Since84
Moderator
To infinity and beyond!
Posts: 3,933
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Post by Since84 on Jun 27, 2017 2:36:28 GMT -8
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Post by phoebear611 on Jun 27, 2017 6:49:20 GMT -8
End of month - end of qtr - half year over ... doldrums setting in. Well at least we have politics that is always keeping us engaged but honestly, it's getting old too - half the time I think the news is on a loop. Much rather focus on Wall Street.
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Post by Luckychoices on Jun 27, 2017 9:34:17 GMT -8
Yet another article has appeared on Seeking Alpha which questions the desirability of investing in AAPL versus AMZN or GOOG for non-long term holders. Apple: Where's The Growth? by Kumquat Research I've included *some* portions of the article in this post but, if interested, one should follow the link to view the 6 charts that accompany the article. Following the included portions of the article is a comment by a person with the username, Wiseyou. I have mentioned him in the past as being someone who I believe provides thoughtful comments to the Apple-related articles on Seeking Alpha and I'd be interested to read any comments from the members on either the linked article or Wiseyou's comment. ================== Summary
• Apple's growth has stagnated and avenues for future growth are murky.
• Other segments need to step up and spur the growth the iPhone cannot.
• Other names in the tech space offer more potential upside.
I've often seen Apple (NASDAQ:AAPL) bulls lamenting that the stock seems to sluggishly limp along while high P/E names like Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), Tesla (NASDAQ:TSLA), and others race higher. The reason is simple and straightforward and it's a question many investors are asking: where's the growth? The answer is that growth has stagnated and that Apple's other segments will need to pick up the slack if the share price is going to appreciate.
I'm not going to pretend that growth is the only thing that matters, but in terms of sheer stock price, growth is paramount. That's why you see companies like Amazon that don't earn any consistent profit flying higher, and conversely, why you see companies like Apple stay fairly stable relative to peers. I often see Apple bulls refer to the low forward P/E ratios as evidence of the stock's undervaluation, and if that were all that were relevant, these investors would have a great point.
Even assuming the growth rates of Apple's expanding segments stay constant, which is unlikely considering Mac sales growth will almost certainly drop with time until the next revamp and Service revenue will tail off as well, it would take years before these segments could, combined, rival the iPhone business. Ultimately, Apple's share price will depend heavily on the growth of the iPhone for the foreseeable future, and that growth has stagnated.
The opportunity cost of owning AAPL shares right now is, to me, too high to justify holding them for non-buy-and-hold investors. AMZN, GOOG, NFLX, and other high-powered tech stocks offer more upside due to the top line growth they are generating and the importance of growth in boosting a stock's share price.
================== WiseyouComments (409) |Following |Send Message @kumquat Research Many investors believe that revenue growth is essential for stock prices to rise. The application of this belief to Apple flies in the face of common sense. Let us compare two companies, both with name starting with A: Amazon and Apple. Amazon is currently at an all-time high with a market cap of $478.6B, an earning per share of 5.31, a price/earning ratio of 188.2, and its stock price rose from a 52-week low of 682.12 to a 52-week high of 1017. It is currently at 1003.74 despite a much heralded purchase of Whole Foods, which many investors believe will propel Amazon to the top of the food chain. Apple is currently at 146 with a market cap of $759.29B, an earning per share of 8.55, a price-earning ratio of 17.03, a dividend of 2.52, and a yield of 1.73%. In addition, they have been purchasing their own stock at the rate of $10 billion or more per year. Apple rose from a 52-week low of 91.5 to a high of 156.65 several weeks ago. Both companies are 600-pound gorillas in their respective industries. Amazon is the most dominant online retailer while Apple captures nearly 80% of the profit in each of the industries it has products in, including smartphones, tablets, computers, and earphones businesses. The main difference between the two companies is their profit.Apple makes nearly 40% gross margin from revenues of over $220 billion per year. Its profit margin (net income after subtracting fixed and variable costs) rose from 8-9% in 2004-2006, from 9-22% in 2007-2010, and remained between 20-25% from 2011-2017. (http://bit.ly/2tZOyaY). While several company have similar profit margins, i.e. Cisco Systems with 21.06%, Intel with 