Can the Apple bear be killed?

The company has gone from being priced like Google to being priced like Intel. Can it get its groove back?

By TheStreet Staff Mar 7, 2013 1:02PM

thestreet logoThe Apple Inc logo is displayed on the back of the new MacBook Pro David Paul Morris Bloomberg via Getty ImagesBy Dana Blackenhorn

While we're all celebrating new highs in the Dow Jones Industrial Average ($INDU), Apple (AAPL) remains in the doldrums.

At its current value of about $430 a share, it's $270 below its October high of $700. Over a quarter of a billion dollars in value has been destroyed. Doesn't sound like much in a market whose value is approaching $20 trillion, according to the Wilshire Index.


But consider this: Since October's Apple high, the Wilshire has advanced only a little more than 1,000 points, adding about $1.2 trillion to the market's value. If Apple had just stayed where it was, that figure would be about $1.45 trillion. For every $5 in total stock market advance during the period, Apple by itself lost the market $1.

The point is that what happens to Apple does matter to the total market. Even at its present depressed level, $400 billion is nothing to sneeze at.

Writers here at TheStreet.com are as confused as anyone else about what's going on. Rocco Pendola blames management. I'm more inclined to believe that everyone was "in" at $700 so there were no more buyers, and a rush to the exits ensued.

I personally believe Apple is just one solid press conference away from being a $500 stock, and one hit product away from being a $600 one. Mere rumors of an iPhone 5s sent the stock up 2.5% on Tuesday, TheStreet reported.

Doug Kass says Apple remains fine for trading (read on TheStreet), and that he recently made a little money on it. Kass made the bear case in September, so his words here carry weight.

His earnings estimates are still below consensus, yet he's predicting nearly $42 a share in 2013 earnings, implying a forward price-to-earnings multiple of just 10.1. And his bearish case sees earnings growing 10% per year. I think Kass sees Apple as fairly valued.

Intel (INTC) currently carries a price-to-earnings multiple of 10.1. Analyst estimates for its earnings this year, according to Yahoo Finance, are $1.94 a share, and for next year $2.10. Which would you rather own?

Apple's business problem is basic. Its markets have moved quickly, so while the iPad is only four years old its market is fairly mature and the iPhone's market is practically ancient. Value pricing is called for in these cases, but Apple doesn't do value pricing -- it only does premium pricing. Thus, Apple has lost share and should continue to lose it.

Unless, that is, it creates new markets, or finds a way to deliver a value price with a premium margin.
Apple rumors involve three new products:

  1. An Apple TV, a big screen with its iOS operating system acting as a set-top box compatible with other Apple devices and the iTunes store. Thus, you could program the evening's viewing from your iPhone at work and buy shows a la carte instead of taking cable. It would also make a sweet game machine. Figure most of us pay $3-$4 a day for cable and maybe we can all cut that cord.
  2. An Apple watch. Apple has 79 patent applications using the word "wrist," a 10% share of the global industry would be a cool $6 billion, and margins on watches run as high as 60%.
  3. A cheaper iPhone, which would be aimed at China and Brazil, with features like fingerprint sensors for security and a push at the prepaid market.
Any one of these products could, with a little hype, move the stock. Apple product rumors are a mini-industry all their own. What if all these rumors should come true? Speculation arising from a press conference like that could easily make this a $500 stock within a week.

So you have a rock-solid stock with speculative potential, available at a price-to-earnings ratio similar to that of Intel. I call that a solid investment -- unless you already have a full plate of Apple shares like I do, and got in at around $560 right before the rest of the market began to boom.


At the time of publication the author had a position in AAPL.


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17Comments
Mar 7, 2013 11:37PM
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I HAVE ALWAY WANTED A MAC BUT NEVER COULD AFFORD ONE. WHEN THERE ARE SO MANY PRODUCTS OUT THERE THAT ARE AS GOOD OR BETTER WHY PAY SO MUCH. I DONT FEEL LIKE I'VE EVER SUFFERED FROM THE LACK OF ANY APPLE PRODUCT.

