Short Apple Shares
Should you sell your Apple shares?
With shares skyrocketing 30% to record highs in the last quarter of 2010, a total of 22 hedge fund managers with sub 5% stakes sold out of their Apple positions to the tune of over 1.6 million shares.
Is this just a case of taking profits or something worthy of pondering the future of this historically mercurial stock.
Having been around for the inception of the original Macintosh, I have witnessed firsthand the lack of logic and reason which accompanies Apple valuations.
The skyrocket to freefall and back again tendency of Apple shares is the stuff technical analyst dreams are made of.
Perhaps no company I can think of elicits such emotional responses in the minds of its consumers.
Apple fans are notorious for not wanting anything to do with other products.
I recall being given the collective look of disgust by a group of techies not more than a month ago at a local coffee shop. Yep, you guessed...
I was the PC.
The Part That Bothers Me...
Investors were jolted yesterday on news The National Enquirer will soon publish photos of Steve Jobs visiting the Stanford Cancer Center in California. This report comes after Jobs announced in January that he would take an unspecified medical leave of absence, which sparked speculation that Apple's leader is still battling cancer.
Really?
Is Apple that dependent on its founder and CEO to succeed?
Isn't the global brand that is Apple bigger than Jobs?
Is there something else in play that we don't know about?
Markets always tend to pay attention to shake ups at the top...but this seems like an odd reason for such a popular company to be so rapidly sold off by such a concise group of insiders.
Perhaps there is more wrong with the Apple machinery than we know about...
I know that many of you guys on the site are avid IPod/Pad/Phone/Mac daddies, so tell me what you see happening in Apple's future?
As much as it goes against much analytical logic and reason to say it...Apple has always been an identity cult, circling around Jobs and his purported genius.
I expect the company to slowly lose traction in various markets as Jobs' influence subsides. I don't necessarily believe that this will be a result of the lessening quality of Apple products, but an adverse effect of individual branding the likes of which is rarely found in modern business.
Who is with me in saying that Apple is a long term sell?
I think Apple has already lost a step in the mobile phone department- Google's Android passed them in market share for new phones delivered last quarter, right? And there a ton of people who only buy iPhones because they are iPhones.
But it doesn't really matter in the short term- like you said, the Apple brand is strong enough that a huge core of people will continue to purchase their products, and ONLY their products. So I'm still bullish on the stock for the time being, although it is a bit troublesome that Jobs' health can move the stock... I think it's too early to make a longer term call, but I'd be interested to hear other people's opinions.
I see the rationality behind investors great importance paid to Jobs, remember he was the leader who turned the sinking ship into the most valuable Tech company. I personally worry about them continuing their fantastic earnings. The ipod has already began its decline and should die of in the next 5 years. The IPhone is seeing huge amounts of competition from the Andriod phones. The IPad will also take the same heat once Google's Android 3.0 Honeycomb is put on some attractive tablets. Google will also come out with what is supposed to be the fastest operating system ever which will be built on their chrome, thier laptops will be sleek and should take a chunk out of the Non windows market. In summary I wouldn't short apple now because the Verizon IPhone deal will give them great earnings for the next few quarters, but by the end of the year it may be advantageous to acquire some Put options.
What's your horizon for long term? I could see apple correcting with the broader market sometime relatively soon since the index has been pretty overextended...but long term? I dont know. I wouldn't dare call a top, let alone a top on one of the most outperforming names out there.
As far as product, people are going to continue to eat up smartphones, and tablets are exploding.. I just don't see aapl losing market share in any of their product lines when you look at their [absence of] competitors. Overvalued? maybe yes..but consumers are spending and they have a near monopoly on tech's 2 fastest growing segments..
Don't really follow the stock much as I'm a pure value guy, but I think investors are right to start panicking with the release of the recent news. Jobs as mentioned above, turned this company around. Furthermore, he is also known to keep a tight grip on all the design/development/marketing decisions. While Tim Cook has headed the ship quite well in the past, he's an operational guy and still had the help of (or orders from?) Jobs with making all the major decisions. With it's sky high valuations, one wrong move can always send a stock like this tumbling down. The absence of Jobs is a real threat to this company and it's future.
Here's my biggest problem with Apple -- quality control. They obsess over every little detail pre-launch and do create a great product, but they purposefully leave room for improvement in the upgrades. Google, on the other hand, seems to be much more experimental and is willing to throw their newest technologies and ideas into the consumer market, and they use actual user feedback to guide their developments.
