Investing In Apache Corp - When Is A Good Time? [View article]
Egypt may be 20% of APA's revenues but they are more like 25% of the profit because of the cost and market for the production. (That number is expected to slowly decline as the North American percentage of production ramps up relative to Egypt). There has been no evidence that any group in Egypt is unhappy with the arrangement with APA because Egypt gets a large percentage of the revenue with little risk. The feeling is that any attempt to forcibly renegotiate the deal would probably not benefit Egypt because at that point no capable producer in their right mind would deal with them again.
I have a small position in APA and will not be adding to it. All that said, history suggests that APA will be a good long term investment for those with sufficient patience. I'll stay the course but this company does not meet my criteria for new investments as I prefer companies that have a better capacity and tendency to spend more on dividends and buybacks when the share price is low.
Excellent article! This is the type of quantification that is useful on SA. What is encouraging about Apple is that the valuation is quite reasonable before any new products are considered. Thus any new new client devices like the watch, HMD (head mounted display), or TV will be an added kicker. Again, very good article and certainly a motivation for me to stay the course until valuations become high.
"If smartphone growth trends towards larger phones and phablets in the coming years, Apple's stubborn opposition to making a larger iPhone will have catastrophic results for shareholders."
I see a continual mindset that the world want's one device that does everything or that merges different functions. That just doesn't make sense. I have my iPhone 4S, iPad, and my laptop. They each perform their function ideally with their current size. I don't want a bigger phone-how will it fit in my pocket? I might consider an iPad mini or a lighter iPad for reading though (mostly weight considerations). But the one I have certainly seems good enough. For my business I need a good laptop and something smaller or convertible into a tablet just doesn't motivate me at all. I (and probably most users) prefer products that are optimized rather than some compromised one size fits all.
Thus your premise that this could have "catastrophic" effects on Apple seems unfounded. That said, it would be good if Apple could address the market for folks that want a larger iPhone perhaps by "stretching" the pixels (maintaining the form factor for software compatibility). The loss in resolution would make little difference since the folks wanting the bigger phone want to be able to see larger characters. But this is more of an opportunity cost rather than a "make or break" proposition for the company.
5 Reasons Why I Am Shorting The Market [View article]
Wow! This is a hot topic! There is one reason why I have an opposing view - that the market will continue to have strength - it is income. Treasury rates are at an all time low in the US and even investment grade corporate and "junk" has a low yield relative to historical values. We are in a sustained low rate environment and, with the bank of Japan trying to inflate their currency by 2% per year (which will be difficult) it is creating demand for already low yielding US Treasuries. There is apparently no sign that this low yield environment has an endpoint.
Meanwhile stocks still have relatively good yields. Take an example - XOM - has a "forward yield" of nearly 3%. That yield is expected to grow at over 5% rate over the long haul due to share repurchases and earnings gains. Thus you roughly have the yield of a 5 year duration (corporate, investment grade) bond but unlike the bond, the yield keeps increasing every year. This inversion between stocks and bonds seems likely to continue to drive demand for stocks. Therefore I see no reason why the Dow can't continue to find new highs for a while although I would prefer to see stock gains not get too far ahead of earnings.
Anyway - to the author - this is another factor - the demand for income - that could keep stocks advancing between their pullbacks.
Investing With Deflation Expectation [View article]
"The stock market is signaling a potential decline and the prevailing wisdom is that there is a deflation expectation."
I don't see any evidence of deflation in the US-more like sustained low inflation and interest rates. This means that US bond prices will probably be sustained-especially in light of the bank of Japan's actions. Investors can get income from either junk bonds or stocks. Stocks are looking more attractive than ever, so I actually think we are going to see an ongoing increase in stock prices for the time being. Junk bond yields keep falling and the risk/reward tradeoff is looking less favorable.
Apple's Huge Buyback Could Attract Imitators [View article]
Most of your posts have been very insightful but I don't think this is correct. Apple has been locking up their hold in the US in both iPhone and iPad. There is no stagnation in the US. Overall they sold 211 million iPads and iPhones over the last 12 months (averaged into the latest quarter) and the 12 month moving average actually went up 5% quarter to quarter.
The weakness is in the low to mid range price point overseas because there is no carrier subsidy there. Apple needs to address this issue or cede much of the world to Android.
Regarding their prime innovator - Jony Ive has been their primary designer since earlier versions of iMac. That said, Jobs was the master architect and losing him is very painful.
Apple's Huge Buyback Could Attract Imitators [View article]
I am weary of SA recommendations on M&A as though the authors of these recommendations have insight that Apple lacks. How many times have I heard about Netflix?
Apple is very responsible with shareholder money (unlike those companies writing off big chunks of goodwill) and has only purchased companies like Anobit and Authentec where the acquired technology can be clearly leveraged across a large product base. Investments whose returns are highly speculative have been passed. That is a big factor that gives me confidence in the company as an investment.
Regarding Authentec, I am speculating that there will be some interesting security additions to the iPhone.
