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richbar

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  • Value Hidden In Plain Sight: Apple Is Too Cheap [View article]
    Shiv, the problem with your analysis is that analysts' estimates of long term EPS growth (15-20+%) are way too high. EPS growth will almost entirely be due to share buybacks. Although markets for smartphones and tablets are growing, they will have a hard time maintaining market shares and margins. Your 15% annual EPS growth assumption for the next 5 years is thus way too high, as it would imply that the share count would be halved over this time frame. A reduction of 10-20% in share count over this period is more likely. Their net income should stay relatively flat in the mid to high $30 billions annually for the foreseeable future. A DCF analysis of this earnings stream added to the current value of cash and investments results in a present value close to the current market cap. Apple is thus fairly valued at present. The future for Apple will be determined by whether they can innovate sufficiently to improve market share for existing markets or develop totally new products and thus develop new markets. Only time will tell.
    Apr 10 09:59 AM | Likes Like |Link to Comment
  • Competitors Are Like Piranhas Chewing Up Apple [View article]
    Michael, what has been happening with Apple is exactly what I predicted over a year ago. I based my prediction on an analysis of the worldwide market for all of their products, the market growth for each segment, Apple's share of each segment, and growing competition. Most analysts at the time were predicting 20+% annual growth for Apple over the 2013-2017 timeframe. That would give them $400 billion in revenues in 2017, up from 154 billion in 2012. The entire market in 2012 was around $750 billion, giving them a 21% share. For a 2017 market of $1 trillion, their share would be 40% if the analysts were believed.
    I thought a share of 20-25% was more likely, giving them 2017 revenues of $200-250 billion. It appears they are on track to fall in this range.

    As to profit margins and net income, I felt that their net income margin would fall from the mid 20%s to the high teens over this timeframe based on what their competitors' margins were, as products became less differentiated. This would give them essentially flat net income in the high $30 billions, as revenues grew single digit and profit margins fell. This also appears to be happening.

    Their market cap should stay in the $450-500 billion range if they can continue to earn in the high $30 billions annually over the long term. With the buyback continuing, the stock price should thus work higher, again, if they can continue to earn in the high $30 billions, as EPS will continue to increase. Only time will tell.

    My own feeling is that the stock will stay in the $500s for quite some time.