You think the valuation is realistic when AAPL is the 2nd largest company by market cap? The whole aapl craze reminds me of tulip craze couple hundred years ago - all about design, aesthetics, and so far away from logic. If AAPL had 80% of the world smartphone market, and could be reasonably expected to remain in that position for the next 10 yrs - then I would say the valuation is right. But now Android is just as good as Apple, and soon there will be many more HTC like companies bringing new smarthphones on market. I don't even think its about Jobs, but that can be a catalyst, Jobs is very instrumental in keeping this craze running. APPL is a good company, but being at 2nd largest by market cap.... come on...
While i personally admire Jobs for his lack of true innovation, and ability to steal what others have done, repackage it and sell his Shit as gold. I think over the long term, after his exit from Apple, or this world, the stock could take a tumble. My contention with a firm answer is based on how they've been setting them selves up to be the main distributor of media going forward.
Tablets and Mobile are going to be the way we consume media. Apple dominates this market with the Iphone and IPAD, they have the first movers advantage and no one has been able to combat that yet. Along those same lines Apple has a near monopoly on the production capacity of high quality touch screens, they control nearly 70% of the capacity, making it nearly impossible for others to ship large quantities of product without HUGE sunk costs. Finally recently Apple announced a near "revenue share" (apple gets 30% of all rev) for all subscription based media being distributed through Itunes or an App on an Apple product. This new deal while potentially unfair to publishers, will make Apple BILLIONS. Many publishers have already started creating versions of their product for the ipad (The daily, WSJ, Conde Nast). This will also lower the barriers for entry to media, so you can have more upstart magazines.
So while i do think it's possible to see a drop in the stock if Jobs goes bye bye soon. If Apple can set it self up to be the main distributer of content and continue to dominate mobile and tablets, the stock will only go up. Think how large the magazine subscription market is, and that Apple will essentially get 30% of that off the top....I know its a very assumption filled analysis but without writing a book, i think its a decent view.
I will be interested to see how the new iphone (the cheaper smaller, model) works out. Could have a huge effect.
Shorting Apple stock right before summer? LOL
That being said, I've been an Apple product user for 4 years (2 macbooks, 2 iPods, 1 iPhone). I am switching back to PC & changing iPhone for Android this summer.
There is a reason why Google is investing a shitload of $$$ into cloud computing....
2 HPM mini-iPhones will be very sexy. I can see women going nuts over it.
Totally forgot about the summer. Long Apple
Why go long apple over the summer?
So how does Apple have a near monopoly on the production capacity of high quality touch screens? I find this hard to believe.
Short Apple - Long Nat Gas (Originally Posted: 04/26/2012)
Jeff Gundlach stirs things up at the New York Yacht Club, the "King of Bonds" telling a luncheon if he were master of the universe (isn't he?), he would be short Apple and long natural gas with 100X leverage.
I personally have a shit ton invested in nat gas, but what are your thoughts?
I like his swagger for thinking that way - very contrarian. Who doesn't love Apple and hate Nat Gas?
Maybe he should stick to bonds. The Apple revolution is far from over, and the NG price movement is structural, not just noise that will revert.
Edit: also, 100x leverage lol.
"apple revolution"
lol...sent from your iPad?
It would take grapefruit -sized balls to put that on in any significant size.
Agree re NG price levels being depressed due to a structural issue. It WILL reverse, but who knows when. Way too much supply out there to match any sort of (non existent) demand.
I mean, I agree with what he says. Doubt I could stay solvent that long.
seriously, when you got college kids telling you to long AAPL thats a sign of a bubble
Look up what an economic bubble is. It's not simply "price has run up a lot".
I'd rather follow a teenager's advice about technology trends instead of a divorced 40 year-old analyst at a mediocre investment bank.
I find it amusing that people have been calling the bottom in NatGas since mid 09.
This. Supply isn't slowing down anytime soon either.
I initially bought Nat Gas in January... got my face ripped off and moved to individual companies such as CHK... got my face ripped off more.
The humility is fine. It is what it is.
how much is a "shit ton"?
Half a "fuck ton".
This isn't entirely on topic but how does a business dealing with BS like this ever stand a chance at flourishing?
