Apple's Correction

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Re: Apple's Correction

Post by MediumTex » Wed Apr 17, 2013 10:32 pm

melveyr wrote: This brutal correction is so tempting. Today's drop was spurred by an inventory glut for one of their suppliers, indicating that Apple may be operating below prior internal projections... Still it is just so cheap.

However, it is impossible to forecast where they will be 10 years from now. I definitely can appreciate why many investors prefer more predictable businesses such as Coke (KO).
Honestly, Apple is starting to look appealing solely as a dividend play.  The 2.5% dividend looks to be VERY safe and you have an easy upside of over 100% while collecting that dividend.

When you look at Apple's P/E and compare it to some of the other high profile tech companies, it's pretty cheap even if its growth does slow.
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Re: Apple's Correction

Post by rocketdog » Thu Apr 18, 2013 10:47 am

Apple just slipped below $400, losing over 43% of it's value since September.
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Re: Apple's Correction

Post by Reub » Thu Apr 18, 2013 11:32 am

What happens to Apple if we are at the beginning of a market correction or downturn?
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Re: Apple's Correction

Post by MediumTex » Thu Apr 18, 2013 11:33 am

I bought some this morning at $395.99.

I like the 2.68% dividend mostly and the likelihood of it increasing over time based on Apple's hoard of cash.

Apple has created an ecosystem that people are likely to stay within, which creates a nice durable competitive advantage.  Between itunes, the app infrastructure and the cross-device synching capability I think that once a person enters the Apple world they are likely to stay there.  That's JMHO, of course.
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Re: Apple's Correction

Post by MediumTex » Thu Apr 18, 2013 11:37 am

Reub wrote: What happens to Apple if we are at the beginning of a market correction or downturn?
Apple is likely at the leading edge of a downturn that has already started.  I think that Apple's 40%+ decline over the last few months, though, is probably most of the decline that it will experience.  Remember that Apple never had a high valuation to start with.  Even with revenue and earnings growing at 50-100%, its P/E never got above 15.

Apple's forward P/E is currently 7.96.  How much cheaper is it going to get than that?  I don't know, but I think that we are closer to the end of the decline than the beginning.  Time will tell.
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Re: Apple's Correction

Post by rocketdog » Thu Apr 18, 2013 1:24 pm

More power to you MT.  I just can't stomach buying a $400 stock.  Besides, I already own some of AAPL indirectly through my various stock index funds. 
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Re: Apple's Correction

Post by melveyr » Thu Apr 18, 2013 1:37 pm

rocketdog wrote: More power to you MT.  I just can't stomach buying a $400 stock.  Besides, I already own some of AAPL indirectly through my various stock index funds.
rocketdog,

A great way to look a stock is to look at its price divided by some other metric. A common example is price divided by earnings.

Let's say I was going to sell you some rice for $400. Wouldn't you want to know how much rice you were going to get? That is why it is important to express things as a ratio such as price/quantity of rice or for a stock price/earnings (or some other business metric). From this lens, you get a lot for you money with Apple shares.
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Re: Apple's Correction

Post by rocketdog » Thu Apr 18, 2013 1:38 pm

I got curious after my last post as to how much AAPL I actually do own via my index funds.  So I used Morningstar's Portfolio X-ray tool, and it turns out that 1.25% of my equity holdings are in AAPL stock.  That's quite enough for me.  Thanks Morningstar!
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Re: Apple's Correction

Post by rocketdog » Thu Apr 18, 2013 1:58 pm

melveyr wrote:
rocketdog wrote: More power to you MT.  I just can't stomach buying a $400 stock.  Besides, I already own some of AAPL indirectly through my various stock index funds.
rocketdog,

A great way to look a stock is to look at its price divided by some other metric. A common example is price divided by earnings.

