Maybe a Pine Tree

Ahknaten -- Revisits Apple

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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 blog:

Ahknaten doesnt like aapl

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:

http://www.investorplaceblogs.com/users/ahknaten/2007/09/ahknaten_likes_aapl_tables_app.php

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:

http://www.investorplaceblogs.com/users/ahknaten/2007/10/ahknaten_thinks_about_fscore_f_1.php

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:

http://www.investorplaceblogs.com/users/ahknaten/2007/11/ahknaten_contrarians_apple_and_britney_spears.php

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 wil 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.