Bruce Krasting's picture


Morgan Stanley did a write up on Apple. Not surprisingly, the firm likes AAPL. The deep thinkers at MS reckon the stock is going to be at $720 a year from today, up 11% from yesterday’s close.



I wonder what MS would have said if they had published this report three weeks ago when AAPL was at $703. Would it have set a $720 price target back then? I wouldn’t think so.


MS covers its ass with a range of outcomes over the next year. The upside surprise for APPL might be as high as $960, while the downside could take the stock back to $405. One could drive a truck through this range (and lose a fair bit of money in the process).


When it comes to matters of finance, I tend to dwell on the dark side, so skipped the upside story presented by MS and went straight to what it thinks the risks are that could trip up the stock. The things that keep MS awake at night:



I was comforted to see this list. I don’t see all that much downside based on these factors. But there is something glaringly missing. What about Apple’s risk of supply interruption? That risk is not even mentioned. It's the biggest risk the company faces.


If the Corporate Finance team at MS were doing an analysis (Vs. sell-side analysts) of an acquisition candidate that had big imports from China, it would never have excluded the supply risk aspect. If they did exclude it, they would be fired on the spot.


When real money is involved, you don’t avoid the big risks, you highlight them. When you are writing about your favorite, stock you avoid describing risks. After all, no one on Wall Street wants to say anything bad about America’s most favorite stock.


Possibly MS left out the big risk factor because it is damn near impossible to quantify the risk. But that doesn’t make the risk go away. The fact is that Apple’s supply of products is not 100% safe. The company is over dependent on Foxconn, and Foxconn is heavily dependent on its factories in China.


I’m not forecasting a problem in China that results in shutdowns of Foxconn factories. I am saying that Morgan Stanley ignored the biggest risk the company and its shareholders face. That’s something that should not have happened. I think MS fluffed the risk factors for Apple. How could it have missed the obvious?














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Mon, 10/22/2012 - 23:05 | 2911659 cgagw
cgagw's picture

The north face Kid's Grils Denali Fleece Jacket Rosecheap north face NO.08516. $108.00 $90.00. Save: 17% off. The North Face Nuptse Goose Down Jacket - Kids NO.00043 ...

Wed, 10/17/2012 - 16:38 | 2899203 SmittyinLA
SmittyinLA's picture

the era of cheap human labor driving profits is over, automated factories full of machines and NO POEPLE is where electronic manufacturing is going, humans are slow, dirty, imprecise, and high maintenance, wage demands won't be met, there is a huge excess "human manufacturing machine" supply and its going to get worse with inflation while automation gets cheaper.


Thu, 10/18/2012 - 20:39 | 2903080 Zero Govt
Zero Govt's picture

i agree

and the only way to ensure there's enough jobs to go around in future is to cut the crap (shutter Govt) so that productive wealth stays in productive peoples pockets and provides more jobs instead of being pissed away by parasites (Govt and its thieving cartel owners)

isn't that right Bruce?

Wed, 10/17/2012 - 16:27 | 2899138 californiagirl
californiagirl's picture

Not to mention all the raises they have been giving Foxconn employees, squeezing margins? Who knows, maybe more benefits will come next. The Foxconn employees seem to be catching on that they have a lot of power by threatening interruption of supply to the iCult.

Wed, 10/17/2012 - 16:04 | 2899018 Haager
Haager's picture

Come on, the rigged markets are working on rumours mostly. and considering the weakening USD (it's no EUR or AUD strength...) markets need to go up to catch up with this effect. Pension funds and so on will buy no matter how bad the situation is - they actually can't act differently.

Therefore AAPL should be at $720 within 2 month.

Wed, 10/17/2012 - 14:14 | 2898570 koncaswatch
koncaswatch's picture

Good job BK; especially useful to this student of the market in illuminating the dichotomy between buy side - sell side analytics in large investment houses. But the real kernel of truth that struck me was the focus on supply chain weaknesses that are prevalent in any high tech product line that has geo-economic or geo-political driven sourcing. My industry (aerospace/air transport) is rife with supply chain risk as appears to be the case in many high tech industries. Look at Boeing; the 787 launch into service was delayed and the stock suffered due to supply chain problems emanating from a product line that is vulnerable to companies with quality problems which were sourced under complex geo-political/economic agendas.

