Marc Gerstein

Apple Overvalued? Here's What Else You Can Get for the Price

It wasn't faint praise. I can see from other articles and your web site that you really do know valuation. Hence my reaction to this article. And sorry . . . who the heck are you anyway . . . are you Harry Schacht from Schacht Value Investors? . . .this one and the AMZN just don't cut it. If you think AAPL is less worthy than, say KO and BA, then share with readers the relevant KO, BA and AAPL metrics that put the market caps into proper context. If you insist on dropping Buffett's name (not sure why . . . you can't turn a bad article into a good one simply by typing the word "Buffett"), then do as you say he'd do. Give readers a sense of the owners earnings generated by AAPL and the packages of alternatives so they can properly evaluate the relationships between the benefit of owning the businesses and what one would have to pay to own the businesses.

> <img class="authors_reply" src="static.seekingalp...
>
>
> Wow, Marc... sorry to get you so worked up. Another reader had the
> same objection, but didn't try to be coy about me trying to perpetrate
> a joke. He also refrained from damning me with faint praise. I
> do know how to value companies.
>
> The analysis in the article is sound... and if you had read the rest
> of the comments you would have seen that your objection was asked
> and answered.
>
> Nonetheless, I'll repeat:
>
> "Your objections to my "flawed" argument actually don't make any
> sense. The question is: If you could buy all of Apple OR one of the
> alternatives, which is better. As the sole owner, you would have
> access to all the cash and cash flow. Buffett looks at companies
> this way. He refers to it as "owners earnings". He realizes that
> he is only buying a proportionate piece of the business but the analysis
> is the same.
>
> $175 billion would buy you any of the equivalents shown above. For
> smaller dollar amounts, just start dividing. The question is: which
> side of the value scale is heavier.
>
> Rational minds can disagree, but the analysis is clear."
>
> If you think Apple is a better buy at $175 billion vs the alternatives
> (all of which have the same market value), then by all means buy
> Apple. Clearly you must compare the underlying fundamentals of the
> 2 sides of the equation to see which has more weight.
>
> I personally think that any of the "alternatives" is a better buy
> (and more sustainable) than Apple.
>
> This is a very serious article that was fun to write. If you didn't
> see the logic, I'm sorry, but it is there if you think about the
> point being made.
>
> Boiling blood? A rather strong reaction. Thou shalt not question
> Apple's valuation? Come on.
>
> On Dec 10 08:13 PM Marc Gerstein wrote:

Apple Overvalued? Here's What Else You Can Get for the Price

Wow . . . this is bizarre (ditto your AMZN piece). What's even stranger is that judging by some of your other Seeking Alpha articles (quite good actually!) and your Schacht firm web site, it seems you know quite well how to value a stock. Why, then, are you posting articles like this?

I can appreciate a tongue-in-cheek gimmick as well as anyone, but it appears from some of the comments here and for the AMZN piece that some readers are taking you seriously. And frankly, the idea that there may be readers here who don't understand that this is a joke scares me.

To those who actually think this is a legitimate way to think about value, I suggest you go here: schachtvalue.com/v....

This is part of the author's firm's web site, where he presents a much more substantial introduction to the fascinating and often complex topic of value. There, you can get a sense of how a firm's market cap cannot be judged merely based on how big it is relative to those of other firms, but relative to key business performance metrics. You won;t chuckle or laugh when you read that stuff, but it may prompt you to think about value the way the author seems to do for his paying clients.

I'm sorry if I'm coming on a bit strong, but something about this article is really making my blood boil. Perhaps it's the snide reference to Jim Cramer. Many bash him for exalting entertainment over substance. Yet that is EXACTLY what this article (and the AMZN posting) is doing!

The William O'Neil Strategy: A Quest for Upside Surprise

Glad you like the site. Anyway, I will be writing about the Piotroski model in the near future (it's really quite an interesting approach). I also created a custom formula and ranking system based on the Altman Z-score and my to-do list includes an attempt t build an Altman all-star model.


On Nov 20 04:06 PM mbkelly75 wrote:

> Hello Marc - I went out to your site and was impressed. I also use
> Piotroski Scores (Altman Z scores also) to help judge stocks. I will
> have to spend more time later on reading your articles. Thanks for
> making your knowledge and insights available here on SA.

The William O'Neil Strategy: A Quest for Upside Surprise

Actually, page 185 of the 2009 edition of O’Neil’s book specifically says: “Stocks of any size capitalization can be bought using the CANSLIM system.”

That said, there is still a significant small-cap bias to CANSLIM, both in O’Neil’s other statements, including the one that follows the above quote, and others. To the extent the model itself leans small, a lot of it comes from the S in CANSLIM; supply of shares. However from an implementation standpoint, that is probably the most troublesome section. For more, please click the link above that takes you to a more complete explanation of our interpretation of CANSLIM as well as the link that explains the Portfolio123 approach to all-star models in general; how these are our models inspired by the all-stars for whom they are named. In truth, only William O’Neil can create a true William O’Neil model, only Warren Buffett can create a true Warren Buffett model, etc.

