Seeking Alpha
Akram's Razor
COMMENTS STATS
523 Comments
617 Likes 
Tuesday, October 30, 2012
must01 Remember for a company that is driven by "hot prdouct cycles" the growth repricing the minute they find themselves without an instant hot seller is devestating.
Remember for a company that is driven by "hot prdouct cycles" the growth repricing the minute they find themselves without an instant hot seller is devestating.
Seeking Alpha
Seeking Alpha
Subscribe to:
Post Comments (Atom)
Apple: Set to Double Again [View article]
Imagine you are a soveriegn wealth fund, if you had 135billion dollars in cash would you buy this company? You are putting the type of capital to work that requires you being comofrtable for the next 10-20 years. Apple's business doesn't afford you that luxury. Size does matter, and with apple to comparable investments are probably more important than the actual stock specific analysis. If you are buying here at this multiple anything short of it turning into one of the most valuable companies on earth or the most valuable company could prove disappoinitng.
On Sep 20 07:59 PM Dialectical Materialist wrote:
> skeptic:
>
> Your views on Apple seem very sane. But I wonder if you might be
> selling their future a little short.
>
> 1) They have a vast opportunity to expand into enterprise, where
> you say they have little or no footprint. The iPhone is the first
> shot across the bough here. The "tapplet" computer they will be coming
> out with will be designed as much for the salesman and insurance
> adjuster as it is for the consumer. The growing "cloudiness" of corporate
> data management further extends the reach of apple into enterprise,
> as their tools are designed with this coming phase change already
> in mind. The ease of user designed applications will further make
> these devices more valuable to companies who can easily design apps
> to handle the exact job they need from their workforce -- and it
> will prove easier and more secure than using a company intranet with
> a browser (I predict).
>
> Additionally, you suggest they are at the top of a product cycle.
> I heard the same thing about the iPod before the iPhone came out.
> Yes their future depends on delivering, but so do all companies...
> and those that stagnate die a long slow death like MSFT. But this
> company is not designed nor is it functioning like a monopoly that
> is riding the wave all the way into the shore. It seems to be constantly
> pushing the envelope and staying ahead of the curve. Yes, it will
> need to do this in the future to be successful, but it looks to me
> like a good bet to do this. No company lasts forever no matter how
> strong or old it is (RCA as a case in point), but Apple is the company
> of the near term. It is in an industry (and will soon be serving
> some other industries) which are the future. I'm thinking research
> and education with a side of health care. An iPhone app that can
> read an MRI is just the beginning. Scads of med students may be using
> apple's wireless devices running custom apps in as little as five
> years.
>
> Yes, some of this is not based in the now, but in the future. But
> this reply is just intended to show some very real ways Apple may
> not yet be at the peek of its game or its earnings power. It is not
> seller of pet rock consumer fads -- it is a real hardware company
> that understands the future of computing (which in many ways is the
> future of society). Double in value? I don't see why not.
Under Armour: Avoid the Stock for Now [View article]
Apple: Set to Double Again [View article]
you need to be wary of a confirmation bias you may have developed by thinking the current stock apprecciation you've expereinced being long apple can be attributed to any signficant analysis and subsequent alpha generation on your part.
the only thing apple did was mitigate the downside and reduce the relative volatility in your portfolio when compared to one that was more heavily weighted towards less fundamentally sound companies.
Apple: Set to Double Again [View article]
in tech right now rimm is a lot more appealing than apple if you buy into all the current valuations. They have surprised me with their ability to transition away from the enterprise, and their network efficiency should not be taken lightly as a competitive advantage with service providers. However, i don't really buy into current valuations, but thats more of a macro story. I also like palm. Not particularly because i think the pre will be a big winner in smart phones or because i beleive the stand alone entitity can ever provide the earnings power needed to back the share price risk/reward here, but more so because i think there are too many cash rich tech companies that feel they need a share in this market. For that reason i doubt palm is an independent company 12 months from now. Whether its hpq, dell, or even a sony or samsung; i don't know. But somebody will buy them because some banker will convince them its a good way to spend their cash or current lofty share price.
i was die hard nokia for a while, but it seems they have stumbled badly. Moto i have always hated, but thats not exactly a news flash anymore. Samsung seems to have found a comfortable niche.
in software i like crm for the same reasons as palm(actually more so as i think they have built something sustainable). The p/e(over 100x) is useless as the company has chosen a blitzkrieg strategy to become the dominant provider of software as a service. There was a point where i doubted their ability to reach critical mass before msft, orcl, sap, or maybe even a google responded, but we are now clearly past that point. Dislodging crm will be hardwrok, buying them and turning on the profit engine hidden under all that aggressive sales and marketing budget will be a lot easier.
