. will always flex its might if it faces economic catastrophe, as past superpowers have always done.. Many have already said that Iraq was not about Saddam, Iran is not about nukes, etc...
In short, to predict the end of the dollar, you must first predict the end of the U.S. as a major superpower.
I certainly don't think that's going to happen anytime soon, not in five years, ten years, nor 30 years... The U.S. technological might simply continues to expand.
So folks, for the next several decades, the dollar is here to stay...
Apple: $700 Done. $800 When? [View article]
Apple: Take The Money And Run [View article]
Suppose a company has a market capitalization of $200 billion, and has annual sales of $40 billion and cash holdings of $150 billion, with no debt. According to your argument, the price/sales ratio of 5 would be a phenomenal sell signal. The truth of the matter is that once you subtract the net cash position, its price/sales ratio is merely 1.25
On the other hand, I do believe that Apple's risk/reward scenario is not necessarily in its favor at this time. There are substantial indications that the economy is slowing down, consumers are still suffering, and product competition is heating up.
Hence, although I agree that from a risk/reward perspective one has to be careful about being long Apple, and booking profits may be a good strategy for the time being, I wouldn't quite characterize matters in the way you have; I would say "take the money", but rather than say "run", I would say "wait for another entry point once some of the prevailing risks have subsided, and risk/reward is in your favor again"...
Apple: Too Far Too Fast? [View article]
As already discussed in http://seekingalpha.co... Apple has beaten last year's earning estimates by as much as 20%. If during the next year it beats by 10%, it will earn more than $47.
With a potential stock split, potential dividend announcement, Ipad 3, resurging economy, etc...., it is indeed a risk play to try to pick a top.... It may be better to wait for $600 to $700 before trying to play a pullback.
Apple Is Trading At 60-75% Premium To Its Sum Of Parts Valuation [View article]
They have $117 billion in cash. There are 937.41 million outstanding shares (http://yhoo.it/wQuHM7)
Can you handle the math? 117 billion / 937.41 million = $124.81
Gold And Silver Prices Have Further To Fall [View article]
From an asset allocation perspective, equities are more attractive than gold in the long run.
However, despite low velocity, the aggregate amount of money that has been printed by all western central banks during the past few years is absolutely phenomenal, and eventhough the Fed may have printed less than the ECB, it still printed a lot.... Gold can still appreciate against all currencies, although less against the dollar than against the Euro, and less than equities... At the end of the day, it is a matter of confidence, and unfortunately for many people confidence has eroded in the modern monetary system....