20.03%, and NVIDIA 26.17%, no company makes as much money as Apple. Not only does Apple have higher revenues than any other company, it makes more profit than the next four most profitable companies in the world. In contrast, Amazon makes pitifully little profit. It currently makes only 2.0% profit margin, having peaked at 2.8% 12 months ago. in 2012 and 2014, Amazon actually lost money, on the order of -1.5 to -2.0% (http://bit.ly/2t1Y5RG). It’s revenues for for 12/31/2016 was 135.98B, with a gross income of $47.72B, and a net income of $2.37B. Table 1. AAPL versus AMZN by the numbers Price MCap Gross Net EBIT EPS P/E P/S Grow Div Yield AAPL 146 759B 214B 45.7B 59.0B 8.55 17.0 3.46 -4.9% 2.52 1.73% AMZN 1003 477B 136B 2.4B 4.4B 4.9 188.4 3.36 118% — — Apple pays a dividend of $2.52 per share (1.73%) and returned over $35.7B to investors from 2012-2015 . Apple is also buying back stock at a unprecedented rate, acquiring over $104 billion of its own stock from 2012-2015 (http://bit.ly/1T92oNs) or about 20% of its outstanding shares. Apple is buying about 5-7% of its stocks every year going forward. If you were to be given a choice of buying Apple or Amazon, which would you buy? One would think that the company earning more money would be preferred, especially if the company earns nearly $50B after taxes every year and has a cash hoard of over $250B. The price for buying Apple? Merely twice the price of Amazon that earns only $2.4 billion per year and total cash of only $22.4B. Let’s look at their respective businesses. Apple’s business is manufacturing and selling products that are beautiful, utilizes state-of-the-art technology that is changing the lives of nearly a billion people, are desirable and therefore commands very high margins. Probably more people own Apple products than products made by any other manufacturer in the world. Amazon’s business is selling other people’s products, occasionally making their own, and selling them for as low a price as possible. Amazon uses sophisticated technology to sell and deliver information and goods. To be successful, Amazon must plow every nickel and dime that it makes back into expanding the business, hence its very low profits. Amazon is very unlikely to make as much profit as Apple anytime soon. Retail is a low-profit industry. With profit margins of 2-3%, it has to increase its revenue by 20 times that of Apple in order to make as much or more profit than Apple. Even if Amazon were to take the entire $330B U.S. food/grocery market, they will not be able to make $50 billion profits annually.I also don’t understand why analysts do not give Apple more credit for the $250 billion cash hoard they have overseas. They invariably discount the cash by subtracting the $100 billion debt that Apple has built up in the last 5 years buying back its own stock and also subtracting 35% taxes that Apple would have to pay if they repatriate the money to the U.S. Apple can make money with their cash even without repatriating the money to the U.S. Analysts often forget that Apple’s cash hoard allows the company to borrow money at a lower interest rate than almost any other company. Analysts also do not count return on the money invested into different businesses overseas. Although Apple does not say how much return they get from investing their overseas money, it must be substantial. Even 5% of $250 billion is $12.5B, about 25% of the profit that Apple is making from its other business and more than double the interest rates for bonds sold by Apple. Apple can purchase any company that they want. But, instead, Apple chose to invest in itself, purchasing over a third of their outstanding stock. They invest over $10B into their own research and development every year. They have systematically bought 76 companies since 2000 for $20 to $400 million each, specifically to add their technology and IP portfolio for their products (http://bit.ly/YTdWfB). Apple occasionally invests larger amounts, such as $3 billion into Beats, a billion dollars into Didi Chuxing in China, $1 billion into SoftBank, $1 billion in a U.S. advanced manufacturing fund, and possibly several billion dollars into the Toshiba unit that makes high end NAND chips. In fact, there are rumors that Apple, Amazon, and Dell might invest together into Toshiba for 20%, 10%, and 10% stakes respectively of ¥11 trillion ($30 billion). For Apple, a 20% stake of $30 billion in Toshiba would not raise a sweat. Apple probably has $6 billion squirreled away in Japan as part of its overseas hoard. Note that such an investment would guarantee Apple a source of NAND chips (http://bit.ly/2tZzJoU). 24 Jun 2017, 06:43 AM Report Abuse
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Post by dreamRaj on Jun 27, 2017 9:37:45 GMT -8
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Post by hledgard on Jun 27, 2017 9:43:37 GMT -8
Strange article. Not sure it makes sense. I think integration and development of Siri is one good long term strategy for growth.
