3/23/2012 12:46 PM ET|
Is it time to bet against Apple?
I wouldn't short it just yet, but it might be time to take some profits. Apple stock has everything going for it at the moment, but the price is getting out of hand.
The white-hot speculation in Apple (AAPL) shares continues to intensify. The price topped $600 a share briefly two weeks ago, ahead of the release of the new iPad, and regained that territory on the March 19 news the company would pay a dividend and buy back shares.
Quite frankly, since I have not been too interested in individual short positions (or non-money-printing-related long ideas), I haven't spent much time focusing on Apple. However, a recent question from a subscriber to FleckensteinCapital.com about what I thought the company might be worth caused me to examine it more closely.
Has Apple bitten off more than it can chew?
I am sort of embarrassed to admit how shocked I was to realize that Apple has gained almost 50% this year, and, of course -- given its heavy weighting -- that is a big reason the Nasdaq ($COMPX) has done as well as it has. And since the Nasdaq has been strong, Apple's momentum has probably spilled over to help boost the price of other shares as well.
While I don't know what the price of Apple stock ought to be, it does seem rather crazy that the company has added almost $200 billion to its market capitalization this year (it now stands at about $560 billion).
To put those incomprehensibly gigantic numbers into perspective, the increase in the price of Apple shares alone is equal to two-thirds of the value of Microsoft (MSFT). (Microsoft publishes MSN Money.)
I know Apple aficionados hate to hear this, but there is really no comparison between Apple and Microsoft in terms of sustainability of the enterprise. Apple is a consumer products company, and a damn good one. But consumers are notoriously fickle. There is no guarantee that people will want to continue to replace (or "refresh," if you prefer silly modern jargon) their hardware as often in the future as they have in the past, or even choose Apple products, for that matter.
Nevertheless, at the moment, the market has to some extent become "all Apple, all the time," with this week's action being driven by that announcement of a fairly aggressive dividend policy. It will be interesting to see how smart that decision looks in a couple of years.
Ripe for the picking?
As successful as Apple has been, probably some time in the next couple of quarters, if not sooner, I think it is much more likely to make a great short sell (for those who feel lucky, brave, or both) than a great investment from the long side. Given the money-printing environment we have been in, I may or may not try that tactic (it all depends on the setup).
Owners of Apple stock would be well advised to carefully evaluate the risk/reward picture. The risks may be higher than you think.
I think it is important to recognize just how momentum-oriented and speculative the stock has become, for the very reason that it exerts an outsized influence on the tape.
As a result, if Apple does roll over, it could precipitate a correction in the market that other fundamental bad news has been unable to produce. We will just have to see how it plays out, but I, for one, can't help but pay a little more attention to Apple prospectively than I have recently.
At the time of publication, Bill Fleckenstein owned shares of Microsoft.
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
VIDEO ON MSN MONEY
"I haven't spent much time focusing on Apple"
"I am sort of embarrassed to admit how shocked I was to realize that Apple has gained almost 50%"
"While I don't know what the price of Apple stock ought to be,"
Hmmm....so many people who know so little about AAPL, just keep on advising us on what to do with our Apple stock. Why is that? Another one that just doesn't understand Apple. So why doesn't Mr. Fleckenstein stick to what he does best, that being warning us of the impending crash? Oh yes, he does:
"As a result, if Apple does roll over, it could precipitate a correction in the market that other fundamental bad news has been unable to produce."
Now I understand.
The author admitted his not unstanding a stock's value by saying "While I don't know what the price of Apple stock ought to be". Therefore, all the rest he states is meaningless and only unfounded opinions bases on something as arbitrary as stock price. By this "analysis", BRKA should never have been purchases at $500.
QUOTE: "While I don't know what the price of Apple stock ought to be,"
Really? Somehow, your words give one the impression that you DO!
