Just getting back into the thick of things after spending a wonderful week in a place called Costa Rica on a forced vacation of sort. Everything -- the people, the sights, the sounds and the weather -- were great. I missed so much excitement on Wall Street, and in Washington. I missed some interest rates and market fluctuations, and followed events sporadically in between our family adventure. I only managed one post about interest rates, cause even though I spent some time at a surfer hotel, the market was a way more narley dude.
Of the many market themes I have observed recently, I have noticed a gap between the Apple Inc. (NASDAQ: AAPL) faithful and those who think the jig is up. On July 5 2007, almost seven months ago, I was challenged to speculate about where the stock might be one year out. I do not usually participate in such folly, and often enough when I do, it ends up just that. However, I thought Apple might be worth up to $150 and a month later was willing to consider $160 and that is where I stood.
While I was willing to consider a small increase in my target, one of our frequent commentors, and Apple followers, Beltway Greg, thought Apple would reach $200 in the same time frame or sooner. History proved that he was right because we all know now that one month ago -- six months early -- Apple stock did just that. However, yesterday Apple closed at $132.18 and it may turn out that I will be correct as well. We we will see soon enough. It is interesting to me that though Beltway's views and mine may differ, they both can be correct; perhaps this is the diference between a trader and a longer term investor?
I think Apple is now priced just right, and further, I think that it deserves the higher than average P/E ratio of 25 going forward it still has. Taming Apple euphoria - $300 would be amazing and I do not see that in the cards in a 12 month period.
Apple's same-store sales, now an industry monster upwards of $4,000 per square foot, will not see significant growth. The iPhone will continue to be a top seller, but there are other good phones and they now have a target to aim for; Nokia Corp (NYSE: NOK) and Research in Motion (NASDAQ: RIMM) are not standing still. Computer sales growth continues to impress, but it will not double. Also the new Apple MacBook Air, the three pound laptop, will take market share from others, but will also cannibalize on sales of other Apple laptops. Apple has had so much success that it has become its own hard act to follow.
I still think the $160 figure will be a healthy number next July and would account for over a 20% gain in the stock over the next six months. If Apple earns $9.00 per share in the next year, and the P/E continues to hover around 25, I might be willing to say it would be worth about $225.00 a year from now.
In contrast, Beltway has commented several times on BloggingStocks that he is looking for AAPL to top out at about $260.00 at that time. Given our respective track records, perhaps somewhere in between is the magic number? The true value will only be measured looking back. What someone is willing to pay on any given day and the 'true value' are not often one and the same. Given Apple's 30% drop in one month and continued strong product line, I do not see much more downside risk. This may look like one of the buys of the year, to both traders and investors alike.
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture & planning firm. He does not own shares of AAPL, NOK or RIMM.
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Reader Comments (Page 1 of 1)
1-31-2008 @ 4:28PM
sonny martin said...
I did the following "old school" research in November and December. Three days each week in November I did a traffic count at 10 am, 2 pm and 4 pm at the Apple store in Oklahoma City, Oklahoma. The Apple store had "adequate" traffic at 10, 2 and at 3 pm. The store was the "meeting" place for teenagers after school. On each day the teens perused the merchandise, some buying this and that. Most left the store with purchases. During the month of December the store was heavy with traffic and then I noticed that when I went during the week-ends, parents would leave the store with their child, each with an IMac! Fathers & mothers were bonding with their children using a computer for that bond! Steve Jobs has now targeted the family unit and is, evidently, doing an excellent job. My point is this; Apple is no longer just a computer company, it is now pushing to be a retailer of computers and appliances that are pushing into the homes. Since Apple was previously only a niche player in computers and servers, Jobs has now revitalized his company and I don't see the Vii tech of Intel and Microsoft being touted by other computer companies. Vii is dead as a merchandising tool and Jobs is cutting the balls of his competitors. Family bonding using a computer to give the family unit something to talk about at the dinner table will quickly become the norm. This is not being noted by analysts, Jobs capturing market share is not being noted by analysts, and not one commentator has noted what I noted. Of course, you have to have experience in retailing to notice these very important points of traffic counts. Apple at any price could be an excellent long-term hold; however, with the current mentality in the market that long term strategy is dead and only 1 day buys and sells, you have to have the nerve and patience to do research beyond the balance sheet and income statement. Apple's consistant earnings presages that market share is being captured or could it be that Jobs is targeting an ever present group with money to spend? As far as a PE being too high. In my 50 years of investing, excellent shares with excellent earnings have never been cheap! Those who say a PE in a tech stock is high at 40 haven't lived very long, nor have they invested in anything with a PE over 12-14! So, stay out of tech if you believe the Graham book, then again Mr. Graham would never touch a value stock of Procter and Gamble with a today's pe of 24! Apple is cheap at any price, look at their latest earnings and compare it with the earnings of Hewlett Packard, Dell, Gateway, etc. Please do your research with authority, go read Peter Lynch's books.
1-31-2008 @ 4:37PM
VIC said...
I MADE A HUGE MISTAKE BY SELLING SOME OF OUR APPLE HOLDINGS. THE 30% DROP IN SUCH A SHORT PERIOD OF TIME WAS BECAUSE OF THE PERCEPTION OF THE ECONOMY. GOING FORWARD, APPLE WILL DO VERY WELL AS LONG AS JOBS REMAINS IN CHARGE. IT IS A GOOD ONE YEAR BUY AT THE CURRENT PRICE.
2-01-2008 @ 12:50AM
Beltway Greg said...
Currently I'm sticking to $260. I think Apple is way over sold. If you read my most recent posts even I, Beltway Greg, exercised caution going into the latest
earnings report. The company shot out the lights, remember, they beat the guidance that had been raised in October. Listen to the conference calls.
Therein lies the rub. How can you predict consumer behavior? Basically this is what the analysts are asking the assembled Apple officers. It seems that the investing public at large cannot fathom the future. Apple = innovation. We've seen this again and again. Do you really believe that the IPhone will not be updated and do you believe that the Ipod will stay as it is? Just look at the numbers for the IPhone and the market share it has garnered. Astounding. Why can't those Apple stores see any significant growth? If I had told you that Apple would be one of the most successful retailers on the planet a couple of years ago you would've laughed in my face. People do not understand what it is this company does and god forbid this movie/Apple TV thing takes off.
Here's the future. Soon your computer will be your television streaming anything you want to see whenever you want to see it. Want to watch Carson from 1977? Go ahead, it's out there. Television shows, say like "The Office," will make their shows available on-line immediately. DVDs will be gone and television as we know it will end. Your computer will become all of these things and perhaps so much more. You'll be able to watch live feeds from sporting events, concerts, etc.
The fears? The gatekeepers have lost control. No more studios and no more record companies. Guys like Tom Cruise or anyone else with the money will produce and distribute movies on the web. At the moment Apple is at the forefront of this movement and on the cusp of dominating an entire new frontier of media distribution/access. I got it a couple of years ago when I noticed the IPod because hey, I love music.
I post about Apple because it is one of the most compelling stories in American business of the last half-century and it makes for a good argument. I called a bottom in Citigroup and Amazon months ago. Citigroup to $40 is easy money. Also, check out my post on the SIVs last August.
Apple is fractious because it is constantly breaking new ground and creating potential new streams of revenue that are difficult to quantify therefore it is best to remain seated with your seat belt fastened .
Turbulence will be the order of the day.
Beltway Greg
"Computer sales will not double." Get ready to enjoy a big ole slice of humble pie sometime in the next twelve months.