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Post by archibaldtuttle on Jun 27, 2017 9:44:17 GMT -8
Not able to hold a bounce. Chart doesn't look good.
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crispin
Member
KBJ for the win. AAPL long and strong since 2000
Posts: 311
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Post by crispin on Jun 27, 2017 10:26:35 GMT -8
Not able to hold a bounce. Chart doesn't look good. Doesn't the chart always look bad until it doesn't? In all fairness, charts are simply superb at predicting the past.
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bud777
fire starter
Posts: 1,353
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Post by bud777 on Jun 27, 2017 10:33:03 GMT -8
Lucky, thank you for your post. I has been befuddled by this dilemma for as long as I have been on this board. Indeed, it was the reason for following the board in the first place. Apple's valuation ( or lack of) has been the recurrent theme here and on SA. I do not believe that professional analysts understand it any better than the people on this board, so the mystery continues. Over the past five years or so, while not understanding things much better, I have at least gained some experience and formed some opinions that guide my actions.
In previous posts I have referred to three categories of investors: Fundamental, Traders, and Noise. As the name implies, Fundamental investors are looking at the company's financials, business prospects, future products and the environment in which the company competes (politics, competition, technology). This is the most rational way to evaluate the company, yet it fails to predict stock price. The decline from 700 to 400 in 2012 cannot be explained by fundamentals, nor can the recent rise from 90 to 156. Still, adrift in this sea of uncertainty, fundamentals seem like the most solid piece of flotsam we can grab.
The traders don't care about the fundamentals, they are riding the momentum. When a move takes place, it follows a logistic curve, starting slowly, building exponentially and then dying out as the number of buyers is exhausted. Getting in before the first inflection point and getting out right after the second is the game. Interestingly, the effect of traders is not to create moves in the market, but to exaggerate moves caused by other events.
The third class of investors may be the most important. Noise investors are those who act based on emotion. These are the unsophisticated who buy or sell based on impulse or a few data points. My belief is that it is the unusually large number if Noise investors who account for the stock's behavior. When Samsung was funding the FUD campaign during the lawsuit, it was effective in scaring away noise investors. When Icahn bought an small share, the noise investors jumped in (as they did when Trump raised the hope of repatriating cash). The traders followed the momentum and the stock price followed.
There is nothing wrong with this, no evil overlords, no wall street manipulation IMHO. It is just the way things work. I don't want to fix it, I want to exploit it.
If my hypothesis is true, the stock should move based on dramatic events, ones that may or may not have a real link to Apple. Looking back to the dark days of mid 2013, the most significant stock movement seemed to correlate with Apple starting the buyback which seemed to put a floor under the stock price, Ichan's involvement, the 7-1 split that brought in hordes of Noise investors, The prospect of a tax holiday, when Buffett bought, that opened the door for institutions to buy since fund managers did not have to defend climbing on the Apple bandwagon.
All this is leading me to believe that the unpredictability of the stock is a consequence of the investors, not the company or the market. Tracking investor sentiment ( and predicting it based on something other than stock price) is an intriguing idea.
In the meantime, holding for the long term seems to be the only rational strategy
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crispin
Member
KBJ for the win. AAPL long and strong since 2000
Posts: 311
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Post by crispin on Jun 27, 2017 10:44:52 GMT -8
In the meantime, holding for the long term seems to be the only rational strategy Exactly. Everyone knows most traders lose money, yet there seems to be an endless supply of hopefuls who believe they can beat the odds. Unless you're a savant who built a home-brew quant platform, I don't see how you can hope to compete these days. Buy and hold investing, despite a severe lack of sexiness, is the only reason I've gotten to where I am with AAPL.