I believe that the demising returns of incremental trick bells and whistle improvements/add-ons to Apple products will soon start to encroach on profit.  IMHO, the Apple – Samsung market dominance war will be won (profit margin wise) in the coming years by the outfit that best manages its supply chain decisions, their inherent geo-political influences and the inevitable “black swans” (FoxConn?).

All these analysis are a considerable challenge for a humble individual stock picker. ZH and contributors have been, and continue to be an invaluable aid separating the wheat from the chaff.

Wed, 10/17/2012 - 14:03 | 2898535 blu
blu's picture

Maybe MS didn't mention Foxconn because the problems there are social ills brought about by exploitation, and therefore BAU.

Wed, 10/17/2012 - 13:29 | 2898427 Misean
Misean's picture

As long as no big player gets hit with a liquidity crisis. Apple is not know as the hedge fund iHotel for nothing.

Wed, 10/17/2012 - 12:01 | 2898170 disabledvet
disabledvet's picture

How 'bout we talk Sprint being acquired by Softbank first. Unlimited text, unlimited data and unlimited talk...strikes me as I phone heaven. The problem for Apple is the choke hold T and VZ have on the consumer. If this is an opening salvo in a brutal price war for something you can already get for free (broadband) then obviously you want to be the device mfg. Actually..."you want to be the hardware/software interface mnfcter" as that will actually attract the customers. Especially once they include the "teleportation app" when "you've finally had enough and want out."

Wed, 10/17/2012 - 10:52 | 2898012 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

We need good American workers earning $3 an hour making Apple products right here in the good ole US of A.

Ok, so maybe $4. They can all live in company [US Gov] owned condos.

That folks, is the direction it is going.

Wed, 10/17/2012 - 13:57 | 2898511 dugorama
dugorama's picture

FEMA trailers


Wed, 10/17/2012 - 11:08 | 2898048 ebworthen
ebworthen's picture

Illegals from Latin America getting paid $4 an hour as they fill up the schools and hospitals.

Legal U.S. Citizens living in the federal housing complex a block away on food stamps and Welfare buying drugs from the gang-banger kids of the illegals and popping out illegitimate babies.

Gated communities of elites driving Escalades and Beamers buying the iPhone's, their kids using them to arrange drug deals with the other side of town.

Cops paid $29K a year to maintain order and bust buyers and sellers in nice vehicles with cash to confiscate.

KFC and Taco Bell on every corner (Chipotle and Boston Chicken in the well to do quarters) and high speed Internet to watch the gladiatorial spectacles (NFL, NBA, MMA, Jerry Springer, etc.).

Almost like living in paradise (almost).

What could go wrong?

Wed, 10/17/2012 - 13:25 | 2898416 BDig
BDig's picture

Legalize it.

Wed, 10/17/2012 - 10:48 | 2898003 virgilcaine
virgilcaine's picture

Did H Blodgett write this?  AAPL alone reminds me of all the Tech bubble combined , this doesn't end well.

Wed, 10/17/2012 - 15:12 | 2898730 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Look at the performance of EVERY stock that has hit $500B market cap: MSFT, CSCO, XOM etc etc

Law of large numbers. The best days are behind AAPL. Company will still dominate, grow etc. but 25-50% annual stock appreciation is over.

Tech stocks all house their IP unit in an offshore low-tax place like Switzerland, Luxembourg, then charge the worlwide subsidiaries a hefty license fee for "using" it. Sure, that's fair.

Wed, 10/17/2012 - 10:41 | 2897990 sangell
sangell's picture

I think the real risk to AAPL and any other US company with Chinese suppliers is what happened to Japan. If China is capable of allowing ( abetting?) rioters to attack and destroy foriegn factories, stores and even Chinese owned products sold by 'foreign devils' over the Senkaku Islands then American, Taiwanese, Philipine and other nations with trade interests have to wonder if their own facilities and suppliers are not equally vulnerable to Chinese mob attack.

Wed, 10/17/2012 - 14:07 | 2898552 kaiserhoff
kaiserhoff's picture

Good point, sangell.  Crappy as things are here, it's easy to forget that some places simply have no rules, just rulers.

Wed, 10/17/2012 - 10:16 | 2897898 LongSoupLine
LongSoupLine's picture

its easy for china:

have its finance puppets short aapl, then shut down foxconn.

aapl crashes, china profits or breaks even with its hedge.  either way its a huge Sun Tzu win.

Wed, 10/17/2012 - 10:06 | 2897862 Jack Sheet
Jack Sheet's picture

Dunno, I've never had a "mature penetration" by a smart phone.

