Apple's Correction

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smurff
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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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Re: Apple's Correction

Post by rocketdog » Wed Apr 24, 2013 1:25 pm

Xan wrote:
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.
A few reasons...

First, you have more of your money locked up into each share so your money doesn't go as far.  All other things being equal, I would much rather diversify between 10 different well-chosen $40 stocks than put it all into a single $400 stock.  The $400 stock is an "all-or-nothing" bet, whereas there is a decent chance at least some of my $40 stocks will do well enough to overcome any losers. 

Second, with rare exceptions the higher a stock's price climbs the less upside potential there is.  There is just a lot more headwind for a $400 stock than there is for a $40 stock.  It is much more likely for a $40 stock to eventually double or triple in price than it is for a $400 stock to do so (how many $400 stocks can you name that eventually hit $1,200?). 

Third, look at AAPL.  They first hit $400 in Dec. 2011, briefly topped $700 nine months later, then sank back to $400 six months after that.  I'm not eager to jump into an investment that has a strong potential for multiple $300 price swings in little more than a year. 

If I'm going to "swing for the fences", it's going to be with a low-priced start-up company (like AAPL, but back in their early days).  Otherwise I'll stick with my boring index funds, thanks.  ;)
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Re: Apple's Correction

Post by Xan » Wed Apr 24, 2013 1:31 pm

Rocketdog,

That all makes sense, but only #1 has anything to do with the actual share price in absolute terms.  The rest applies regardless.
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Re: Apple's Correction

Post by smurff » Wed Apr 24, 2013 7:33 pm

If you're doing the kind of portfolio management that involves rebalancing individual stocks, a stock nominally priced at $400 per share is harder to balance than if it were priced at $40.

Most public companies split their stock when it reaches a certain price point, usually somewhere between $80 and $100. It attracts more shareholders.  Those who do not split have their own reasons for that, including the desire for a particular type of shareholder. And some just don't want to waste money on all the administrivia involved in a split.
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Re: Apple's Correction

Post by rocketdog » Thu Apr 25, 2013 9:46 am

Is this why Google and Bershire Hathaway don't split?
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Re: Apple's Correction

Post by MachineGhost » Thu Apr 25, 2013 10:23 pm

rocketdog wrote: Is this why Google and Bershire Hathaway don't split?
They don't care about pleasing Wall Street's myopic short-term focus.
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Re: Apple's Correction

Post by rocketdog » Fri Apr 26, 2013 9:02 am

MachineGhost wrote:
rocketdog wrote: Is this why Google and Bershire Hathaway don't split?
They don't care about pleasing Wall Street's myopic short-term focus.
Maybe, but it also has the effect of shunning most investors like us.  Certainly for BRK anyway (unless you buy the B-class shares, or maybe a fraction of an A-class share, or else wind up holding a slice of the A-class in an index fund). 
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Re: Apple's Correction

Post by melveyr » Fri Apr 26, 2013 12:39 pm

MachineGhost wrote:
rocketdog wrote: Is this why Google and Bershire Hathaway don't split?
They don't care about pleasing Wall Street's myopic short-term focus.
You can add Amazon to that list as well.
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Re: Apple's Correction

Post by dualstow » Tue Apr 30, 2013 6:36 pm

Anyone for Apple bonds?
http://online.wsj.com/article/SB1000142 ... 82274.html
Too bad the term "I-Bond" is already taken.

(I know this is the Stock section, but it doesn't really merit its own thread).
Edit: Never mind. I see PS's thread here - http://gyroscopicinvesting.com/forum/ht ... ;topicseen
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Re: Apple's Correction

Post by MachineGhost » Wed May 01, 2013 1:50 am

Apple doing a bond offering is a general sign it considers its stock to be undervalued, otherwise they'd be using their overvalued equity to purchasing undervalued equity.  If you don't know who the patsy at the table is, its...
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Re: Apple's Correction

Post by melveyr » Fri May 03, 2013 10:53 am

MT,

Your trade is shaping up nicely so far. Is there a price or P/E that will tempt you to sell?
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Re: Apple's Correction

Post by MediumTex » Sat May 04, 2013 12:00 am

melveyr wrote: MT,

Your trade is shaping up nicely so far. Is there a price or P/E that will tempt you to sell?
I don't know.  I will probably just sit tight for a while.  I'm looking forward to reinvesting my Apple dividends right now.

My last Apple trade involved a buy at $240 and a quick sale when it hit $260.  At the time I felt like a genius...but then I watched it go to $700 and I didn't feel quite as smart.  :-\
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Re: Apple's Correction

Post by Pointedstick » Sat May 04, 2013 1:02 am

MediumTex wrote: My last Apple trade involved a buy at $240 and a quick sale when it hit $260.  At the time I felt like a genius...but then I watched it go to $700 and I didn't feel quite as smart.  :-\
Don't feel too bad. I felt like a genius when my AAPL shares hit $700... only to watch the price tumble below $400 mere months later.
Last edited by Pointedstick on Sun May 05, 2013 2:11 pm, edited 1 time in total.
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