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Post by archibaldtuttle on Jun 27, 2017 11:19:32 GMT -8
In the meantime, holding for the long term seems to be the only rational strategy Exactly. Everyone knows most traders lose money, yet there seems to be an endless supply of hopefuls who believe they can beat the odds. Unless you're a savant who built a home-brew quant platform, I don't see how you can hope to compete these days. Buy and hold investing, despite a severe lack of sexiness, is the only reason I've gotten to where I am with AAPL. The fact that most traders lose money is not the same as saying that it is impossible to make money trading, or that technical trading is B.S. Most people can't successfully perform surgery either, but that doesn't mean that surgery is fake. It's extremely difficult to succeed at beating the market, but isn't that all the more reason for us to share knowledge and help each other?
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crispin
Member
KBJ for the win. AAPL long and strong since 2000
Posts: 311
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Post by crispin on Jun 27, 2017 13:03:00 GMT -8
Exactly. Everyone knows most traders lose money, yet there seems to be an endless supply of hopefuls who believe they can beat the odds. Unless you're a savant who built a home-brew quant platform, I don't see how you can hope to compete these days. Buy and hold investing, despite a severe lack of sexiness, is the only reason I've gotten to where I am with AAPL. The fact that most traders lose money is not the same as saying that it is impossible to make money trading, or that technical trading is B.S. Most people can't successfully perform surgery either, but that doesn't mean that surgery is fake. It's extremely difficult to succeed at beating the market, but isn't that all the more reason for us to share knowledge and help each other? I'm not saying it's impossible to make money trading... but if you're a trader, chances are you're going to lose money. It's statistically quite clear. It's a free choice though. People can believe in stock charts, or tarot cards, or astrology, or whatever makes them feel good. It's not for me, but I try not to judge. And you're right, we're all in this together.
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Post by Luckychoices on Jun 27, 2017 13:09:39 GMT -8
Lucky, thank you for your post. I has been befuddled by this dilemma for as long as I have been on this board. Indeed, it was the reason for following the board in the first place. Apple's valuation ( or lack of) has been the recurrent theme here and on SA. I do not believe that professional analysts understand it any better than the people on this board, so the mystery continues. Over the past five years or so, while not understanding things much better, I have at least gained some experience and formed some opinions that guide my actions. In previous posts I have referred to three categories of investors: Fundamental, Traders, and Noise. As the name implies, Fundamental investors are looking at the company's financials, business prospects, future products and the environment in which the company competes (politics, competition, technology). This is the most rational way to evaluate the company, yet it fails to predict stock price. The decline from 700 to 400 in 2012 cannot be explained by fundamentals, nor can the recent rise from 90 to 156. Still, adrift in this sea of uncertainty, fundamentals seem like the most solid piece of flotsam we can grab. The traders don't care about the fundamentals, they are riding the momentum. When a move takes place, it follows a logistic curve, starting slowly, building exponentially and then dying out as the number of buyers is exhausted. Getting in before the first inflection point and getting out right after the second is the game. Interestingly, the effect of traders is not to create moves in the market, but to exaggerate moves caused by other events. The third class of investors may be the most important. Noise investors are those who act based on emotion. These are the unsophisticated who buy or sell based on impulse or a few data points. My belief is that it is the unusually large number if Noise investors who account for the stock's behavior. When Samsung was funding the FUD campaign during the lawsuit, it was effective in scaring away noise investors. When Icahn bought an small share, the noise investors jumped in (as they did when Trump raised the hope of repatriating cash). The traders followed the momentum and the stock price followed. There is nothing wrong with this, no evil overlords, no wall street manipulation IMHO. It is just the way things work. I don't want to fix it, I want to exploit it. If my hypothesis is true, the stock should move based on dramatic events, ones that may or may not have a real link to Apple. Looking back to the dark days of mid 2013, the most significant stock movement seemed to correlate with Apple starting the buyback which seemed to put a floor under the stock price, Ichan's involvement, the 7-1 split that brought in hordes of Noise investors, The prospect of a tax holiday, when Buffett bought, that opened the door for institutions to buy since fund managers did not have to defend climbing on the Apple bandwagon. All this is leading me to believe that the unpredictability of the stock is a consequence of the investors, not the company or the market. Tracking investor sentiment ( and predicting it based on something other than stock price) is an intriguing idea. In the meantime, holding for the long term seems to be the only rational strategy Bud, I strongly agree with your comment and especially with your last two points. Who can seriously look at the market's performance over time and feel they can accurately anticipate future directions of stocks? I'm not saying traders will never be correct. Of course they will be and some will be correct *frequently*. But are they confident enough in their ability that they would go "all in" on any of those trades? I'd be surprised if any were. And why should they be? Just look at yesterday's action. At one point, FIT was up 6.59% and finished up 5.43%.