You Better Duck - Apple's Unit Profits Are Falling [View article]
I consider the stock substantially undervalued but have a difficult time valuing the company right now. There are too many important variables with too much uncertainty. But there are some positive signs some of which you alluded to: -still increasing iOS unit volumes and revenue levels -above even with no new client device categories -new client devices under development are very likely including watch, TV, HMD (head mounted display), and others -reduced margins due to factors that Apple can probably reverse -increased recurring revenues from things like APPS, music, books, software upgrades, etc. >So it seems like Apple has more upside than downside particularly given the new shareholder-friendly policies.
You Better Duck - Apple's Unit Profits Are Falling [View article]
Your observations are empirically correct but they don't tell the whole story. The problem does not appear to be gross margins on specific products but rather a combination of product mix (e.g.,added iPad2 for example) and on the cost side (i.e., production ramp of difficult-to-manufacture products like iMac and iPhone5). Therefore it is far from clear as to whether margins will keep falling - they might actually go back up if Apple does better at design for manufacturability. It is true that they didn't do so well in the recent round of product updates - they seemed to do an incremental improvement with huge pains in tooling cost and yield. They have probably learned from this experience. Thus your empirical chart could suddenly reverse itself in a few more quarters if Apple management makes better tradeoffs.
Apple's Calendar Chaos Trade Of 2013 [View article]
As a follow up I did 12 month moving averages on EPS and other factors. EPS (12 mo AVG) have definitely rolled off by about 5% over the last two quarters although that is too little data to declare a trend. On the other hand revenue and iOS volumes have kept their steady rise. Hard to interpret at this point in time but investors are not taking it well. I think things are perhaps a little less dire than the market response would indicate but the days of consistent double digit growth appear to be over.
Apple: Complete Reset Of Expectations Could Mark The Bottom [View article]
I did a quarter to quarter 12 month moving average on earnings per share for the last almost three years. This takes seasonality out of the EPS picture. Not too surprising, everything looked great until the last two quarters in which it rolled off. Earnings for the last four quarters is $41.9 per share. The key question is whether this number is going to keep going down or if it will stabilize. A 5% share buyback ($20 billion) would be nearly enough to by itself push the four month moving average back up to $44 and thus arrest the "trend."
On the other hand revenues and iOS device unit sales are still showing healthy trends. Thus a key factor is the net margin.
One other comment - there are a lot of companies that have much worse EPS versus time numbers than these - and some of these companies sport higher P/E's. Something to consider.
No, I don't think a large percentage of "mission critical" data is going to public clouds. By this I mean bank customer data, defense system data, HIPAA-related data, etc. Not just sensitive data but for systems that cannot afford to go down. There are also proprietary advantages that some companies enjoy due to their custom IBM solutions. But this all needs to be quantified to be worthwhile from an investment standpoint. Otherwise we are just furiously waving our hands while we argue. What is clear to me is that Warren Buffett interviewed a lot of CIO's and decided that IBM has a very sticky business. He knows a lot of CIO's because he sat on boards of companies like P&G and KO and also BRKA includes some major companies. How many folks on this forum can pick up the phone and call CIO's? This is not rocket science - a conversation with a couple dozen CIO's is probably a lot more data than anyone on this forum has (myself included).
The large set of links that you showed is impressive but it is mostly being put there by those trying to promote their public clouds. Nothing wrong with that of course and it shows widespread adoption to some degree by various companies. But the difficulty I have is that there is no data on this forum that actually quantifies the adoption attacking IBM core business to any significant extent. The most credible data point I have is the fellow who knows the CIO's, invested $12 billion, and has initials WB.
I like your articles (and Arne's) on this topic. It is good to make sure our investment premises are sound. I don't think we are seeing a secular trend (yet) - quarter to quarter variations are probably due to all the economic noise. Companies are still very hesitant to invest big dollars and the European economy seems to be one big revelation after another. But over time Arne's contention will be tested - and I am seeking to understand the magnitude of the impact better. Again, great work Dana and Arne - lets keep an open mind (good words for me as well) and try to understand this trend better.
Yes, it could be a secular inflection point as you say. But a secular trend will likely take a few quarters (or even years) to clearly identify. Regarding EU trouble - it seems to introduce a tremendous amount of noise into the equation increasing the time required to identify such trends.
Investing In Apache Corp - When Is A Good Time? [View article]
I have a small position in APA and will not be adding to it. All that said, history suggests that APA will be a good long term investment for those with sufficient patience. I'll stay the course but this company does not meet my criteria for new investments as I prefer companies that have a better capacity and tendency to spend more on dividends and buybacks when the share price is low.
