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Apple Computer Stock -- Buy, Hold or Sell?
Last week we here at InvestorPlaceBlogs took a bite of the big Apple (AAPL). In examining commentary from our bloggers about Apple stock, I was impressed by the thoughtful comments of the Strategy Lab Open and InvestorPlaceBlogs community.
Of course the real reason for putting Apple Computers in the spotlight was its recent earnings report and subsequent sell-off in the stock market. Most of the opinions pre-dated this announcement so I thought I would start this bull bear feature with updates on this very popular company.
From my perspective, the action in Apple demonstrates the risks of owning momentum growth stocks. Usually high valuation stocks that see earnings releases that miss or guidance reduction will sell-off.
Add in a bull that is long in the tooth and recession fears and the writing should have been on the wall that Apple Computers was due for a correction. Easier said than done when all the stock seemed to do is go up in value.
Today, with Apple trading well off its $200 ceiling one has to wonder if the company is now a buy, sell or hold? Even at the current price of $130 shares of Apple trades for over 4 times sales, nearly 7 times book and 29 times trailing earnings.
Those are rich numbers no matter the company and its history of growth. Apple though is no ordinary company. If there ever was a company to justify its high valuation it would most certainly be Apple.
Commentary from the bloggers reflected the enthusiasm for Apple's history and product line (the popular Apple iPod, iPhone and the new MacBook Air) with a realistic appreciation of its rich valuation. There are interesting points to be made on both sides of the coin.
With that, let us get on to a buy and sell opinion from the community.
In the Bullish Corner
Apple Bull - Ric Bottorf of Rics Pics came out as our Apple Bull in his post , simply titled AAPL. Here's what Ric had to say:
Apple, to take the bite or not to take the bite. Really if you just look at the competition DELL, and HPQ charts and consider that computer buying alone is the cause for apples concern then yes take that bite and smile but, Apple is not just computers any more. If they were, the stock price would not be a concern. Since it was the come back of the original ownership running the corporation that gave the stock traction the last time it tumbled. Then it was new idea after new idea that kept the bull at full bore. Now here we are after a disappointing Christmas season of consumer purchases, (firesale), No new great ideas being exploited on television. The three great corrections in the market in 6 months and a few pretty good dips not to mention the subprime problems. AND now comes the Federal Government to save the day with interest cuts and free money to consumers.
That puts APPL at a short term buy @ $123. with a next week sell. The continued growth of APPL's stock price will more than likely follow Google's chart of growth. We will see more volatility in the stock price with gradual growth. To a trader like me that means buying and selling of this stock many times until the release of the next best must have tech gadget. At that time, depending on sales may be the next keep or sell off of this stock. The partnership with ATT may not have been the best short term choice but most likely a very good 2 -3 year deal. It limited the availability of a highly advertised line of products. The push on stock price from that partnership was minimal. ATT could have pushed the iPhone harder but their backend payments to Apple prevented ATT from going all in. European sales are relatively flat or below expectations. Again AAPL is not just a cell phone developer. Take market conditions (correction for over valuation of stock), the corporations own flat earning expectations, No new great product line being advertised and here we are at $130.
I do not expect AAPL leadership to sit on their hands here. R & D must be, has to be working on the next great must have tech gadget. Improvements to Apples current product line with the integration of television, web, phone, music (pay radio & recorded), photo, and GPS there is world growth. Can Apple's leadership take them through a possible world recession and drive their stock price up? If the past is really a reflection of the future, then buy all the APPL you can get because in the long run we will all see $200 and up just as we once thought could it hit $100, yes it did.
Taking a walk on the Bear side
On the other side of the table is SLO Round 1 veteran Ahknaten of Maybe a Pine Tree, http://www.investorplaceblogs.com/users/ahknaten/ our Apple Bear. In his post Ahknaten Revisits Apple , he wrote:
Sell Apple. Didn't I say this before?
Back on September 14th, 2007, I posted my first blog about Apple, and I disliked the stock.
Here is the original post:
There were some who were upset with my thoughts and I felt rather alone with my skepticism. At that time I was concerned with AAPL's valuation, insider selling, a concern of a future "big bath" and momentum traders and momentum blogs.
AAPL was trading at about $139.
To be fair, I had mentioned GIB, CSC, XRX, NOK, CHT and TMX as alternative purchases. Since that time NOK, CHT and TMX beat AAPL. The others did not. So, I'm not always right.
On Sep. 20th, I made a follow up blog here.
