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Jeffrey Dow Jones

 
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  • A Simple Look At Apple's Cash Flows [View article]
    Where do you suppose Apple is on this cycle?

    http://bit.ly/14Ja6KO

    "Capitulation / Depression", right?
    Apr 22, 2013. 09:42 AM | Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    Good comment. Great points.

    Let's say iPhone margins are halved. Then the stock might be trading at a 6x TTM PE at the end of 2014 instead of a 3x?

    Clearly, the market seems to think that something really bad is going to happen to earnings and margins. The question is how bad that thing actually winds up being.
    Apr 19, 2013. 10:28 AM | Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    Shikes, I agree 100% with points A, B, and C.
    Apr 19, 2013. 10:25 AM | Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    Well, I don't like the word "irresponsible" here because it implies some sort of moral judgment. I've never felt that or other emotions have a place when it comes to investing.

    But look at it this way: why ISN'T Apple buying back stock? Is it because they don't view their stock as cheap? Is it because they have more productive places in which to deploy it? Is it because they're lazy or stuck because of inertia?

    The point is, they're not doing that. This is another strong argument for the bear case. Their lack of action and direction (a function of their general corporate & cultural secrecy, no doubt) is making investors frightened with uncertainty. I concede, this is a legitimate concern, but that's the kind of risk that can also disappear with a single earnings call or press release.
    Apr 19, 2013. 09:25 AM | Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    There's nothing forcing Apple to repatriate their cash. Think of cash as "potential energy". If you just paid $380 billion for Apple and could do whatever random things you wanted, would you rather repatriate that cash and pay a hefty tax on it. Or take that cash wherever it lives right now and buy some asset that will grow and generate yield. If you and your $380 billion took Apple private, you could, say, take $50 billion and buy a company like Caterpillar or a foreign equivalent. That asset now gets a multiple that can grow and generates more cash to support AAPL's valuation floor.

    If anything, you might need to make some sort of currency adjustment (that's the real risk). Maybe the Dollar gets strong relative to the currencies in which their foreign cash is denominated. Though with those guys running what is essentially a fixed income hedge fund, I would be very surprised if they didn't have at least some sort of basic currency hedges in place.

    It's funny, investors seem to assign a valuation premium their own cash and the optionality it provides. But they seem to apply a valuation discount when looking at OTHER people's cash.
    Apr 19, 2013. 09:10 AM | Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    Another way is to look at how the risk is currently skewed. Right now, I don't think it's a stretch to say that it's positively asymmetric.

    There really is a hard floor not too much further down from here. Cheap stocks with no debt and no growth prospects usually don't trade too much below around 2x book value (even MSFT trades above 3x book). Under a totally apocalyptic scenario, the stock could fall another $100 or so. Conversely, if it turns out this is still a real business and earnings can hang in there, there is $200-300 of upside over the next several years.
    Apr 19, 2013. 09:00 AM | Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    Yes, biobat. This was the exact essence of the analysis. There's a core business here and that business trades at somewhere around $200/share. That's the business that generates the new cash. That business currently trades at like a 5x PE. Its earnings yield is, what, 20-25%?

    Situations where a company's equity is represented by such a large percentage of cash are extremely rare, especially at this level. I'm not sure the market really knows how to deal with that. This probably explains part, but not all, of the angst associated with "the cash."

    Which isn't even really cash. It's essentially a fixed income hedge fund.
    Apr 18, 2013. 04:41 PM | 1 Like Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    That's really funny!
    Apr 18, 2013. 01:59 PM | Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    I have no idea what they'll do with the cash. They may not either.

    If you're a BEAR on Apple, then you could really effectively argue that one of the reasons they've accumulated all this cash is that, internally, they are super concerned about future cash flows and the ability to sustain their dividend.

    That could be something that's legitimately freaking the market out. And again, that's the kind of fear that could go away with the stroke of a single earnings call.
    Apr 18, 2013. 01:54 PM | 2 Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    Yes, I thought about taxes but wanted to keep the thought experiment general in nature.

    Technically, you could argue that there's nothing forcing Apple to repatriate all of that cash held elsewhere in the world. If it was your company, you could use that cash to by up all sorts of random and productive assets. You could buy a Chinese carmaker, let's say. The point is that that cash (think of it as potential energy) deserves some sort of valuation multiple.
    Apr 18, 2013. 01:51 PM | 2 Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    The market clearly is telling us that Apple isn't going to grow its earnings 15-20% for the next five years.

    But the market isn't always correct. If Apple does continue to grow its earnings, it will have to figure out a new price for the stock. Dunno where that is, though. Obviously higher.
    Apr 18, 2013. 01:48 PM | Likes Like |Link to Comment
  • A Simple Look At Apple's Cash Flows [View article]
    Right -- when people look at Apple they worry about all of these types of problems. But the question investors should ask is whether those risks are going to zap $50 billion out of the next few years' cash flows.

    (Thanks for the comment!)
    Apr 18, 2013. 01:41 PM | 2 Likes Like |Link to Comment
  • Justifying Apple's Valuation: Is It Too Late To Get Back In? [View article]
    Their cash department is an investment firm. Braeburn Capital. Their office is right here in my home town! It's technically a fixed income hedge fund, which isn't technically a bad thing.

    Managing such a large amount of "cash" is a tricky operation. I'm not sure they get enough credit for the way it works at that level. It isn't like me having an extra ten grand in my checking account that would be more productively put to use in some sort of investment.
    Feb 15, 2013. 05:52 PM | Likes Like |Link to Comment
  • Justifying Apple's Valuation: Is It Too Late To Get Back In? [View article]
    Right, and I agree that that certainly could be the case. It's easy enough to make, too.

    I'm just tickled that there are so many more people making the case that Apple is fairly priced at $480 with the stock actually at $480 than there were people saying that fair value was $480 when the stock was trading at $700. :-)

    Data is data. DCF is DCF. But ultimately, we always have to bend the narrative somewhat so as not to sound like a total crazy person.
    Feb 13, 2013. 11:50 AM | 1 Like Like |Link to Comment
  • Justifying Apple's Valuation: Is It Too Late To Get Back In? [View article]
    This is a really interesting comment.

    Is there more "hidden value" with the company at $480 than there was $700? Why are we spending so much more time right now trying to "unlock value" than we were a few months ago?
    Feb 13, 2013. 11:47 AM | Likes Like |Link to Comment
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