The action was so opposite to the majority of the market that I looked to see if there were any positive news about the company of which I was unaware. This is what I found: 06/26/17 - Samsung Surpasses Fitbit in Wearable Device Market 06/25/17 - As Fitbit Inc. Rebuilds, Competition Will Only Get Tougher. 06/23/17 - Fitbit Analyst Gets More Cautious Ahead of New Product Launches 06/21/17 - Why Fitbit Inc (FIT) Stock Is in Far More Trouble Than You Think Who are these people who feel FIT looks like a promising bet if not traders who immediately reacted yesterday when the stock started increasing and bailed before it declined somewhat by the end of the day? That's about as far removed from being an AAPL Long as one could get, IMO, and I have 0 desire to play that game. Cheers to the rest of the *patient* AAPL Longs!!
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Post by rickag on Jun 27, 2017 14:13:24 GMT -8
Luckychoices I saw that SA article and Wiseyou's response, agree with everything he says. I do question one statement he made,"even 5% of $250 billion is $12.5B,"
I need to pull up Apple's quarterly statement, but I think much of their cash/cash equivalents are in US Government securities so 5% seems high. I could be wrong, need to do some research.
I really appreciate Wiseyou's comments.
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Post by Luckychoices on Jun 27, 2017 17:02:47 GMT -8
For anyone on the West Coast, I watched the 2nd part of an interview with Warren Buffet on PBS News at 3:00PM. It's being repeated at 6:00 PM (like right now) and I recommend watching it...unless you can't stand Warren Buffet. In that case, don't watch it. :-) Note #1: Both parts of Warren Buffet's interview on PBS are available online. Part 1 — America should stand for more than just wealth, says Warren Buffett
Part 2 — Billionaire Warren Buffett says GOP health reform bills are relief for the richNote #2: Before anyone accuses me of dragging politics into today's link because of the Part 2 interview's title, let me be clear. What I loved about the Part 2 interview is Warren Buffett's comments regarding his own wealth, how 99% is pledged to philanthropy, his obvious lack of desire to own "20 houses and a 400-foot yacht" and that he said he's still living in a home he bought in 1958. He stated that if he thought a $100 million home would make him happier, he'd buy it...but he's happy enough in the 1958 home. Love it!
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Post by Luckychoices on Jun 27, 2017 19:04:17 GMT -8
Luckychoices I saw that SA article and Wiseyou's response, agree with everything he says. I do question one statement he made,"even 5% of $250 billion is $12.5B," I need to pull up Apple's quarterly statement, but I think much of their cash/cash equivalents are in US Government securities so 5% seems high. I could be wrong, need to do some research. I really appreciate Wiseyou's comments. So do I, rickag. I'm still hoping he'll become a member of this board because with all the great folks that no longer participate here, for various reasons, we need to add members like him to contribute to the board's discussions and information exchanges. I'm glad you both read the article and Wiseyou's comment but also that you posted your comment to let me know. Thanks!
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Post by tuffett on Jun 28, 2017 5:58:01 GMT -8
In the meantime, holding for the long term seems to be the only rational strategy Exactly. Everyone knows most traders lose money, yet there seems to be an endless supply of hopefuls who believe they can beat the odds. Unless you're a savant who built a home-brew quant platform, I don't see how you can hope to compete these days. Buy and hold investing, despite a severe lack of sexiness, is the only reason I've gotten to where I am with AAPL. Most buy and hold investors don't end up beating the indices either. Does that mean we should just jump into ETFs?
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