'Atlas Shrugged' in real life at its worst.
http://cnsnews.com/blog/craig-bannister/epa-officials-philosophy-oil-co…
LONG APPLE STEVE JOBS IN THIS *****
Agree with the AAPL short, disagree with the NatGas long simply because I don't know enough about it
PE isn't really astronomical on aapl, despite huge per share price. curious why people are short on it? I guess if you think they won't keep flipping iPhones and iPads like they have, but what cause would you have to think that? We're still at the very early stages of corporate adoption in lieu of blackberrys, and China is basically the US 4 years ago in terms of pace of purchase. Seems like they can keep matching or exceeding expectations for at least the next 3-5 years. Contrary thoughts?
what's the PE if margins are cut in half?
this is an equity, not a bond. you need to think about discounting results over a much longer period than 3-5 years.
as "revolutionary" or whatever as apple is, it's still a tech company. think about the long-term history of tech leaders...most of them don't lead for that long on a larger time scale. if you want to narrow it down, think about the leading mobile devices historically (moto startac, nokia 5110 and a billion other models, moto razr, bberry, could throw in palm, etc.).
30%+ EBIT margin for a device maker is pretty sweet. is it sustainable?
of course it doesn't have a high PE. that would indicate future growth. how in the fuck does a 500 billion dollar company grow at almost 20% ad infinitum?
I think that Apple is going to disappoint on earnings within the next few quarters. It won't have anything to do with slowed growth, but their quarterly guidance has been awful in the past. Analysts shot pretty high for the first quarter this year, but they were STILL killed by Apple's numbers. I think that in August when they announce, analysts will be sure to put up an astronomical number that Apple won't meet. Long term, AAPL is probably a good play, but after two instances of misleading numbers, I think I would short it the day earnings come out.
It's going to disappoint in the next few quarters because they wont be launching big tings again until the new year - Study their product life cycle.
If you were to short it, it would probably be best to post up a position in the next month/month and a half depending on your comfort zone but why would you bother unless you were hustling puts?
I'm sorry dude but appl's a great long term play (and so is Nat Gas) but they run the entire tech arena right now and will continue to do so for a while.
Long both
i dont think anything on the market now actually allows you to long nat gas and just put it there. Anyone found a product that you can invest in natural gas with?
You would have to keep rolling the front-months, or try to find some exposure in the equity market I guess. Holding NG outrights in this situation is a scary prospect...hence, enormous balls.
UNG?
only if you're shorting.
Let me put my two cents here...There will be some decline in price of natural gas..but with time it will go up...there will be huge increase in LNG export...Countries like UAE : The United Arab Emirates (UAE) is an interesting case.
Growth has created demand for water that is 100 times greater than its natural fresh water supply. The UAE desalinates water using natural gas plants.
According to the CIA World Fact Book, natural gas production in 2006 in the UAE was estimated at 48.79 billion cubic feet and domestic consumption in the UAE was estimated at 88% of that amount or 43.11 billion cubic feet. A mere 6.8 billion cubic feet is available for export or for domestic growth.
The country actually imported an additional 1.3 billion cubic feet of natural gas the same year. At the current rate of production and growth, the country’s known reserves of natural gas will be gone in about 60 years. ..
Demand for electricity in the UAE is currently about 15 GWe, but is projected to nearly triple in just 12 years. Natural gas is the fuel of choice for peak power and half of base load demand in the UAE. Oil provides the rest.
UAE is trying to work with Nuclear fuel but after japan incident they are slow and trying to avoid it.....
Negative points can be : warm temperatures contributed to much less demand for heating so I think some modeling can be perform using Global warming as one of the parameter....Less cold less demand for heat in cold countries
A long-term bet in gas would have to be made through a basket of gas-focused E&Ps. The problem is that gas E&Ps aren't that cheap yet, they are still pricing in a $4.50 long-term strip. When you see gas E&Ps (the ones that have any cash left) buying back their own shares instead of spending it on drilling/completions is when you know the bottom is near.
In the near term, there will likely be more pain. The US has somewhere between 4.1-4.4 Tcf of storage capacity, depending on your assumptions. Things are getting tight. Production growth continues, albeit at a slower rate. Oily plays will continue to bring on more unwanted gas, and infrastructure is getting built to capture it. At some point, the decline curve of all these wells will catch up to the slowing production growth, but that day has not arrived yet.
There has to be better short opportunities out there then Apple.
CHK is Enron part duex.