    I would lastly mention that I'm old tech, owning only a laptop and a flip phone. (The latter is always being lost as I rarely use it.) I've never done any micro analysis of Apple's product sales, competitive sales, etc., much of which on SA (including yours) is very impressive. But it seemed obvious to me more than a year ago that Apple was not going to be the world's first $1 trillion company.
    Apr 8 01:26 PM | 3 Likes Like |Link to Comment
  • Apple Is Significantly Undervalued - Shares Are Worth North Of $650 [View article]
    I expect that Apple will continue to have a market cap in the $450-500 billion range based on maintaining annual earnings in the high $30 billions. If the share count is eventually reduced to 800 million, the share price could reach $650, but the stock is presently fairly valued at the current 890 million shares.
    Apr 6 06:34 PM | Likes Like |Link to Comment
  • American Capital Agency Going Into 2014 [View article]
    It's sad that an otherwise good article uses a meaningless trailing dividend yield rather than the current yield. The 17% raised my eyebrows. Such a blunder.
    Feb 28 02:01 PM | 3 Likes Like |Link to Comment
  • 10 Reasons To Avoid Apple's Shares [View article]
    Some years from now (and maybe sooner) the diehard bulls are going to be sorry they ridiculed this author. Apple will still be a great company but is not a good long term investment at this point. The effect of buybacks on EPS is the only reason the stock price is being supported. Better to look elsewhere.
    Feb 28 09:33 AM | Likes Like |Link to Comment
  • 10 Reasons To Avoid Apple's Shares [View article]
    Some years from now (and maybe sooner) the diehard bulls are going to be sorry they ridiculed this author.
    Feb 28 09:31 AM | Likes Like |Link to Comment
  • An Onslaught Of High Performance, Low Cost Smartphones Spells Trouble For Apple [View article]
    i don't know if I'm as pessimistic as you Michael. For those who have followed my posts for the last year, remember that I've consistently said that 2017 revenues would flatten out toward the $200 billion range (based on maintaining their 21% market share in the growing worldwide market), and that earnings margins would decline from the mid 20s to the high teens (to approach competitors' margins). That was when their revenues were $156 billion and earnings were $41 billion (i.e., 26% margin). At $200 billion revenues and an earnings margin of say 18%, net income would be $36 billion. The NPV of an earnings stream of $36 billion annually is $360 billion (10% discount factor). Add to this cash and investments and the NPV is around $500 billion. At your 875 million share count, the NPV is around $570/share. Increased buybacks could lower the share count further and increase NPV/share to $600/share or thereabouts. So I feel Apple is currently fairly valued, but with limited upside. I'd be afraid of shorting it with Icahn on board. Besides, I've never shorted anything.
    Feb 27 09:44 AM | 2 Likes Like |Link to Comment
  • Putting the biotech boom in perspective [View news story]
    Biotech is the future in medicine. The $582 billion market cap of this sector doesn't scare me. After all, Apple alone has a market cap of $470 billion.
    Feb 25 09:01 AM | 1 Like Like |Link to Comment
  • Is This The Right Time To Buy American Capital Agency? [View article]
    In the short term I think AGNC is attractive. I believe that they will maintain the $0.65/share dividend for another quarter or two and then increase it later this year. Book value at this time is probably close to $25/share, so the shares currently trade at around 12% below book.
    Feb 25 08:43 AM | 8 Likes Like |Link to Comment
  • Apple's Prognosis: Range-Bound [View article]
    Bret, I expect that revenues will be up only slightly this year to around $175 billion, not up by 5-7% as you stated (which would take revenues to $180-183 billion). It's unclear how new product introductions, market saturation, enhanced competition, and margin compression will play out, hence earnings over the next few years are difficult to predict. I expect gross earnings to be flat (i.e., in the high $30 billions), but EPS should increase due to continued buybacks. The stock price should thus increase due to the lower share count, but the market cap will be flat to down in the $400-500 billion range. Your option strategy appears sound to me.
    Feb 23 09:32 AM | 1 Like Like |Link to Comment
  • Is Apple The Next Microsoft? [View article]
    It's very unclear as to what Apple's earnings will be over the coming years for a variety of reasons. Hence what the forward P/E will be a few years out is unknown. Because of this one can't really say that Apple is currently undervalued. How new products, slowing revenue growth, enhanced competition, market saturation, margin compression, and other factors impact this should be clearer by later this year.
    Feb 21 02:45 PM | Likes Like |Link to Comment
  • Is Apple The Next Microsoft? [View article]
    It's very unclear as to what Apple's earnings will be over the coming years for a variety of reasons. Hence what the forward P/E will be is unclear. Thus one can't really say that Apple is currently undervalued. How new products, slowing revenue growth, margin compression, and other factors play out should be much clearer in a few more quarters.
    Feb 21 02:42 PM | Likes Like |Link to Comment
  • Will Apple Emulate Gold's Plunge? [View article]
    The author points out that analysts are currently estimating EPS of $42.80/share for 2014. Currrently there are 892 million shares outstanding. If share buybacks continue so that the share count is reduced to 870 million by year's end, then Apple will have to earn $37.2 billion to meet the $42.80/share EPS estimate. For 2013, Apple earned $36.6 billion. So 2014 earnings would be less than 2% higher than 2013's (whereas EPS would be 8% higher). If the trend of flattening earnings (with EPS only increasing due to share buybacks) continues, the market is likely to value Apple lower. But I don't know about the comparison with the rise and fall of gold. How about the Roman Empire?
    Feb 11 10:59 PM | 1 Like Like |Link to Comment
  • Apple Investors Should Keep Cool, Just Like Carl Icahn [View article]
    Long term EPS growth will be accomplished mainly from share buybacks. Earnings will be flat at best. Your 11% forecast for annual EPS growth over the next 5 years is way too high, since that would imply that they would buy back well over half of their shares, and that's not going to happen.
    Feb 10 09:19 AM | Likes Like |Link to Comment
  • 2014 Will Be The Tipping Point For Apple [View article]
    Icahn is betting on an increase in buybacks boosting the stock price. The worldwide markets for smartphones and tablets are growing rapidly. If Apple can simply maintain revenues and earnings at the current levels indefinitely (i.e., with no growth and hence erosion of market shares) and Icahn can get Cook to accept his $50 B increase in buybacks, the share count could be reduced to well below 800 million considering both the remaining portion of the current $60 B buyback and Icahn's proposed $50 B increase. EPS could then be increased by close to 20% when compared to EPS before the buybacks started. Apple should still have the same market cap for the same earnings stream, so the stock price should rise in inverse proportion to the share count. Blair's strategy is risky in that the buyback effect appears to be totally neglected.
    Feb 9 09:22 AM | 9 Likes Like |Link to Comment
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