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Apple: It's Time To Move On
Good article mostly. I disagree on the edges. I think the moat is wider and deeper than he thinks. All the current affluent high end users in the US and Europe make the user base critical to developers. And we will likely see new markets and functions that make the moat deeper still. Mobile payments could be a huge area, which promotes customer stickiness and changes the conversation away from device specs and performance.
As the industry matures, certainly margins come down as you sell to the marginal buyer in asia or whatever. But as long as you do an credible job in those markets, not necessarily dominate them, then the company will be fine. The core user base is a very desirable demographic, composed of power users who push new apps and spend money for media and e commerce. This builds the brand, and that brand remains far more valuable than currently perceived. Right now all the talk is about market share in emerging markets. Thats important, but its not the most important thing unless it becomes an unmitigated asskicking which i think is unlikely. Samsung lacks software and ecosystem strengths. They are actually fairly vulnerable.
The best part of the article is the reference to Apple being an options story. Amen. Right on brother. Its an unbeleivable place to trade options. As an investor and trader, I see Apple as the Wimbledon of options. Personally, even as apple has declined I have made a small fortune seling puts and selling covered calls.
The buyback puts a floor in the stock. So you can sell puts and collect the premium and do nicely, with very low risk. You can buy the stock and sell calls against it, as the implied volatility is reasonably high. And all while collecting the dividend and maybe getting uplift from the stock buyback. You can generate a 10 percent yield fairly easily of you pay attention, without taking much risk, and without the stock having to rally. There are so many ways to play and win, its like a big casino where they have said they are going to inject a hundred billion into the table games in the next year. You could still lose, there is certainly not zero risk, but how can you not play in that casino?. I never owned Apple when it was going up. I own it now, mostly so I can sell calls against my stock while being paid a dividend and I watch those options chains constanty. Life is bountiful and kind.
All of these trading dynamics should push the stock up, even if the margins and market share do come down. Because the range of investible options will attract capital.
People forget how starved the market is for large liquid volatile situations, at reasonable multiples.
May 26, 2013. 06:08 AM
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Apple Getting Crushed In Most Important Battle
Just so much rehash and apocalyptic arm waving. Apple will have a decent solution for the Asian markets, will capture and retain market share in Asia in the mid to high 20s, will make plenty of money, and will live to fight many more days.
There will be two long term winning platorms. IOS and Androdid. Several different companies will survive and do well playing in those ecosystems, but Apple will be the most profitable cycle after cycle.
Apple has the best phones, the best tablets and the best computers. Easiest to use, most reliable, most integrated with each other. Yes, they are high priced, and yes they need to get their price points down. But this will all happen, and they will do fine. The leverage and purchasing power they have over the supply chain is unsurpassed.
They should not and will not play in the gutter sector with all the schlock Casio wannabes. All this breathless panic is getting so tiresome. I think one of the things that is most overlooked in evaluating consumer tech companies is brand perception for quality, which is very enduring and important over the long term. At any given time in the electronics markets there have been fast growing insurgents who offer low prices. They come and go, and then disappear when they stumble. Building a durable brand takes years of investment and patience.
As a stock, its a great value. Sure there is risk, but the risk return is more compelling that it ever was. And with the stock buyback acting as a floor, its very sweet.
May 25, 2013. 01:18 PM
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Apple: The Dangers Of Using Bad Data To Calculate Only One Metric
Good article. It was shocking that the silly Trainer analysis got as much airplay as it did.
Reasonable people can vigorously debate where Apple's margins will go in the long term in the face of intense competition. But when you get bolloxed up looking at a metric like ROIC, then you lose your credibility in contributing to that debate.
Apple's ecosystem and base of users who have learned that ecosystems provide a cushion against their market becoming one of pure price performance, we just dont know how big a cushion. And Trainor's math game does nothing to illuminate the inquiry.
May 16, 2013. 08:04 AM
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Hot Money Makes Apple #1 Concern Of The Market-Makers
This is a great article. It explains why technical pressures and patterns actually work. The fact that only a billion of incremental capital has thus far been injected also suggests that the recent run in apple may peter out, unless more capital is injected soon, or unless Apple itself provides demand through the commencement of market purchases. One one imagine that Apple will modulate those purchases so as not to drive up prices too rapidly, if they behave rationally.
It raises a host of questions that I find fascinating. First, how can you determine incremental capital accurately and on a daily basis, and how can you determine price expectations, when there are so many market participants? Second, is there a difference in the availability of data about market maker capital committed, vs short term speculative traders, or is their committed liquidity all the same.
It would be fascinating to see this analysis applied to other broken momentum stocks, particularly Amazon. It is my general sense that it is the next broken momentum story waiting to play out, but I have no real basis for this belief. The fundamentals are deteriorating, but is trading capital being extracted too?
May 8, 2013. 09:50 AM
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Implications Of Apple Guidance
Extremely well done. Well thought out, concise, and balanced.
The market mostly expected and even hoped for terrible June guidance. It doesn't matter very much if Apple earns 6.00, 7.00 or 8.00 in the June quarter. What matters is whether they can defend their competitive position over the long term, or whether its all going to continue to erode. And the answer to that question is not knowable at this point. You can have an opinion, but you can't have confidence in it.
The stock is a buy at these levels, simply because of cash flow, balance sheet, and the long term option value that they may retain either leadership or a credible duopoly with Android. Because if they do, they are a valuable company and a must own for institutional investors, even if the multiple paid needs to be higher because earnings never return to last years peak.
The volatility in the stock as reflected in option pricing makes Apple an epic investment opportunity regardless of one's view on the durability of their competitive position. Yesterday you could sell June 380 puts for 14 dollars, and May 430 calls at over 10 dollars. If you own the stock, collect the dividend and also sell calls against your position, you can get a 10 percent yield even if the stock languishes and goes nowhere. This is too compelling to ignore, in a world where everything else is overvalued.
Thats the beauty of a company with a fortress balance sheet, with substantial cash flow even in a trough, and with at least the potential of a long term grasp on a huge market. There are so many ways to play, and so many ways to win, that you kind of have to play the long side, even if you don't really believe.
If you really don't believe, you can buy the stock, sell calls near the money, and use the proceeds to buy puts and protect your downside. It still provides decent yield.
To short it, you have to be almost maniacal. Because you are competing with all these cash flow support structures, and then competing with the company's huge stock purchase program. Its like fighting the Fed when it cranks up the money printing machine. You can win, if you can kick an 70 yard field goal, but its a bad bet.
Even if you don't like to play with options, thee point is that all these market dynamics mean the stock should have a floor near current prices even if the June quarter really is as bad as they say. Its not like Amazon or Netflix, etc, which are only bought by investors who don't care about math, and which have no defense if they hit the smallest stumble.
Apr 24, 2013. 12:14 AM
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