Nat gas was 1.00 in the early 90's and I think it comes closer that than it does to 3 in the foreseeable future.
you may want to see EIA (Energy Price Projection) price projections for natural gas in 2011 ...which shows the cost of Natural gas will increase..but they have their own flaws too...but in long term price should go up
Can i load a image or graph here ?
I'm speaking ethically, junior. Heard way too many anecdotes...with Aubrey's latest pr fuckup the most benign of stories. I see a Shell-style restatement in their future.
It physically pains me to see "I'll bet ya!"...in type over the internet.... by an undergrad in Michigan... who needs stock as collateral to cover a grand...with 100 bucks tacked for reasons only you could understand.
If EIA could project pricing info they wouldn't be EIA - they'd be a hedge fund. They're guessing like everyone else.
As I said, they have done mistakes..they consider many fields of tight shale as production fields but technology is still missing to get that kind of gas out....moreover the EIA does not have a good track record of foreseeing changes before they happen...But, I was just giving a support to my statement by giving EIA numbers.
Outlook energy released by Exxon, It estimates that worldwide electricity demand will increase 80% by 2040. Amount of electricity will be generated by natural gas, will pass coal as the world's second-largest fuel source, behind crude oil, by 2025.
Long term prespective :Exxon has a $15.7 billion LNG project in Papua New Guinea that will begin supplying gas in 2014 to customers in Asia. Exxon and Chevron hasJV on $37 billion Gorgon LNG project in Australia.
But, companies are trying to control the prices on short term....how :
Production of gas has a very high decline rate, this means that there is need of continous drilling for maintaining the current supply of gas. Year 2001 data sugget US natural gas decline rate is 23%.. when total consumption was 54 Bcf/d, so there is a annual replacement of 12 Bcf/d. Today declining rate is 32%,,,,24 Bcf/d is needed as a annual replacement.
Around $22 billion per quarter is needed to maintain domestic gas supply based on analysis of the 34 top U.S. publicly traded producers. Cash flow for those companies is $12 billion per quarter, there is $10 billion quarterly cash flow deficit . The important factor here is that on a whole there are no retained earnings, and historically growth stems from retained earnings. Without retained earnings, companies must borrow money or sell assets into joint venture agreements to raise cash in order to drill.
While the continued drilling has been funded by debt so there is lot more share offerings and joint venture agreements this kind of behaviou ris unsustainable looking at the present steep decline in prices
Drilling, therefore, must decrease in order to shrink the present over-supply and so that prices can rise. So most of companies like chesapeake energy cut back on production. Companies like ENCANA in canada are not doing well due to low gas prices.....they already cut down the production ....Devon shut down its drilling for gas in US so probability is high for increase in nat. gas prices ...
Hell yeah..I bought some NG co. shares :) today
Hell yeah..I bought some NG co. shares :) today
Hell yeah..I bought some NG co. shares :) today
.
Right, Here i come US .........Yeah :)...Jokes apart, Do you think...some one like me can get in oil and gas Finance consultancy. ..without MBA......
lol @ 100x leverage... 1% movement against you and a margin call wipes you out. nice strategy.
when you're master of the universe u don't get margin calls...but yeah seems aggressive.
re: AAPL being a device company whenever I make the long pitch these days I say it's a software company...the iOS is the key...its a platform across Iphone / Ipad and soon the iTV.
Differentiation at the hardware level in the consumer market is impossible (and so is a real competitive moat)...software level is different look at Google or Facebook. And in terms of consumer brands forget it....NKE/KO/LULU....a lot of magic can come from ppl wanting to affiliate with a certain lifestyle or perceived lifestyle
AAPL is not only a software company, it is a seminal brand (nothing to do with semen). It's aspirational, and in the emerging markets this will allow them to defend their high price point like any luxury good...the pric epoint is half of the point anyway....look at how Coach Ralph Lauren Prada LV are doing in China. As long as ppl are selling Kidneys in CHina to pay for an iphone and ipad, this short will not work. As long as you are fighting quarterly 10 - 20% EPS revisions the short will not work. As long as AAPL is driving from 10% market penetration or sub 10% penetration towards 20 - 30% share the short will not work. As long as AAPL has markets they can still penetrate they have not entered (Television) the short will not work.