Let's say I was going to sell you some rice for $400. Wouldn't you want to know how much rice you were going to get? That is why it is important to express things as a ratio such as price/quantity of rice or for a stock price/earnings (or some other business metric). From this lens, you get a lot for you money with Apple shares.
I get it, but again I just can't stomach buying a $400 stock regardless of its value, whether real or perceived.  It has a much steeper downside than upside, imho.  With Steve Jobs gone and both Google and Facebook making strong moves into the mobile market, it's going to become more and more difficult for Apple to enjoy the sort of meteoric climb that it's had in the past.  I remember the 1990s when people used to think Microsoft and Yahoo! were sure bets, too.  :o

Then again, I could also be wrong, but at least I'll sleep better at night.
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Re: Apple's Correction

Post by melveyr » Thu Apr 18, 2013 3:57 pm

rocketdog wrote: Then again, I could also be wrong, but at least I'll sleep better at night.
That's what it's all about!  :)
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Re: Apple's Correction

Post by Reub » Thu Apr 18, 2013 5:18 pm

We should remember that investing is an emotional event. Sometimes the numbers don't mean squat.
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Re: Apple's Correction

Post by MediumTex » Thu Apr 18, 2013 5:31 pm

Reub wrote: We should remember that investing is an emotional event. Sometimes the numbers don't mean squat.
That's true, but as long as Apple is paying a 2.6% dividend I don't mind if the market only wants to give it a P/E of 7 for a while.

Over time, though, a company like Apple is going to trade at a P/E higher than 7 at some point.  It seems unlikely that it's going to go a lot lower than that, but it certainly could.

Even a dog like Microsoft has a forward P/E of 9.

If Apple had a P/E of 12, which is still very conservative for a company like Apple, its share price would be $125 higher.

All of this doesn't mean much in the short term, but I am confident that the market will see that Apple deserves a higher share price.  There are no guarantees, of course.  It's just a calculated risk.
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Re: Apple's Correction

Post by smurff » Thu Apr 18, 2013 7:59 pm

MediumTex wrote: Apple has created an ecosystem that people are likely to stay within, which creates a nice durable competitive advantage.  Between itunes, the app infrastructure and the cross-device synching capability I think that once a person enters the Apple world they are likely to stay there.  That's JMHO, of course..com
That's generally true. I've been an Apple customer since I bought my first computer in the 1990s.  Back when Dell, HP, Toshiba, and Sony (actually, Microsoft) ruled the world, my Apples allowed me to be more productive. I spent more time producing work than talking to help desks, purging viruses, unlocking the system, trying to find files, the works.

But right now I'm typing this post on Amazon's Kindle Fire. When the time came  to get a tablet, Apple's were either too big (iPad) or too small (iPod Touch), or too expensive relative to competitors.

I don't know what that means for Apple's future.
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Re: Apple's Correction

Post by MachineGhost » Fri Apr 19, 2013 2:50 am

Remember, forward P/E's are only undervalued when they are under 6.  You cannot compare apples and oranges.

And its still stupid to value a company based on just one year of expected earnings.  There are better ratios to use if you insist on such a heuristic.
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Re: Apple's Correction

Post by rocketdog » Fri Apr 19, 2013 10:08 am

I'm generally not a fan of Apple's products (actually it's the stranglehold of control they exert over them that I dislike), but I admire them for what they've accomplished.  Their new challenge is to come up with the "Next Big Thing".  If they think they're still going to be holding on to market share when they're coming out with the "iPhone 43" or "iPad 25", they're going to be left in the dust. 

What's the next big thing?  I dunno, but it will have to be an obvious game-changer, one of those "smack the forehead and wonder why I didn't think of that" products.  Y'know, like the iPod was.  I'll look forward to seeing what it is, even though I'll be unlikely to buy it.  ::)
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Re: Apple's Correction

Post by MediumTex » Fri Apr 19, 2013 12:07 pm

MachineGhost wrote: Remember, forward P/E's are only undervalued when they are under 6.  You cannot compare apples and oranges.