Thu, 10/18/2012 - 20:34 | 2903068 Zero Govt
Zero Govt's picture

you need to be smarter than the phone

...just sayin!

Wed, 10/17/2012 - 09:46 | 2897777 l.kimbot
l.kimbot's picture

I would venture the PBOC is as dependant on the iPhenom as much as Wall Street.

Wed, 10/17/2012 - 09:40 | 2897757 q99x2
q99x2's picture

MS stock price at 0 one year from today is more likely.

Wed, 10/17/2012 - 09:47 | 2897783 DeadFred
DeadFred's picture

Kickbacks for writing fluff pieces help their bottom line though.

Wed, 10/17/2012 - 09:35 | 2897753 pitterrier
pitterrier's picture

What happens to Apple if the Chinese authorities close FoxConn for a month or two or three, because of some issue that needs to be addressed?  Looks like Apple has "ALL" its apples in one basket.

Wed, 10/17/2012 - 13:49 | 2898480 delacroix
delacroix's picture

what happens when china starts selling foxconn phones, under their own logo?

Wed, 10/17/2012 - 14:22 | 2898590 Dburn
Dburn's picture

What happens when they sell them under Apple's logo and uh forget about Apple when they're counting the profits? Nothing. It's happening right now. The big secret that no American company who has put all its eggs in one basket is telling its shareholders is that their products are subject  to overruns which are sold out the back door. That's before the technology is appropriated along with the brand and China Inc, shorts Apple for 400 Billion to pick up some extra bucks for lending us all that money at such low rates.  


It is the leaning tower  of arrogance and stupidity to have a supply line that is so thinly stretched AND relying on a single manufacturer owned by a Taiwan based company to supply them with goods, when that manufacturer only makes money on the labor mark-up and gets nothing for the parts, and not let shareholders know that there stock could be on the very next pink sheet promo that says "make millions on penny stocks".  


Wed, 10/17/2012 - 09:25 | 2897718 idea_hamster
idea_hamster's picture


"When real money is involved, you don’t avoid the big risks, you highlight them."

I suspect you meant, "When your own money is involved...." -- and I suspect that's why sell-side research is plentiful and free, while buy-side research is scarce and brutally expensive.

Wed, 10/17/2012 - 09:30 | 2897733 ihedgemyhedges
ihedgemyhedges's picture

ding ding ding ding ding!!!  we have a winner.......

Wed, 10/17/2012 - 09:20 | 2897706 spanish inquisition
spanish inquisition's picture

Those fine little fingers are great to hold small components that go into phones and jobs help build character. This is so overblown like the whole Persian rug thing. If you have an iPhone and want to support childrens rights to work, show solidarity by downloading a Persian rug background or screen saver! Show you care! (/sarc)

Wed, 10/17/2012 - 09:17 | 2897695 machineh
machineh's picture

At first I interpreted the headline as 'MSFT does AAPL'

Windows RT blows away iOS? Not bloody likely ...

Wed, 10/17/2012 - 09:12 | 2897679 fonzannoon
fonzannoon's picture

This is very odd. I usually feel like i can rely on entities like ms to tell me the truth.

Wed, 10/17/2012 - 14:57 | 2898682 dracos_ghost
dracos_ghost's picture

Except MS is only one letter removed from BS.

Wed, 10/17/2012 - 09:45 | 2897770 otto skorzeny
otto skorzeny's picture

the only entities that are more highly trusted are the BLS and NAR

Wed, 10/17/2012 - 09:08 | 2897671 Winston of Oceania
Winston of Oceania's picture

Reminds me of the commercial where the elitist twat declares a desert the perfect spot for a new town, sans water. Did they consider pirates might steal the iceberg and hold it for ransom? Stupid central planners...

Wed, 10/17/2012 - 14:12 | 2898545 kaiserhoff
kaiserhoff's picture

Yeah, WTF?  Are they marketing to the burn-outs from acid, or delusions of grandeur fat housewives?

Haven't heard the word "twat" in years, but it sums up so much of what's wrong with the modern world.  Kind of like wastrel.

Wed, 10/17/2012 - 14:25 | 2898595 Dburn
Dburn's picture

 I miss Twat!


Wed, 10/17/2012 - 14:50 | 2898664 knukles
knukles's picture

Not available in stores!

Wed, 10/17/2012 - 15:12 | 2898725 kaiserhoff
kaiserhoff's picture

Depends on where you shop.

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