The thing is, a lot of this will play out very rapidly and then the short may work, but you will be shorting from a 1 - 1.5 trillion cap so the 100% leverage will leave you in the hole quite quickly.
this to me is your most compelling argument. i was actually going to caveat what i said with the thought that maybe you don't view it as just a device company (i've posted on apple before and mentioned this). i still don't know if i buy it, though, and it's hard for me to overlook the long term history of tech device/mobile phone leaders.
i agree that apple is an aspiration brand, but i think that holds less water when you're talking about more of a high tech device. there's no tech innovation some apparel company can make to a polo shirt that's going to make you buy that polo over a Ralph Lauren polo. i think the actual tech is more important for mobile devices. i still agree that apple has huge brand cachet, but i don't think that's as enduring in this arena.
i think the whole iTV speculation is exactly that...speculation. could go either way for them in terms of creating shareholder value.
apple's actually one of my largest holdings. i definitely wouldn't short it. just trying to figure out if i really want to continue holding it. i have no doubt they're going to keep selling phones/tablets like hot cakes over the near term. intrinsic value needs to price in long term, though (the guys talking about 3-5 years or whatever are just momentum investing).
There are few more reasons, I think Gas price will go up :
In February 2012, during a period of extremely cold weather across Russia and large parts of Europe, Gazprom failed to supply all the gas that was requested from it by its non-CIS customers in countries ranging from Poland in the north to Italy and Greece in the south of Europe. This situation led to concerns over a gas shortage.
China is putting lot of investment for development of its natural gas resources, It should able to develop ful fledge production by 2020....but it already started putting infrastruture in to use this energy so for now it should depend on import. Chevron, shell,stat oil, BP almost all major r putting lot of investment in for development of shale resources....numbers can be checked on CNPC website.....CNPC is china national oil company/..
PS: I will be putting all my comment together on my blog :)....abt my views on natural gas..Hope WSO people wont mind..
CHK just got upgraded to 'outperform' today. Fuck yeah!
who cares
CHK trading at 19.94 .....price wiill go stable at 19:00...soon, but future is bright for NG.......profit of 2.90 per share for me :)...
I bot the morning after the aubrey shit show ...thank you board for stripping the chairmanship and killing the well participation deal...
But it is giving back all of today's gains after hours (-6.6%) on earnings miss
Hopefully no one leaves OKC in handcuffs anytime soon.
I like how we have two concurrent discussions going on right now.
Conor, Energy has a long term prospect.....but I think it will go down in between for some time again..... but long term prospects are good....about Apple, No idea thats not my field.....
I like how he's bullish on nat gas... but shorting AAPL... come on man it still has a ways to go if you ask me the P/E ratio is still good relative to the rest of the NASDAQ
Goddamn after-hours in CHK. The entire gap is going to be filled on the open.
every fucking college kid wont shut the fuck up about the p/e ratio. since when has that been the determining factor in a good, compelling stock pick?
...lol
long changyoulimited.com/ long Ford motor company/ long Microsoft/ long Five Star Quality Care Inc. (despite their shitty earnings report)
I will say its good time to buy some CHK.......specially after this news on WSJ..CHK is trading on 17.01 today..it will go up eventually....
"The Dow Jones Industrial Average lost 78 points, or 0.6%, to 13202 in Wednesday morning trading. The Standard & Poor's 500-stock index gave up 11 points, or 0.8%, to 1395, while the Nasdaq Composite dropped 16 points, or 0.5%, to 3035.
Leading the losses were energy and financials stocks such as Bank of America and J.P. Morgan Chase . Alcoa led the Dow decliners, while Chevron and Exxon Mobil also fell."
Some one message me important aspect about new discovries for NG and how it willl make High supply for a low demand.....eventually rates will go down...I posting my reply, so that i can get people view on my reply
1.If you have a well with an initial production rate of 1,000 bpd and a decline rate of 80% per year, after 1 year it will be producing 200 bpd, after 2 years it will be producing 40 bpd, after 3 years it will be producing 8 bpd, after 4 years it will be producing 1.6 bpd, and after 5 years it will be producing 1/3 bpd. So, they need to keep drilling well for present demand. And, As you know because of price of gas too low, its not profitable for companies to drill any more...so most of the projects are abandond to control the price of NG. But, in long term I guess it will be atleast better than what we are getting now....
Thanks
E
Thanks for the post. I'm thinking of increasing my position.