Apple's Valuation Is Not Rational [View article]
Why Apple Is Becoming Irrelevant [View article]
I see a continual mindset that the world want's one device that does everything or that merges different functions. That just doesn't make sense. I have my iPhone 4S, iPad, and my laptop. They each perform their function ideally with their current size. I don't want a bigger phone-how will it fit in my pocket? I might consider an iPad mini or a lighter iPad for reading though (mostly weight considerations). But the one I have certainly seems good enough. For my business I need a good laptop and something smaller or convertible into a tablet just doesn't motivate me at all. I (and probably most users) prefer products that are optimized rather than some compromised one size fits all.
Thus your premise that this could have "catastrophic" effects on Apple seems unfounded. That said, it would be good if Apple could address the market for folks that want a larger iPhone perhaps by "stretching" the pixels (maintaining the form factor for software compatibility). The loss in resolution would make little difference since the folks wanting the bigger phone want to be able to see larger characters. But this is more of an opportunity cost rather than a "make or break" proposition for the company.
5 Reasons Why I Am Shorting The Market [View article]
Meanwhile stocks still have relatively good yields. Take an example - XOM - has a "forward yield" of nearly 3%. That yield is expected to grow at over 5% rate over the long haul due to share repurchases and earnings gains. Thus you roughly have the yield of a 5 year duration (corporate, investment grade) bond but unlike the bond, the yield keeps increasing every year. This inversion between stocks and bonds seems likely to continue to drive demand for stocks. Therefore I see no reason why the Dow can't continue to find new highs for a while although I would prefer to see stock gains not get too far ahead of earnings.
Anyway - to the author - this is another factor - the demand for income - that could keep stocks advancing between their pullbacks.
Investing With Deflation Expectation [View article]
I don't see any evidence of deflation in the US-more like sustained low inflation and interest rates. This means that US bond prices will probably be sustained-especially in light of the bank of Japan's actions. Investors can get income from either junk bonds or stocks. Stocks are looking more attractive than ever, so I actually think we are going to see an ongoing increase in stock prices for the time being. Junk bond yields keep falling and the risk/reward tradeoff is looking less favorable.
Apple's Huge Buyback Could Attract Imitators [View article]
The weakness is in the low to mid range price point overseas because there is no carrier subsidy there. Apple needs to address this issue or cede much of the world to Android.
Regarding their prime innovator - Jony Ive has been their primary designer since earlier versions of iMac. That said, Jobs was the master architect and losing him is very painful.
Apple's Huge Buyback Could Attract Imitators [View article]
Apple is very responsible with shareholder money (unlike those companies writing off big chunks of goodwill) and has only purchased companies like Anobit and Authentec where the acquired technology can be clearly leveraged across a large product base. Investments whose returns are highly speculative have been passed. That is a big factor that gives me confidence in the company as an investment.
Regarding Authentec, I am speculating that there will be some interesting security additions to the iPhone.
You Better Duck - Apple's Unit Profits Are Falling [View article]
-still increasing iOS unit volumes and revenue levels
-above even with no new client device categories
-new client devices under development are very likely including watch, TV, HMD (head mounted display), and others
-reduced margins due to factors that Apple can probably reverse
-increased recurring revenues from things like APPS, music, books, software upgrades, etc.
>So it seems like Apple has more upside than downside particularly given the new shareholder-friendly policies.
You Better Duck - Apple's Unit Profits Are Falling [View article]
Apple's Calendar Chaos Trade Of 2013 [View article]
Apple: Complete Reset Of Expectations Could Mark The Bottom [View article]
So even this relatively weak last quarter bumped up the 12 month moving average by 10 million units. iOS is still getting out there.
Year QTR iOS QTY (M) - 12 month moving AVG
2010 Q4 47.4
2011 Q1 62.3
2011 Q2 81.2
2011 Q3 99.1
2011 Q4 109.0
2012 Q1 137.9
2012 Q2 157.1
2012 Q3 170.5
2012 Q4 183.2
2013 Q1 201.5
2013 Q2 211.5
Apple: Complete Reset Of Expectations Could Mark The Bottom [View article]
On the other hand revenues and iOS device unit sales are still showing healthy trends. Thus a key factor is the net margin.
One other comment - there are a lot of companies that have much worse EPS versus time numbers than these - and some of these companies sport higher P/E's. Something to consider.
Year EPS (12 Month Moving AVG)
2010 Q4 $15.2
2011 Q1 $17.9
2011 Q2 $21.0
2011 Q3 $25.3
2011 Q4 $27.7
2012 Q1 $35.1
2012 Q2 $41.0
2012 Q3 $42.5
2012 Q4 $44.2
2013 Q1 $44.1
2013 Q2 $41.9
IBM: A Disaster In The Making [View article]
The large set of links that you showed is impressive but it is mostly being put there by those trying to promote their public clouds. Nothing wrong with that of course and it shows widespread adoption to some degree by various companies. But the difficulty I have is that there is no data on this forum that actually quantifies the adoption attacking IBM core business to any significant extent. The most credible data point I have is the fellow who knows the CIO's, invested $12 billion, and has initials WB.
IBM: A Disaster In The Making [View article]
IBM: A Disaster In The Making [View article]