Mar 7, 2013 9:23PM
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I personally don't like the watch idea... think that could be a dud.  I do think the China market is the big ticket here.  The TV thing could be successful, however Samsung already does that really good. Their new Smart TVs are basically computers with full Internet browsers and they are tops as far as quality goes... so the fans will buy... but not a must have.
Mar 7, 2013 11:27PM
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Recheck your figures Dana. It's a quarter of a trillion dollars lost, not a quarter of a billion. BIG difference!
Mar 7, 2013 8:50PM
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And you think you can buy Apple T.V. programming for $3.00 or $4.00 a day?
Mar 8, 2013 2:49AM
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Sensory Overload,

It seems that after almost a decade of these types of products from Apple, Google, Microsoft, Samsung and others, the world's markets have been totally saturated, and everyone who wanted one device or another bought it. Few people return to the market in the short term just to buy the latest version of an existing product, unless it offers some absolute quantum leap in technology, features and performance. Piracy of technology and Intellectual property by China, South Korea, India and others have further undermined the fundamentals of current and future tech products.

 

Apple's stock rode a wave of consumer hysteria with people frothing at the mouth over the i-products, and now that the hoopla has waned, the stock has followed the marketplace with an inevitable downward curve. Unless the price point is incredibly attractive, few if any new products will recpapture the 35 % to 40% loss in stock value any time soon. Additionally, it takes a while for any new tech platforms to gain traction and become monetized. However, with the totally visionless Tim Cook at the helm, the ship has no rudder, and Apple is simply returning to port with tattered sails and an empty hold.

 

Peace to all ~

Mar 8, 2013 8:29AM
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well credit cards  being used  more.  well people were using there debit  card  paying cash  in other words banks  see this  so they  put a charge  on debit  cards  now you can still use  debit  but to avoid the  charge  you  say  credit  still comes  put of your  checking  account  but  shows  banks  that  credit  cards are being used   more.  smoke and  mirrors paper  people that got out of the  market  will not  be sorry  how can the  market go from 700 to 1400 and people make less money  unemployment still  high  me and  me  only it don't add up .
Mar 7, 2013 9:16PM
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Sure it can... however with the market hitting highs now might not be the time to be a savior.  The odds are that if we have a little bit of a sell-off in the general market that Apple will finally find its ultimate low.  Then and only then I would buy. IMHO.
Mar 8, 2013 8:45AM
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There is a marked difference in technology enhancing human efforts and technology replacing it. The portable technology thing is great if your paycheck spits out of it. If not, using it wastes your time and is the main reason for gluts in productivity losses. Worse yet, if users can negotiate around you, what are your chances of long-term survival? Zilch. We will be flying back to core fundamentals because we let them go. Once those are restored or rebuilt, the technology that comes after will be worker oriented. If you live for apps, your life will fall apart. LEARN. Don't be led.
Mar 7, 2013 9:55PM
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I think they should change their name to Orange or Lemon. How do you say apple in Chinese? I wish Cain from the old Kung Fu show would go to the apple factory and chop, chop, chop it to pieces! 
Mar 8, 2013 9:53AM
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There's only so many times you can go to the well...other companies are catching on and their products out perform apple on a lot of levels.
Mar 8, 2013 9:24AM
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as long as apple management remains in Ebeneezer Scrooge mentality with shareholders money the stock will languish, i cant quite understand what the hell the arrogant guys at the top are thinking. add to that the miniscule holdings of Cook and other board members its no wonder theres no confidence in the stock even at these levels. if stock is so cheap why arent apple big guys buying back shares or buying shares for themselves. Cook looks like a grumpy old man not the leader of a company thats supposed to epitomize cool. i look at Cook and he is opposite of cool
Mar 8, 2013 10:34AM
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Consumer staples companies like P&G, Colgate, etc., are growing at about 5% per year and selling at P-Es of 18+.  People concerned that Apple's growth might shrink to 10% have driven the P-E down to about 8.  In the worst case Apple's P-E should be 12-14, which would imply a stock price at least 30% higher than currently.
Mar 8, 2013 9:39AM
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Didn't MSN have a article yesterday saying the apple stock was about to 'pop'?

{I wrote a little song for the occasion}

>to the tune of pop goes the weasel<

 

-If MSN could see right now

-that they don't have a clue

-all that talk, don't know what to do

-POP GOES THE APPLE !

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