:), I sold NG to connor ....time to apply for job in Finance :)....probably next year after CFA level 1..
http://www.wallstreetoasis.com/jobs/natural-gas-fundamental-analyst
:).......Package looks nice to me
Also, can I have energyanalyst's take on this contango? The best analysis I found was in the comments of this piece http://kiddynamitesworld.com/calling-natural-gas-experts-lets-find-a-tr…
No need to sugarcoat the situation... I've invested about 22k in nat gas plays... eventually moved into individual stocks and I'm at 15k on the position. Percentage wise it's very mediocre but I took a risk and failed... it is what it is. Comes with the game.
ha ha........I think ur ignoring the fact gas wont be trapped, it will leak out......
The problems are operational. Very few fields are setup to reinject as much gas required to make serious money with this strategy.
This artcile is worth a read http://fuelfix.com/blog/2012/05/02/gas-drilling-slows-heating-up-prices/
Specially for u conor...:)......
This artcile is worth a read http://fuelfix.com/blog/2012/05/02/gas-drilling-slows-heating-up-prices/
Specially for u conor...:)......
It's easy to chalk up that mini rally as being driven by production cuts but I think it was more of a short squeeze driven by the unseasonally cold weather through a lot of the country. Production cuts have been ongoing and deep.
I will put all my comments from this post in Blog :), thanks connor for making me write my first WSO Blog :).......Can I load graphs and figures too ?
Just copy the code I just typed.
CHK share bear or bull for short term largly depend upon the outcome of cirminal investigation for its CEO. There will be up and down as this investigation progress.
I have few questions...
Any article on this will be appreciated...
Thanks
This article was on Market watch.com ...There is Dip in most of energy stocks today....Interesting news on CHK..
Chesapeake Energy Corporation /quotes/zigman/126832/quotes/nls/chk CHK -2.70% : For the first quarter of 2012, Chesapeake Energy Corporation /quotes/zigman/126832/quotes/nls/chk CHK -2.70% reported its daily production was averaged 3.658 bcfe, up 18% from the average 3.107 bcfe produced per day in the same quarter last year. By market close, Chesapeake Energy shares climbed 1.16% to US$17.39 on over 34.24 million shares, above its average volume of 30.47million. The stock has been moving within a range of US$16.70 - US$35.75 over the past 52 weeks. Are insiders starting to take huge profits by selling shares or exercising stock options? Academic studies have shown that insiders traditionally make higher investment returns than ordinary investors. Want to find out how they do it?
I am interested in reading above report, if any one of u get access to it ..drop me a message
this trade is fucking killing it.
I'd buy apple anywhere under $500.
But agree that this trade is killing it.
Coming from a deep value guy, I think apple is a GREAT company, but I would never buy it. I would also not short it though.
I think the thing that people really fail to understand is that apple has almost zero economic moat. I mean think about it. To be successful, apple has to come out with a new and amazing product every 1-2 years in all of its product categories. There are almost no switching costs. Are ipods the best music player? Yes, but if google came out with a better one there would be no switching cost to going over.
So why has apple done so well? Well they simply have continued to develop the best new products over and over again. And most importantly-I AM NOT SAYING that they won't continue to do this. What I am saying, however, is not to confuse their amazing product development ability with an economic moat-they do not have one.
At this valuation I would not buy it-because it assumes that they will continue to churn out quality products. Yes, they probably will continue to do this and I'm sure their stock will do great, but I do not see a margin of safety with no moat. I think it's about having discipline and I don't think an apple purchase at this valuation shows this. But yes- would not short either ha.
Well put. Love Maker's, btw. SB+1.
+1
what's a HPM? happypantsmcgee version?
And just to clarify- Apple has had amazing returns on capital and their current multiple suggests this will continue into the future. But since they operate in an amazingly competitive industry with no moat and lower barriers to entry than people realize (look at all those tablets!), there is nothing to suggest other than product development skill that their competitors won't increase competition and drive down their return on capital. I'd suggest reading Greenwald.
The Enquirer claims Steve Jobs has 6 weeks left on the clock, so maybe short for a couple of months then go long for the summer?
Interesting perspective makers. My view is that Apple has some economic moat from their brand that is associated with reliability and ease of use. For the majority of people who are not tech-savvy, they rely on this to guide their purchasing decisions and see Apple as being the premium brand in the personal electronics space. This would provide them with a buffer in the absence of strong product releases for some period of time. Brands take time to be eroded and generally only lose power quickly when associated with safety hazards (think Toyota, Tylenol) or something similar. There are also some switching costs associated with iTunes and its integration with people's music libraries/online purchases. I switched from using iPods for a few years to a Sony player (for higher sound quality) and it was a huge hassle, one that most people would probably balk at.