For reasons covered in the detailed explanation, I decided to allow CANSLIM’s small-cap orientation to flow from mainly from the strategy’s growth-momentum flavor. The number of large companies that can satisfy these tests is small. But if a company can do it, so be it. Let’s face it: Apple and Amazon have certainly shown considerable zip and my intent in the text of the article was to call your attention to questions that may help you make assumptions one way or the other as to whether that can continue.


On Nov 19 02:41 PM mbkelly75 wrote:

> CANSLIM is a momentum screener designed to find SMALL caps with Earnings
> Growth Acceleration and a High Relative Strength. Jordan Kimmel's
> MAGNET is an alternative screener suitable for Large Caps also. How
> are you getting stocks like Apple and Amazon from CANSLIM ?? It did
> not occur to me that those stocks are small caps.

Nokia Enters the Already Crowded Netbook Market: Pros and Cons

"Nokia has a price tag of approximately $300 for its net-book."

Wrong!

Nokia has a price tag of approximately $600 for its net-book, which is way overpriced.

Who in their right mind would take the $300 version which requires a $60-a-month plan with AT&T? Most people are already paying somebody somewhere for internet access and wouldn't even consider giving AT&T $60 a month.

This sort of nonsense is an example of what happens when corporations pay more attention to their own "biz dev" (business development) group rather than to their customers.

And by the way, who wants Windows 7, another Microsoft operating system of the future. One of the benefits of netbooks is that you can get them with XP, which we know works even on normal amounts of memory.

Microsoft's Debacle – and Google's Challenge

Why should the author, me or anyone else go out hunting for such third-party applications? I use Blackberry. It's every bit as easy to use as the author indicates. What's his or my motive to look for a solution for a non-existent problem?


On Oct 15 11:48 AM bricki wrote:

> The problems with this article is that the author has missed the
> point of Android. It is an open platform and the result is that there
> are 3rd party applications that support a variety of tasks.
>
> Take a look at MyLink for Android for example.

How the iPhone and Poor Management Contribute to Apple's Downfall

On Jan 21 01:58 AM Andy Zaky wrote:

> No. Its you that missing the point of the article. This article
> stands for the proposition that subscription accounting has CONTRIBUTED
> to the downfall. Not the cause. Just a mere contributor. As a
> matter of fact, this article speaks to why Apple is undervalued relative
> to others in the sector. RELATIVE. R-E-L-A-T-I-V-E. Learn the
> freaking word. Its undervalued relative to others in the sector
> due in part to the market overlooking adjusted earnings. What is
> the main argument in support of this...
>
> The fact that Apple's adjusted P/E ratio is far below that of its
> peers. The market is discounting nearly 40% of Apple's recorded
> revenue this past quarter. Just like almost everyone else commenting
> on this article, you need to read before you criticize. This goes
> to everyone else who feels a need to comment before reading the article.
>
>
> Once again. I never said that this accounting treatment was the
> cause of the collapse in share value from $200 to $80. What I am
> saying here is that relative to others in the sectors, Apple should
> be trading closer to $120 a share post collapse. Read the freaking
> article. There's no need for me to just sit here and repeat myself.
> Seriously.

I, like many others here, know the freaking word and read the freaking article. And yes, it's understood that you are not saying the accounting is the only cause of the stock's problems. Nevertheless, it's hard to deny that you're pinning a major portion of the fall on the accounting issues. (You did mention the financial turmoil among other factors, but frankly, I think it warranted more than the throwaway gotta-get-it-in treatement you gave it).

As to your present emphasis on "RELATIVE. R-E-L-A-T-I-V-E." performance, let's look at your comps:

GOOG is an interent advertising operation, not a maker of hardware and e-commerce platform (maybe some day that will change, but right now, GOOG isn;t in the hardware radar).

AMZN is a leading e-merchant, not one-to-one comparable to Apple.

MSFT and CSCO are, well come one, we all know. They, like GOOG and AMZN are possibly comparable in the minds of people who aren't really into the market but only into the (once) hot tech names that get publicity, but are not the sort of comps that would make a market-savvy person jump up and down if the P/Es were not strictly in line.

RIMM is the closest bona fide comp. But even it's differences work in its favor and are compatible with RIMM having a higher P/E (RIMM leads in the enterprise market and can reasonably be seen by many as likely to become formidable in the consumer space it just entered, RIMM is a purer smart phone play, and RIMM doesn't have to cope with health uncertainties relating to an iconic founder). You may disagree and argue that this doesn't warrant a higher P/E. Fine. If so,make your arguments re: those issues. But you can't brush them off and suggest the accounting is the big thing.

As to subscription accounting, I agree with others, here, who said the investment community understands this stuff. Those most likely to be confused probably don't know what EPS is anyway and, hence, probably don't care one way or the other what accounting policies are followed by Apple.