I am also very curious to see how the migration to a network based model plays out versus the old pc based model. Data centers, web hosting infrastucture, database applications, search(will natural language become a threat to google? personally i doubt it, but its worth keeping an eye on), online applications, security, and virtualization/optimiz... software all are interesting stories for the future.
On Sep 19 03:53 PM Stefan Sidahmed wrote:
> skeptic1: I have some work to do, so don't look at it as a non-reply,
> but rather a delayed reply. Your comments on the future growth prospects,
> the threat of eroding margins, maturing company, etc are all very
> real concerns which require some thought, so I am not going to give
> you an instantaneous reply.
>
> As to the accounting change, this is more clear. I completely agree
> with you that the accounting change will not affect the companies
> cash flows. I was looking at it from the point of how The Street
> might value the company at this time next year from a simple P/E
> valuation based on the proposed new GAAP accounting rules. If you
> don't like the P/Es I used to bracket the price, or you want to back
> out the $4 in deferred earnings because it represents sales from
> 2008 and 2009, then go right ahead and re-do the calculation. This
> is why I provide the basis for my target price. I suspect you will
> throw the whole thing out because I didn't project cash flows out
> for 5 or 10 years and pull a discount rate out of a hat.
Apple: Set to Double Again [View article]
As for valuation...microsoft has blasted out 3 successive years of 50billion plus revenues with avg net margins of 28%. This has been the post growth throw money at all kinds of things looking for an identity before my bread and butter starts its rapid decline microsoft. Apple can only dream of net margins that fat. The 14% or so they have averaged will likely revert back to 9-10% as they rely more and more on pricing power and scale to stifle competitors....a luxury they now have.
Googles margins have gone from 30% to 20% over the last 3 years as they spend like crazy on r&d and sga. They have that room because they have pricing power when it comes to their search model. Msft has done the same. Apples business does not have that luxury. Their margins are not fat enough to go expirmenting in new areas without seriously risking profitability. So, they either have to make amazing acquisitions with their cash or they need to consistently come up with an iphone type product that can sell at the same margins at launch as its predecssor or they need to control the applications and make their money on the back end by becoming the visa/mastercard of the online applications world consumers rely on. If they can do that, they will become like msft and be worth another run. But understand that means id be buying apple because i beleive it can monopolize apps and milk it at the expense of the consumer, the carrier, and even the apps creator. This is the exact opposite of the reason i bought apple 8 years ago. Irony.....i think so.
On Sep 19 01:48 PM Stefan Sidahmed wrote:
> skeptic1: I appreciate your comments. They really make me think because
> you make a sound, valid argument. I agree with everything you say
> about XOM and MSFT. Huge predictable cash stream deserves big value.
>
> I don't think I miss the point with respect to Apple. Our views are
> different, but I am going to save mine for my next blog/article here
> on SA. This article's comment stream is getting long and I would
> be interested in getting more readers into this debate.
>
> Thanks, Stefan
Apple: Set to Double Again [View article]
Apple isnt selling, drilling, and refining oil. And it has little to no market share selling their product to enterprises. You say yes if their share doubles "they will have a huge market cap, but that's ok if the cash flows are there to back it up." That is an understatement. They would be the MOST VALUABLE company in the S&P 500. My point is that the most valuable company in the sp500 should have cash flows that can be discounted years out. Longevity is key.
Apple right now is riding the boom of a hot product cycle. They have executed to perfection and been extremely innovative. But they are still a play on consumers and their ever changing tastes. The same reasons many people have become die hard apple product buyers will be the same reason they switch away one day. When everyone is using the same phone, ipod, etc its hard to earn a fat margin on it. You become the seller of a commodity, unless of course you have managed to somehow monopolize the market and earn unsusally high margins for an unusually long period of time with the benefits of mass scale. If your selling a commodity and discounting cash flows based on that then you better be selling one that has guaranteed demand for as far as the eye can see.
Stop looking at numbers and the accounting and think through your argument. I was long apple from 2001-2006. I was also long rimm for a similiar time frame. I got out of both way too early,but i dont regret it. You want to keep assuming that the company grows at a very high rate, you want to keep giving it a high multiple, but you don't want to factor in what this means for margins. Remember for a company that is driven by "hot prdouct cycles" the growth repricing the minute they find themselves without an instant hot seller is devestating. Furthermore, when multiples are built under the assumption that the iphone will have another product on the back of it that can replace it with at least the same growth, you have a major problem.
I don't know if apple will sharply decline from here or whether they will manage to do a microsoft and milk this for a decade. What i do know is that at this point the last thing you do is buy and hold the stock. It will be everything apple managment can do to conitnue to mantain their current market cap without drastically shifting away from hardware and towards applications. If it goes markedly higher it will be because all other asset prices rise drastically. Apple at 300billion will mean exxon at 500-600billion. And microsoft will be shifting totally to focusing on network based applications.
