Disclaimer: I'm short apple from 650. I'm also a bond guy normally, so, i'm sure someone will tear me apart about why i'm wrong here haha. Anyways I tried to explain my rationale being short and how I look at things when trading them. Somewhat. I also wrote this before a very good GDP print haha.
Ok, I know. Apple has been beaten to death. It is so highly covered that you can't even take a freaking taxi ride in peace without getting a recommendation on the stock. It's incredible. Which brings me to my next point, which is the over saturation of news and hype is masking what could be going on at Apple. I'll admit that i'm slightly addicted to contrarily trading. I swear half my ideas get shot down in investment meetings here simply because they are contrary to the popular belief. Anyways, it seems to me that they are beginning to lose their ability to price innovation and experience at a premium. The competition, while not close yet, is catching up. Besides, they are beginning to devalue their individual lines with refreshing their tech to quickly. Jesus, they refreshed the current gen Ipad and no one even made a peep about that. It's been 7 months. Anyways, as a trader I tend to look at things via risk reward. I know someone on here posted a topic about what to look for when initiating short positions and the biggest thing I've always looked at is what's happening at the margins. Here are some thoughts on shorting Apple SOMEWHERE up around here.
When I short something, I'm more worried about bullish case than the bearish one. That determines my downside as in theory my downside on a short is unlimited. Question to me is, can Apple keep growing at it's current pace with it's margins intact while convincing consumers that they have the best tech + ecosystem combination out there. Short term that is absolutely intact. Just looking at their numbers last night you can see that demand is still extraordinarily high for all of their products. What worries me is the message the introduction of the mini sends. It's a lower margin product which is battling against competitors that haven't managed to fill yet. It also stands a chance at cannibalizing their line down the road.
Second issue I have with the apple bull case is that there must be constant innovation to continue to price their products at a premium. Refreshing the current gen Ipad already with a new chip and a new connector is a bit too soon. It creates a worry among consumers that their current products could be devalued shortly after you purchase them which leads to less of a willingness to a pay premium down the road. Granted, there is still the Apple TV on the horizon along with a music service coming out.
Third Issue I have with the bull case is that I think at some point we will see the consumer begin to pull back or be forced, more likely, to pull back because of broad economic measures. Combine that with Apple already guiding their forward results down and shortages of their rampantly selling iPhone (the 5) I think that could create some surprisingly soft earnings going forward. I'm not saying this is going to happen today, tomorrow or even the next quarter but I think over the next few quarters we could see these pressures.
Now, what could blow my short out of the water? Well, the fact that every hedge fund under the sun is behind Apple and they could innovate their ass off and end up crushing me. Their ecosystem is by far the best out there and the switching costs are extraordinarily high. At the end of the day, I normally try to scope out trades with asymmetrical risk profiles. A lot of times I can find them in Fixed Income stuff but i've been less than successful at it lately. Anyway, what say you guys? Anyone else as stupid as i to short Apple? I'd love for some confirmation bias on this one.
With the holiday season coming up, I can easily see apple shooting back up to 650-660 range no problem. The next 2 quarters have always been the best for apple.
I think you might want to take some profit off the table - capital preservation is key. I'm still bullish on apple for the next 1-3 years but I agree the main problems will be falling margins and management issues. (Tim Cook
[quote=cseto1]With the holiday season coming up, I can easily see apple shooting back up to 650-660 range no problem. The next 2 quarters have always been the best for apple.
I think you might want to take some profit off the table - capital preservation is key. I'm still bullish on apple for the next 1-3 years but I agree the main problems will be falling margins and management issues. (Tim Cook FCF. All they need is market refresh to keep this cash up.
Also the comment they made about Ipad Mini being lower than corp GM doens't mean shit. Everything they sell is lower GM than corp except softwares and IPhones. IPhones drives corp GM up to the 40s, everything else is like ~30% GM.
Disclaimer - I love Apple products and most of their business and have done for a few years now.
The iPad Mini is an interesting one. People are going nuts over the price, many were expecting $249 or even $199. Frankly if you were expecting a quality Apple product for under $200 you were insane. Personally I think charging $329 WITHOUT a Retina display is a bit much, but there can be no doubt that the Mini is a fantastic product. I think the issue here will be that for only $70 extra you can get a full size, retina iPad. The only people buying the iPad Mini will be those who absolutely love the form factor or really can't afford the extra $70 (in which case they shouldn't be spending money on iPads anyway!).
Realistically the only competition to Apple is Samsung. Some say the new Microsoft Surface will be amazing, some say it will be dead-on-arrival. I think it will be another Windows phone; get some market share but nothing to write home about.
Apple's margins, cash flow and supply chain are second to none, nobody can dispute that. The only real risk to their business is that people suddenly can't afford their products any more (I don't think this will happen anytime soon) or that a competitor comes up with a product that blows Apple out of the water. This is a risk, but a slim one.
Shorting Apple over the next 5 years based on fundamentals is a bad idea in my opinion. Sure you can short earnings or any number of technical indicators but in terms of cash flow, business operations and corporate strategy I can't see anything bad happening to them in the short-medium term.
I'd be curious to know why you aren't considering the fire HD as the competition too?
After reading this article, I feel like Apple wasn't able to offer the iPad mini at a price low enough to attract more customers. Like you're saying, the iPad mini at $329 is expensive if you can get the bigger one for $70 more. I'd personally go for the Fire HD if I was looking for a tablet so my opinion is probably biased ( even though I own Apple products).
From a strategic standpoint, Apple jumped the shark with iPhone 5. The holiday season will give a boost, for sure, but then it will be a slow and steady decline to restructure cycle. The only wildcard is if Jobs locked up some hot new thing in a vault for release after his death...and knowing how his mind works, I'd put the odds at 50/50
Doing anything based on fundamentals is a pretty bad idea in this market. The GDP report and market open this morning were literally comedic.
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