Martim Macedo's  Instablog

During the last year, Apple (AAPL) reached an all time high of $705 per share, valuing the company at more than $660 billion. Currently, the company trades at around $400 a share, for a market cap of $375 billion. Is the current price attractive?

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Going back to 2011, the company was trading slightly below current prices but, in comparison with today, very different expectations were in place.

Back then, the iPhone was the smartphone to have and the iPad was clearly the only tablet worth considering. In this context, it was easy to get overexcited about the company and, given the constant innovation and the myth around Steve Jobs, it was easy to believe that Apple would always be in front of competition and growing. Adding people expectations and the unbelievable financial performance that the company was delivering, took the market cap from $300 billion to more than $600 billion in a year.

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As we can see above, the performance has been unbelievable with the company earning $0.35 a share in 2004 and $44.15 in 2012. Not only the growth over the 8 year period is amazing, as it is the fact of, even with a higher base, the company almost tripled net income from $14 billion in 2012, to $41 billion in 2012.

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Amazing last 10 years aside, currently, the story is a bit different. The competition has been catching up strongly and it's not clear that the company will even continue to grow from current levels.

The iPhone used to do things that other smartphones either couldn't or were to slow and complicated to use. Now, any iPhone, BlackBerry Z10, Lumia 920 or any flagship Android does practically the same. The difference now, for the majority of consumers, is how each one looks (software and hardware).

Also, while a few years ago any tablet other than the iPad wasn't a possibility, today there are several Android tablets that compete directly with the iPad and, with Windows 8 tablets/hybrids, competition is only increasing.

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As we can see above, current expectations are becoming more reasonable, with the market now expecting a much lower growth rate from the 2012 level. With lower expectations and the current market cap, lets try to see if current prices are an investment opportunity.

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Again, if we look at the income statement, we can see how impressive the numbers have been. They are so impressive that there's nothing to more to say about them. Just one question: can Apple maintain this performance?

Lets look at the balance sheet to see if there are any red flags.

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As we can see, a really healthy balance sheet.

But while the numbers above are great, it shows us the past of the company and, in order to decide if the current market price is attractive, we must compare not only the current price to the current shareholder equity, but also our expectations about future net income and the current market prices.

By paying $375 billion currently, an investor gets $127 billion in equity, no long term borrowings and more than $130 billion in cash and equivalents. Goodwill is marginal at slightly more than $1 billion and every quarter the company pays a $2.65 dividend. From a static point of view, the numbers are good but you are paying almost 3 times total equity so the question is just about future earnings.

Last years results were $41.7 billion. If the company maintains that level, it will take you less than 9 years to recover your investment (375/41.7), a pretty good deal for a company as healthy as Apple. Of course, if earnings grow, it will take you even less time, meaning that current prices would be an amazing opportunity. In the other hand, if something goes wrong in the next 9 years and net income falls, you could be stuck with your investment for a lot more years.

In the last few years, the company has taken advantage from the fact that it had virtually no competition, and unique and highly desirable products. Going forward, the market for smartphones and tablets is only growing but competition is here and it's serious. Of course there can be new product lines but there are now considerable more risks than in the past. For example, it's not clear what the impact of the cheaper iPhone will be. Will it increase volume at the expense of margins? Will it slowly destroy the sense of exclusivity that the iPhone currently have?

Also, the current iOS is becoming old. It has been improving year after year but history shows us that at some point evolution is not enough (Symbian; Blackberry previous OS). It's a very uncertain situation because in one way there is the need for something new but in the other, it faces the risk of consumers not liking the change.

I believe the current price is attractive only if current net income can at least be maintained. The profitability of the last few years has been perfect and very hard to maintain over a long period of time. By the above reasons there is already enough uncertainty so investing in the company at current prices can be risky. At the smallest mistake, your expected P/E of 9 can easily be a lot higher.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

BlackBerry (BBRY) delivered full year results and, for the first time, we are starting to see the impact of the decisions taken by the current management team.

The results were quite positive. While net income is still not reflecting the achievements of current management, the increase of gross margin in the last quarter indicates that the cost cutting measures are being effective and that the new products have a good profit margin. In comparison with the last quarter, gross margin increased from 30.4% to 40.1%, meaning that while revenue decreased from $2,727 million to $2,678 million, gross profit increased from $830 million to $1,075 million, a very good sign. As an example, if the company maintains last year revenue of $11,073 million and increases the gross margin from 31% to 40% gross margin, it will produce almost more $1,107 million in results, a very significant increase.

Also good was the fact that R&D expenses maintained stable and that the company still carries no goodwill on its balance sheet.

While in terms of sales it's still to early to know the impact of the new BB10 smartphones, it's encouraging to see that the company maintained a healthy balance sheet during the last year, and while it was waiting for the new operating system to be introduced.