Apple: Set to Double Again [View article]
UNG: The Best Way to Invest in Natural Gas [View article]
Nymex Nat gas has a curve. The ung only invests in the front end of that curve(granted two weeks before expiration it starts to roll so you get a blend of the two front contracts). The winter effect is built into the curve. If you beleive the winter will be much colder than expected you are better off buying the december or january contracts. The ung is also has problems of predictability and size that allow prop traders and commercials that hedge to take advantage of it. The ung managers dont wake up in the morning wondering whether or not nat gas is too cheap or too expensive. They just buy to replicate daily performance. That makes them a very predictable player. Those trading against them have an incentive to take advantage of their replication mandate. That incentive grows as the ungs assets grow. Hence, the ever increasing contango in nymex natgas contracts. If the ung was a lot smaller this wouldnt be as much of a problem, but as it has grown it has created an incentive for traders to exploit its predictability and size.
It has created a layer of profits for professionals at the expense of misinformed retail investors that think they are investing. Look back to august 13. The ung was 12.5. Nymex front contract was about 3.5. It fell off a cliff and then rebounded and is now up. The premium narrowing accounts for about 4% of the performance differential. The rest is lost because of the contango situation that ung has exacerbated.
At some point the contango will narrow sharply and ung will outperform for a period, but over the long haul that wont offset the underperformance that it is creating for itself by simply existing as the largest most predictable buyer of the front contract. These long energy etfs are great only if you beleive you can catch a sharp flattening and subsequent inversion of the curve in the front contract. Otherwise if you beleive the whole curve is going to shift up you are better off buying the actual futures contracts yourself and rolling as you see fit.
Cisco Sell-off Puts Apple at a Discount [View article]
At 190$ a share you are basically paying upfront for 3 straight years of 50% eps growth. As an investor, you never want to pay full value for anything...but more importantly you definentely don't want to pay for something that well...let's just say is not a sure thing. Now at 155 apple is more attractive, but still not trading at a long term discount that offers any disciplined investor a margin of safety to his fair value. I'd say apple shares are worth something closer to 155$ based on the next 3-5 years of growth i think the company can sustain. That means it is trading at a premium to my valuation right now. If apple can show me more data points indicating that their growth rate is actually still acclerating...i might re consider and say the stock is worth 200$...but either way that means its still pricey as all hell as that value is based on 5 years of expectations that are pretty high. I'd rather recommend stocks that can grow into a valuation over the next few years. Bcsi, maybe hans, i see opportunities in dell....and of course god knows there are probably some steals in financials...so just becasue apple dropped 25% doesn't mean you need to push the retail idiots back into it. They have enough problems already...they don't need to be force fed overpriced stocks just because the companies are popular.
Cisco Sell-off Puts Apple at a Discount [View article]
At 190$ a share you are basically paying upfront for 3 straight years of 50% eps growth. As an investor, you never want to pay full value for anything...but more importantly you definentely don't want to pay for something that well...let's just say is not a sure thing. Now at 155 apple is more attractive, but still not trading at a long term discount that offers any disciplined investor a margin of safety to his fair value. I'd say apple shares are worth something closer to 155$ based on the next 3-5 years of growth i think the company can sustain. That means it is trading at a premium to my valuation right now. If apple can show me more data points indicating that their growth rate is actually still acclerating...i might re consider and say the stock is worth 200$...but either way that means its still pricey as all hell as that value is based on 5 years of expectations that are pretty high. I'd rather recommend stocks that can grow into a valuation over the next few years. Bcsi, maybe hans, i see opportunities in dell....and of course god knows there are probably some steals in financials...so just becasue apple dropped 25% doesn't mean you need to push the retail idiots back into it. They have enough problems already...they don't need to be force fed overpriced stocks just because the companies are popular.
Cisco Sell-off Puts Apple at a Discount [View article]
At 190$ a share you are basically paying upfront for 3 straight years of 50% eps growth. As an investor, you never want to pay full value for anything...but more importantly you definentely don't want to pay for something that well...let's just say is not a sure thing. Now at 155 apple is more attractive, but still not trading at a long term discount that offers any disciplined investor a margin of safety to his fair value. I'd say apple shares are worth something closer to 155$ based on the next 3-5 years of growth i think the company can sustain. That means it is trading at a premium to my valuation right now. If apple can show me more data points indicating that their growth rate is actually still acclerating...i might re consider and say the stock is worth 200$...but either way that means its still pricey as all hell as that value is based on 5 years of expectations that are pretty high. I'd rather recommend stocks that can grow into a valuation over the next few years. Bcsi, maybe hans, i see opportunities in dell....and of course god knows there are probably some steals in financials...so just becasue apple dropped 25% doesn't mean you need to push the retail idiots back into it. They have enough problems already...they don't need to be force fed overpriced stocks just because the companies are popular.