Seeking Alpha

Rob_Stein's  Instablog

Rob_Stein
Send Message
I am a lawyer retired from active practice after 25 years. I continue to work as an Arbitrator primarily in securities related arbitrations. I am a full time investor and trade in my own accounts regularly, but not frequently.
View Rob_Stein's Instablogs on:
  • Apple: When To Buy It - If You Should

    Fundamentally, Apple (NASDAQ:AAPL) is a screaming buy. The problem is: fundamentally it also appeared to be a screaming buy in September, 2012 just before it began its freefall from $705 to $450 - a loss of 36%.

    Before The Fall

    In September, 2012 its PE was just above 16 - not expensive compared to the S&P average in the same range. It's PEG ratio was under 1 - generally a sign of value. It sported a huge cash hoard on its balance sheet around $130 billion. It was adding to that cash hoard in the neighborhood of $3 billion per month. It had just released the iPhone 5, adding to its stable and highly regarded lineup of products (iPhone, iPod, iPad, iTunes, apps, computers, retail stores, etc) and continued to attract positive attention with rumors of an iTV in development. A number of analysts had price targets of $1000 and higher.

    After The Fall

    Today, all of the fundamentals in place when the stock lost 36% in its fall over the past six months are still in place - only the PE and PEG are even better than they were. Further, the stock currently yields 2.3% and that yield may soon increase significantly as the company appears set to announce next month what they will do with a portion of its cash.

    A healthy dividend increase or a special dividend are likely possibilities to return value to shareholders. And then there are the rumors of development of an iTV and/or an iWatch. Apple has a justifiable reputation for cutting edge innovation and revolutionary products. Steve Jobs, considered the visionary for these products is of course gone, but the products in development when he passed are still there being worked on by the same teams as before. An iTV would be a blockbuster and could revolutionize how we receive and use TV content the same way the iPhone changed telephone.

    Apple does, however, have its challenges. It's facing increased competition - primarily from Samsung, which has been producing mobile phones that not only rival the iPhone but are being viewed as superior in many respects. Market sentiment has turned negative and for the first time negative press has dominated.

    Criticism of Apple used to be rare. Now we see articles comparing the iPhone 5 unfavorably to the Samsung Galaxy S 4, activist whale investors are becoming vocal about the company's failure to return cash to shareholders, and recent criticism from China about its warranty policies continue the negative theme. And, the simple fact of Apple's price decline contributes to the negative feeling and the inevitable question of whether the decline will continue.

    Another interesting development is the new T-Mobile pricing model proposing no contract mobile phone plans without the subsidy previously paid by phone carriers ATT (NYSE:T) and Verizon (NYSE:VZ). With these new plans, the customer would have to pay full price for the phone (over time) but gets a good data plan and there is no 2 year contract. Speculation is that if this pricing model works it may negatively impact what Apple can charge for a phone as customers are used to thinking the phone costs $300 rather than $600 due to the subsidy they have been getting. And if ATT and Verizon copy the T-Mobile pricing model the vanishing subsidy would put downward pressure on Apple revenue.

    To Buy or Not to Buy.

    While Apple appears to have put in a floor in the $425 range and has now moved up some, it has mostly gone sideways since hitting its recent low of $420 on March 4. It seems to be putting in a base as most of the sellers have likely been shaken out by now.

    My Take: If you have a long term time horizon Apple provides a favorable risk/reward at its present level. Build a position by scaling in over time. The market seems due for either a normal correction - or maybe something worse. In either event, starting a position now and scaling in when the market takes everything down with it in one of its yearly (or more frequent) downdrafts, is likely to be rewarding in the long run.

    Disclosure: I am long VZ, T. 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.

    Tags: T, VZ, AAPL, long-ideas
    Mar 28 11:06 AM | Link | Comment!
  • Is Microsoft A Stealth CD With Upside?

    Is Microsoft a Stealth CD With Upside?

    While Microsoft's (NASDAQ:MSFT) stock price has gone nowhere in the past ten years, it quietly collects and stockpiles cash each and every month. It garners little respect in the marketplace but has a cash hoard of $68 billion, and pulls in around $2 billion more per month. Some might argue that a business which regularly generates such huge sums of cash should be high on the list of companies worth owning but Microsoft is instead widely unloved. Most believe it is stuck in a declining market for PC's and unable to break in to the high growth market for mobile devices.

    Consumer and investor sentiment has been running against Microsoft for many years. And the company has certainly contributed to that sentiment by making more than its share of missteps with poor product launches and being behind the curve in mobile. And yet…it continues to rake in cash each and every month like clockwork. Steady as a metronome. Lots of cash.

    With all that cash Microsoft pays a healthy dividend yielding 3.29%. That is far in excess of what a CD will pay in today's environment, and has been for the past several years. So if you have cash in your portfolio earning next to nothing, and you are looking for a steady place to park it with a decent yield, Microsoft is a good place to look. Not only is the yield safe, the stock price itself has been steady with a 52 week low of $26.26 and a high of $32.95. With the stock currently trading at or near $28 it likely has a floor under it both from support at the $26 level and from the solid dividend it pays. While not as safe as a federally insured CD, it seems a safe place to park some of the cash you might have built up out of any fear you have had of stepping more fully into the market.

    In addition, there may be some upside to the stock as several stock rating sites have a favorable opinion of the company:

    Stock Scouter Rating 8 of 10

    TheStreet.com Rating B (Buy)

    Zacks.com Rating 3 of 5 (Hold)

    S&P Cap IQ Ranking 5 Stars

    Fidelity.com Rating 8 of 10

    Best case: Microsoft finally gains some traction and rises, either on its own or as a rising tide lifts most of the market in 2013. Most probable case: the stock price continues to languish in the $26-$28 range and you collect a 3.29% dividend yield in an otherwise poor yield environment. Worst case: the stock falls below its solid level of support at $26 but you continue to collect the dividend and wait for better times. With a company that collects and throws off cash like Microsoft, I believe the downside is limited.

    Disclosure: I am long MSFT. 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.

    Mar 05 5:03 AM | Link | Comment!
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.