It will probably take a few more quarters to have the verdict regarding true acceptance from the consumers but, there is good potential for profitability even if revenue maintains the current levels and gross margin maintains the 40% level during the year. In this case, net income would be approximately $400 million, meaning that you would be paying currently slightly less that 20 times earnings. If things happen to go slightly better than expected, there should be a good upside potential and the true P/E ratio would be considerably lower.

So, with the current market cap at around $7,800 million, with no long term debt, $2,900 million in cash and investments, an efficient cost structure, an almost $2,000 million discount to book value, and the new BB10 smartphones finally here, I believe this is a great investment opportunity.

The numbers are very attractive and, if you can, go out and try the BlackBerry Z10. If you find that you like it, you cannot miss this investment opportunity.

Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Ever since I can remember, I have always considered myself an European from Portugal.

The European integration was something that has been taught to me since the early times of my education, having grown up in an educational system who, year after year, taught me about all of the benefits of the European union, how it all made sense and how great it was to all the countries involved.

On my history classes, I have always found it confusing how, just a few years before, Europe was at war. Since I was born after it, I guess that the feeling I had was almost as if it had only happened in the history books, and as a consequence of a big mistake taken by a very stupid and dangerous group of people that could not see how it was better if we all got along together. As an example, my grandmother was British and I can remember her telling me that the Germans could not be trusted. I understood her point of view since she felt what it was like to expect a bomb dropping from the sky at any moment but, even so, I have always tried to tell her that it was an unfair way of thinking and that the population of a certain country cannot be confused with the actions of a few crazy people. I also used to tell her that lessons were learned and, so, it made no sense to have that kind of feeling and that now was a new era where we were all Europeans.

But the times that we are living in Europe are starting to make people think again about the differences, what it means to be European, and if it can really succeed.

When things go well, everybody is happy. We all sit together at a table, have a drink, laugh, and go on with our lives. But, as with any family, it's in difficult times that we see the strength and the union between family members.

When a family is strong, family members get together, face the problems, and try to come up with solutions. Everybody tries to help each other and, by doing that, they also end up helping themselves by maintaining the family happily together.

When the European crisis started, everybody acknowledged the problems and, summit after summit, expressed the solidarity between countries, promising to solve the crisis quickly with the solutions that they had provided. That was back in 2009. When I stop to think about it, I now find it difficult to believe anything that comes out of the current European leaders since not one thing they have said would happen, actually happened. Remember how it was just a Greek problem and that it should not have any contagion effect? Remember how there was no possibility of a Greek default?

But what has been the problem?

The problem is that we are not Europeans. We are a group of people who got together as numbers and, unfortunately, reality is showing that people from each country don't really care about people from other countries. It's the opposite of a strong family. First they look at themselves, after at their neighborhood, then at their city, and later at their country. If there is a problem in another country, that's not their problem and, if it turns out to possibly be, instead of trying to solve the problem, the response is "how can I stop it to become my problem".

This is the big problem that Europe is facing right now and, it might mean the end of the European project.

In a strong family, when member A has a problem, the family comes together and tries to solve the problem, even if it means that other family members make sacrifices in order to help the struggling family member.

In Europe, when family member A has a problem, the family comes together but discusses how it can prevent it from becoming the other members problem. And how do they measure it? By looking at the numbers and forgetting about the people.

Forget about what are the roots of their economic problems. Forget trying to help the economies of the struggling countries to recover. It's all about preventing the problems of troubled countries to affect them, even if it means that people will starve to death.

Decision makers call the shots inside nice offices, very far away and with no contact with the local reality apart from the numbers. They try to come up with solutions using spreadsheets, theoretical models, and trying to apply formulas with no relation to each country's reality.

They are just looking at the numbers and expect things to happen automatically, in accordance with a kind of perfect formula that should work in a way that would resemble FarmVille.

Forgetting about people and local reality is why not a single thing has turned out the way it should. I'm not even going to go deep into how theory and magic formulas don't work if only applied in a piece of paper (Dan Ariely has great books about behavioral economics that are very useful if you are interested).

As a comparison, in the USA, everybody is American. Different states work more or less like the different countries in Europe but everybody is American, meaning that if there is a state in trouble, the whole country comes together and tries to solve it. Everybody is in the same boat and that is why it is such a great country.

Unfortunately, Europeans are not all in the same boat, and divergences are increasing instead of diminishing. European leaders are either hiding some evil plan to destroy Europe, or they are just too weak and incompetent.

The facts don't lie. None of the goals they have set has been achieved, the economic situation is worst everyday, social problems are increasing everyday and, worst of all, people just stopped believing that European leaders know anything about what they are doing. The lack of credibility is alarming.

And the reaction of the European leaders to the criticism about the route they have taken is similar to the reaction of the owners of the Titanic when it hit the iceberg: all remained calm because it was unsinkable.

What happened next?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.