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Apple Inc. Message Board

  • hoodoo_you_voodoo hoodoo_you_voodoo Jan 5, 2013 2:26 PM Flag

    What is Priced In? Reality Check

    Let's start a realistic discussion:

    While none of the subsequent items are known realities, they are already priced in to the current valuation of the company: What is priced in? Answer: All the chatter, which includes...

    1. Slowing growth
    2. Samsung is fractionally increasing it's market share. (I might add here that Samsung doesn't enjoy the profit margins that Apple does and that Apple may not care about the lower end of the market. Read the history of Apple and Steve Jobs' biography. It's about the Zen of doing a few things great and with elegance, than doing too many things half measure.
    3. The possibility of a miss or soft numbers on the iPhone 5.
    5. Product refreash causing lower margins.
    6. Rival products narrowing the gap with Apple's line.

    What is NOT priced in?

    1. Apple may surprise to the upside this quarter.
    2. They may increase their dividend.
    3. They may hint at what is in their pipeline, i.e. wearable iThings, TV, etc.
    4. They may agressively buy back stock. They might hold these shares in foreign currency, reducing the tax implications of these funds being held overseas.
    5. A deal with China Mobile.
    6. iPad Mini sales beyond the wildest expectations and getting stronger.
    7. An iPhone Mini with respectable margins to grab develping market share.

    I remember when the share price of Apple dropped from 200 plus to 79. Steve Jobs was sick and getting sicker. The sky was falling. People were counting on the end of Apple. iHate Apple was in vogue. Naysayers were proven wrong. Add to this all the skepticism when Steve Jobs announced the iPad. People are emotional about this company, and the stock trades with more emotion than most, perphaps fear being the strongest emotion. The reality is that fears have always proven to be overblown and unfounded. We are caught in an season of negativity towards Apple. Your decision and mine to stick with Apple is a gamble. That's what investing is all about. Fear presents one of the greatest opportunities for those who are equipped to process it realistically and rationally. Apple is more attractively valued right now on any valuation metric than it has been in the last five years. It has an ecosystem that people will not leave behind. I have hundreds of dollars of Apps, music, books, etc. that have been purchased through iTunes. There's no way that I'm going to leave that for a new product line. In fact, I'll probably buy my first Mac after decades of PC use. I believe this is a moment to consider risk/reward and lengthen the horizon of your confidence in this company. The Apple culture is alive. Tim Cook is doing a great job. He's not given the credit for the role he played keeping Apple together when Jobs was dying. Good luck! Less

    Sentiment: Strong Buy

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    • Well said

    • Apple Will Miss Earnings for the third time in a Row, that is NOT Priced In. Ipad Sales Under 5 Million is NOT Priced in. A Long list of One time charges, like the $2.3 Billion gift to Sharp is NOT priced in.

    • This may be repetitive with the points you made, but here are my thoughts:
      1. Lost credibility: They have missed analyst EPS estimates 2 quarters in a row now. And, Cook gave much lower guidance for q1 2013 than expected (especially on gross margin) causing analysts to lower projections for this period.
      2. Financial Uncertainty: Along with #1, there is a lot of uncertainty about just how much revenue and margins will slow. Cook has gross margin falling off a cliff in the eyes of investors (down from 44.7% q1 2012 to 44.0% q4 2013 to guide of 36% q1 2013). Great reasons for it (manufacturing costs of new products, offering iPhone 4 and 4S at discounts, new product launch costs, etc.) but no one likes margins on the decline and if you draw a line through the trend it looks really scary.
      3. Innovation Uncertainty: Without Jobs, the question is can they come up with a next thing to regain revenue and margin growth momentum? Since they don't disclose what they are working on, they will not get any value for a future product until they deliver one at this point.

      It would seem their best opportunities to regain investor confidence would be to 1) soundly beat q1 2013 analyst estimates of $54.5B revenue and $13.33 EPS and 2) deliver solid q2 2013 guidance and especially guide gross margins back above 40% by moving down the cost curve on new products. Later in 2013, they will need to 1) launch a new innovation by Christmas 2013 that captures the market's imagination and 2) launch iPhone with China Mobile for the 2014 Chinese New Year (if not much earlier).

      Sentiment: Strong Buy

      • 1 Reply to bbandassoc
      • I would like to address your comments:

        1) How did Apple lose credibility when they have NEVER missed guidance in the modern era? They "missed' lofty analyst expectations, but still produced the BEST QUARTER EVER FOR THE THIRD QUARTER IN A CALENDAR YEAR. Is this really a miss?

        2) Cook had gross margin guidance which was 5% lower than actual margins. This is called "lowballing". I do believe that margins will be lower, but nowhere near the 36% guidance. Most likey, margins will come in around 40% to 41.5 %. All things considered, these are pretty incredible numbers. The fact is.....the guidance given by Cook is the highest ever. You can bet your pants that they will BEAT guidance.

        3) It is a FACT that Jony Ivie is the innovator at Apple. He is credited with MacBook Pro, iMac, MacBook Air, iPod, iPod Touch, iPhone, iPad and iPad Mini. Jobs had MANY failures along with his successes. As long as Apple has Ivie, they retain the most innovative person on the planet.

        Rest assured, this will be the BEST quarter EVER by any company!

        Sentiment: Strong Buy

    • Here's what's priced in. Maps, early supply issues, lower margins on new roll outs, fiscal cliff, euro weakness, some iPad cannibalization, executive firing..... What isn't priced into the positive side is a strong holiday quarter, robust mini sales, potential china mobile deal, iPhone 5 traction, iPhone 6, itv......people are talking about 5 like it sucks. The phone is amazing...fast as he'll,sleek, cool.

    • The market and analysts know all of these things. And yet selling continues. What does that tell you.

      Funds drive the price. Funds already own oversized positions. Funds see that growth may be slower for 2-3 quarters and don't want to sit through a period of underperformance. Risks of more cometitive pressures are real and are just enough to cause fund managers to incrementally reduce their position sizes.

      stock is cheap relative to current growth rate. no question. But if that rate of growth is set to slow, then its not as cheap.

      What people may not see, is that th erun from 425 to 700 should not have taken place. it was hysteria over the idea that iphone 5 would have some new gamechanging feature set. Reality is the Galaxy III has more impressive feature list than iphone 5. Market was disappointed that the iphone 5 didn't once again reinvent the cell phone.

      Stock will bottom once every nervous fund manager has finally sold. That may take another 2 quarters in reality.

    • Yea, makes sense. Given the share price is worth what the market will pay for it, it appears clear that no growth is priced in now along with most of the fears you posted, while none of the positives are priced in.

      Sentiment: Buy

    • Great post

    • Forgot to mention one thing. In an interview before Steve Jobs took over Apple, he stated that "anyone can have a good idea. It's more about the process of bringing that idea to the market." Apple has enough people with good ideas to bring to the table. They have Tim Cook, the brilliant proccess guy who will lead the company into the future. Apple's profits and share price have all increased under Tim Cook. He will prove himself to be the outstanding leader that he is in the upcoming years.

 
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