Bill Fleckenstein writes: "I am sort of embarrassed to admit how shocked I was that Apple has gained 50 percent this year..." Bill Fleckenstein, Anthony Mirhaydari, Jubak, etc... of the Doom and Gloom Crew at MSNBC are all shocked because they have tried everything they could to destroy this market
and the reason is the only way they know how to make money is to use their pulpit to spread negative opinions and short the stocks. Sorry, dudes. Your reign of terror is over. Easy re-election victory for President Obama and hopefully a Presidential ban on short sales by 2014. Fleckenstein, read the other posts below and ponder. You are way too old to understand the zeal of the internet and Apple stock on youth today. Like Warren Buffet, you are doomed to continue losing money by avoiding things you don't understand. It's not too late to reclaim your youth, Bill. Take a cruise on the new Disney Fantasy, immerse yourself in the new technology on-board, then visit La Rambla in Barcelona and look at all the new restaurants and retail stores and malls before moving back into the stock market. Dude, you are missing it all. DOW 16,000.
" I haven't spent much time focusing on Apple."
"I am sort of embarrassed to admit how shocked I was to realize that Apple has gained almost 50% this year"
"While I don't know what the price of Apple stock ought to be,…"
... yet he is publishing an article in the “Investing” section of MSN.Money and recommending we sell!
I think he realizes where his paycheck comes from.
When you have a clue come back and give us an informed analysis – o wise one.
By Bill Fleckenstein -- "While I don't know what the price of Apple stock ought to be, it does seem rather crazy that the company has added almost $200 billion to its market capitalization this year (it now stands at about $560 billion)." - Don't bet against Apple. - If you do you will get burned in the long run.
Sure so you are recommending people short apple if they feel lucky. You have no idea what the price should be. You talk nothing of apple PE or fundamentals. Just what is your point?
Yes apple vs microsoft is no comparison. Microsoft sells its operating system on a platform that is maybe not being replaced, but has no growth at all, while the Ipad is a totally new category that competition has made absolutely no inroads on. Apples PE is still low at like 12? They come out with new products on a every other year basis. They have a cult following.
I agree, apples stock may not have a lot of room to grow, but a person would be idiotic to short it unless they had some inside information that apple has some issue with its products.
PEs and PEGs aren't indicative of anything really.
Huh? They are tried-and-true metrics that have been used for decades! Price/Earnings tells you how much the market is willing to pay for a dollar of expected earnings. It's a great way to evaluate companies within a sector and across market caps. There is no single better metric. Of course, I suspect the reason you're saying this is because Apple's monstrous earnings support its price, which goes contrary to your point that Apple has gone "parabolic".
Every market they have gone into was technically weak (MP3players, Smartphones, Tablets).
Are you insane? Apple entered the smartphone market with established juggernauts by the likes of RIM's Blackberry, Palm's Treo, Microsoft's Windows Mobile, and Nokia's Symbian. Which of these four companies were small and ineffective? They were all ENORMOUS before Apple's superior products annihilated everything. Each is now irrelevant, but to call it a weak field before Apple entered is disingenuous at best.
When you look at the expected EPS growth, low valuation, brand loyalty, wide moat with AppStore/iTunes/iCloud services, and future product potential, you start to understand why this stock is so pricey. But the real story is in the setup.
They moved the annual iPhone release from June to September and missed the whisper earnings number in the Fall. This led to a drop in price and a month or two in the doldrums. I was pounding my fist HARD on SeekingAlpha and this site for people to pay attention to the insanely low valuation. Then it happened. The following quarter (with a new iPhone release), earnings blew the doors off expectations, and the coiled spring started to unwind. It continued into the holiday shopping season's earnings and extended into the new iPad announcement and first-weekend orders.
This was a correction. We're accustomed to negative price corrections, but this was actually a positive one. The valuation is catching up with the earnings. It likely won't stop until the forward P/E is at 15.
to comment with an article that sounds like it was written by a 10 year old.
The last stock I remember this clown giving readers other than be a negative twit, was Novetel Wireless. (NVTL) I think it lost 80% of its value and we never heard about it again. The rest of what he offers is simply doom and gloom but who care.....He is the one that has to live the life under a constant dark cloud.
Windows 8 on ARM , ultra8books , Windows Phone Apollo with superior Nokia hardware are just a few reasons Apple will lose market share.
MSFT at it`s peak in 2000 adjusted to today`s dollar , had a market cap of almost a TRILLION dollars.
What matters is MSFT and IBM are still raking in the dough , 12 years later ; )
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