In that article I spoke about how I loved the wooden tables at Apple, but disliked the stock. I was also concerned about the increased competition (threat of substitutes), the PE, price/book, insider selling, high accruals and Apple's ability to beat by 0.10 to 0.36 cents each month. Now, to some the ability to beat analysts by 0.10 each month was good... but I thought of it as a bad sign... as Apple should not be able to keep up with the momentum of surprising analysts continuously by 0.10. Were the analysts just dumb? Was Apple doing some funny accounting? How could this continue? I dunno? Something was odd. Especially for such a well followed company.
AAPL was trading at $141.
To be fair, I had complained of other 'momentum' stocks such as RIMM, RIO, JNPR, AMZN, FCX, CROX, VIP, NOV and GMST as other 'sell' candidates. These were other popular momentum stocks that kept showing up in blogs. I was getting frustrated. Of the stocks listed above only RIMM (up 0.9%), RIO (down -7.2%), and VIP (up 21.6%) beat AAPL. How did the other stocks do? Well this is how they did: AMZN (down -13%), FCX (down -22%), JNPR (down -28%), GMST (down -33%) and CROX (down -48%) !
NOTE - BE CAREFUL OF MOMENTUM 'HOT' STOCKS!!!
Sure, it increases the hit counts on websites and blogs, but does it really help? Maybe. Maybe not.
On Oct. 14th, I made another AAPL article here.
In that article I was concerned about the accruals (Sloan 1996), earnings momentum, prepaid stuff, valuation and a high 'F-Score' that Apple had. The 'F-Score' was a score that had some predictive power of guessing which companies might have some funky accounting going on. Note - I am not accusing Apple of anything, that score can also create a 'false positive'. I was just concerned that Apple had that score. Could they get a SEC investigation?
If you're interested more about the F-Score here is the paper by Dechow, Ge, Larson and Sloan
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=997483
AAPL had risen to $167. My timing on the stock was looking rather bleak.
On Nov. 3rd, I made another AAPL article here.
In that article I complained about a 'bullish (bulls***) pamphlet I got in the mail and recollected a few personal stories about previous predictions and market timing - but, I still disliked the stock.
Why did I use the word 'Britney Spears'? Very simple. Hits. Blog hits. Simple placement of nonsensical popular words might increase the hit count. In the last sentence I stated "Perhaps... timing Britney Spear's comeback is as hard as timing a price correction for GOOG or AAPL?". I think I was wrong. At that time GOOG was at $711 and AAPL was at $188. Now GOOG is at $566 (-20%) and AAPL is at $130 (-30%). In other-words, timing Britney Spears comeback is a lot harder than timing GOOG or AAPL.
What has happened since that first article? AAPL rose to a high of $203. My timing was off, but I feel much better now as it is trading at $130 and that's lower than it was during the first article. I feel good! Mind you, the market has had a bad time as well, but it is nice to see some of these 'momentum' popular stocks take a 'correction', and now I have a bit of confidence (I could still be wrong) that perhaps my original thoughts might be right. After enjoying 3 quarters of beating analysts by 0.20 or more, AAPL started beating estimates by only 0.14-0.15 cents and they revised their guidance for the next quarter. Here's a question. If AAPL revised guidance will the analysts smarten up and change their estimates, or will something funky happen and AAPL still beat their own guidance by 0.10? I'm still pessimistic about AAPL. I still dislike the accruals, F-score, price/book, competition ("The Company expects competition in this space to intensify', insider selling (selling at around $185? - 'smart' insiders eh?), and the valuation.
Oh, as for the F-score, funky accounting and SEC, I saw this on their 10-Q:
"While the Company believes it has made appropriate judgments in determining the correct measurement dates for its stock option grants, the SEC may disagree with the manner in which the Company has accounted for and reported, or not reported, the financial impact. Accordingly, there is a risk the Company may have to further restate its prior financial statements, amend prior filings with the SEC, or take other actions not currently contemplated."
Interesting, isn't it?
Sell. I still dislike it. But if you have an Apple wooden table, where can I get one?
And Britney Spears... best of luck.
Or, you could just hold on...
Both the bull and the bear make compelling points. At the end of the day, it would appear that Apple at best now is a hold. In fact our winning blogger from round one, Vad suggests as much with his own recent post on Apple, which you can see here.
Check it out as his valuation appears to be about right on for this Goldilocks of a stock.
Want be featured in our next Bull/Bear article? Check www.strategylabopen.com to see my next question, posted on Fridays.
Jamie Dlugosch
Editor, InvestorPlace Blogs and Strategy Lab Open
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