I would not go long or short, while somewhat overvalued no favorable risk-reward skew exists in either direction.
All this talk of Jobs as if he has that much influence over aapl price these days. Most PMs already believe Jobs most probably will NOT be returning to AAPL. Hence they've been buying AAPL already under the assumption Jobs is out. Secondly, as mentioned above by someone, Cook has already proven he has the capability of taking the co in the right direction. Third, its not like their product pipeline (iphone5 (though id guess it will have a different name), ipad2, ipod xx) are already there. Jobs isn't the one thinking of new products all by himself, he has little to no more actual effect on the co besides being the symbol that he is. Finally, from a technical perspective, as we've seen on the day info came out concerning Jobs sudden departure from aapl, the stock dipped and was quickly snatched up at (what im guessing people considered) bargain prices, before going on to make 52s for a few days.
What we saw the last few days in the stock was simply a test of a new high and now a dump back to the 20DMA, maybe we will see a test of the 50DMA - which will be healthy if anything. This should not be a top, because you could have made that case in Jan, as well as in Nov. And look what happened.
In case its not fully clear: http://www.finviz.com/publish/021911/AAPLc1dl0000.png
Am long aapl calls.
pffff, more like Steve Blowjobs
Good post macro- it's definitely up for debate. I see an economic moat being able to come from three sources and three sources only:
-customer captivity (demand): switching costs, search costs, etc. -supply advantage- priveledged access to resources- patents, copyrights, govt. licenses, etc. -economies of scale
So while you do make a decent case for apple having the first advantage with some switching costs, I don't see a brand as a sustainable competitive advantage. For example: in the 60s, Mercedez Benz enjoyed very strong returns on capital, and thus had a franchise value (earnings power value above its asset values). But these returns on capital were attractive to other competitors- Acura, Lexus, Infinit, etc. - and they all entered the market and drove down profit margins and returns on capital.
Currently, Mercedez Benz has just as strong of a brand-value (their ability to charge higher prices for their cars) but has been unable to translate this into a franchase value (returns on capital above their cost of capital). Their returns on capital are quite bad actually (before Chrysler merger). What happened? There was nothing to stop another company from also investing money into their brand- commercials, luxury dealerships, technology. etc. - at the same cost of Mercedez.
So while a brand can be powerful in creating value for the product, it doesn't create a moat, barriers to entry, or customer captivity on its own. When analyzing any company with high returns on capital, you have to ask, what makes these returns sustainable from competition? I don't think Apple's brand alone will do this in the long run.
Nice job quoting Greenwald. But you forgot the WD-40 example of sunk costs. In order to compete effectively with Apple in hardware you have to take huge losses upfront, as evidenced by past efforts to topple iPod and currently, iPad. You didn't address its supply chain advantage and the huge economies of scale resulting from that. Why are net margins so high?
While Greenwald's framework is great and beats the pants off most valuation methods, it's not perfect. How do Coke and Pepsi fit into his world?
Finally, Apple doesn't need to come close to selling the majority of smart devices to deserve its valuation. I don't even understand why you think the valuation is absurd with a P/E of ~16 net of free cash. That's straight-up cheap even if its margins get challenged.
Good point laudrup- you could definitely make a case here that there are hidden barriers to entry here. I don't know enough about the ipod/ipad market enough to make a complete argument either way, but really just wanted to point out some competitive aspects that most people don't even think about.
Good post though- +1
I see a lot of individual investors entering the rising market in the comming year, and they'll want to hitch their wagon to the american company with success and visibility, and one that they understand.
The whole Itunes thing is a cash machine for apple, the hardware is just a delivery medium.
What companies out there deserve a higher market cap? Citi? Some liar bank from China? XOM?
Thanks makers.
Midas, I don't know if you read the whole article you posted, but most of the famous players who sold have still kept the majority of their stake. Seems wise to take some money off the table when they've probably made 100+% on Apple. And no mention of David Einhorn a VALUE investor cutting any of his holdings. Article also mentions that Steve Cohen (SAC) added to his position in Apple.
In total, we have 22 completely selling out, 81 trimming vs 30 taking new positions, 63 adding. You have net 3 million shares sold by "hedge funds", which isn't a lot in light of the situation. The Apple short case has some merit, but seems like you didn't read very thoroughly here.
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