Apple split today and I decided to sell half of my holdings locking in over $5,000 in profits. I am still long Apple and I believe it is headed to $100 in the next 6 months. That's my disclaimer; right up front.
I've decided to write this article because of the sore losers who were short Apple. Specifically, Josh Arnold who wrote; "Apple Bulls: You Win (but I was right).' The ridiculous article made me shake my head. The (but I was right) I added because he completely failed at admitting defeat.
"Apple still has stale product lines". So what? iPod Shuffle, iPod Nano; IPod Classic; iPod Touch … and most of these are on the 7th generation. My point is why does Apple need a new product? For years Apple made boatloads of money reinventing the iPod and it is doing the same with the iPhone. 3.5" screen, 4" screen, 64GB, fingerprint sensor… Coming soon a 4.6" screen, a 5.5" screen and maybe 128GB? Look, my car costs 50 x more, it hasn't changed near as much as my iPhone and I still buy one every 4-5 years! The same is true for my iPhone but I'll update it every 2-3.
"...whatever meaningless additions Apple has cooking will not drive material revenue" Really? The iPad added $32 billion to 2013 revenue. Even with slowing sales it should add at least $30 billion to 2014. Rumors are Apple could sell 60 million iWatches in the first year. At $299 a pop that's almost $18 billion.
"Apple's dividend cannot possibly be increased to the point where it is $20 per share over the next five years." I think with a 26% price increase this year most shareholders are less concerned about dividends and more focused on growth. But with a $90 billon share buyback shares outstanding continues to shrink. Less shares means less dividend payments. So, part of the increase comes from fewer shares. The rest comes from earnings growth with the average consensus for 2017 to be $8.25 per share. An annual dividend of $20 post-split is $2.86 or 35% of earnings in 2017. That is very doable with some creative accounting and in only three years; not five.
"Eventually, the money is going to run out" No, it isn't. Again, professional projections for Apple:
$5.96 EPS - 2013 (actual)
$6.27 EPS - 2014 (projection)
$6.86 EPS - 2015 (projection)
$7.62 EPS -2016 (projection)
$8.25 EPS - 2017 (projection)
These projections are the consensus of professionals in the industry and they are based on the current price (post-split) . In the next three years Apple is expected to add another $150 billion dollars in profits to its coffers.
The bottom line - "Apple hasn't done anything that justifies the move up." Actually, in 2012 Apple didn't really do anything that justified the dramatic move down. In fiscal 2012 they made $41.7 billion. In 2013 profit was $37.0 billion. This was an 11.3% drop but the shares shed 45%. Apple became oversold. That's what caught my attention in the first place. At $500 Apple was a value play with growth potential. I waited for earnings in Jan of 2013 and the shares dropped another $50. I bought. I got nervous at $400 but stiffened my resolve and bought again.
I sold half my investment today because my profits topped $10,000; I owned my shares longer than 12 months and I wanted to lock in some of those gains.
From my 15 years of investing I've watched stocks rise and fall for three reasons: Value, Growth and Emotion. Emotions are high with Apple now but buying on emotion makes me nervous. However, if the professional estimates are accurate Apple is both a value stock and has growth potential. That's why I'm holding half of my 2013 Apple purchases.
Josh's article is written like a sore loser; but he should be asking himself how he misjudged Apple. We've all lost money in the market at some point. We need to learn why and become better investors. He chose to point disapproving fingers at those making better investment decisions.
Disclosure: I am long AAPL.