And its still stupid to value a company based on just one year of expected earnings.  There are better ratios to use if you insist on such a heuristic.
I'm just pointing out that IMHO Apple isn't obviously overvalued, especially compared to some of the other big name technology companies like Amazon with its forward P/E of 72.
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Re: Apple's Correction

Post by MachineGhost » Fri Apr 19, 2013 6:40 pm

rocketdog wrote: What's the next big thing?  I dunno, but it will have to be an obvious game-changer, one of those "smack the forehead and wonder why I didn't think of that" products.  Y'know, like the iPod was.  I'll look forward to seeing what it is, even though I'll be unlikely to buy it.  ::)
Apple iTV.  It's what Jobs wanted before he popped the mortal coil.
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Re: Apple's Correction

Post by Xan » Fri Apr 19, 2013 6:44 pm

Isn't there a watch or something too?
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Re: Apple's Correction

Post by rocketdog » Sun Apr 21, 2013 7:50 pm

MachineGhost wrote:
rocketdog wrote: What's the next big thing?  I dunno, but it will have to be an obvious game-changer, one of those "smack the forehead and wonder why I didn't think of that" products.  Y'know, like the iPod was.  I'll look forward to seeing what it is, even though I'll be unlikely to buy it.  ::)
Apple iTV.  It's what Jobs wanted before he popped the mortal coil.
Nah -- Roku has already been in that market a long time.  Not revolutionary enough anyway.  It's gotta be one of those, "Holy sh*t -- I didn't know you could do that?!" products.
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Re: Apple's Correction

Post by Pointedstick » Sun Apr 21, 2013 9:37 pm

MachineGhost wrote:
rocketdog wrote: Apple iTV.  It's what Jobs wanted before he popped the mortal coil.
Nah -- Roku has already been in that market a long time.  Not revolutionary enough anyway.  It's gotta be one of those, "Holy sh*t -- I didn't know you could do that?!" products.
Apple's already in the set-top box market anyway with the AppleTV.
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Re: Apple's Correction

Post by MachineGhost » Wed Apr 24, 2013 2:03 am

Company X makes widgets, has a 3.7% dividend yield, a payout ratio of 35%, strong prospects for dividend growth, trades at 10 times earnings, nine times forward earnings, 10 times cash flow and one times growth (assuming a 9% growth rate instead of 19%).

Are you interested?
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Re: Apple's Correction

Post by rocketdog » Wed Apr 24, 2013 9:01 am

MachineGhost wrote: Company X makes widgets, has a 3.7% dividend yield, a payout ratio of 35%, strong prospects for dividend growth, trades at 10 times earnings, nine times forward earnings, 10 times cash flow and one times growth (assuming a 9% growth rate instead of 19%).

Are you interested?
Not if it's $400 a share I'm not. 
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Re: Apple's Correction

Post by Reub » Wed Apr 24, 2013 9:32 am

And they've lost their innovation advantage. And their competition is getting stronger. And their founder and visionary has passed on. And they no longer seem edgy.

Just sayin....
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Re: Apple's Correction

Post by Xan » Wed Apr 24, 2013 10:57 am

rocketdog wrote: Not if it's $400 a share I'm not.
Maybe I'm missing something, but what's so important about the absolute share price?  I mean, assuming you can afford at least one.
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Re: Apple's Correction

Post by iwealth » Wed Apr 24, 2013 11:09 am

Strikes me Apple is being priced as if its days of innovation are completely over and that Steve Jobs was the sole innovator at the company. It's likely the latter is somewhat true and we're seeing that in their current lack of new product releases. It's also possible that great ideas are being suppressed by the new conservative management.

Either way, this is just about getting their edge back. And that shouldn't take much more than one great new product release. It's hard for me to believe that the development team at Samsung is suddenly sooo much more innovative and edgy than the team at Apple. Ultimately, everything produced by Apple's competitors is still an improved copycat of Apple's original releases. So if Apple is done innovating, this entire industry may be in trouble.
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