When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time - Enter The Rotten Apple

Reggie Middleton's picture

About two weeks ago, upon releasing out latest refresh of Apple research (Apple Margin & Valuation Note) to subscribers, I gave free readers an example of the evidence we uncovered showing Apple already experiencing margin compression and a loss of market share in one of its flagship products (Apple's iPad Is Losing Market Share And …).

If the biz class 101 rules ring true, this could very ugly very fast... The Company had a slam bang quarter last, but much of that is essentially unrepeatable in the near term, reference Anecdotal Observations On Apple's Recent Quarter.



Magin compression combined combined with dwindling market share usually results in lower profits. Of course, in this case, the entire market is growing like bananas, thus the market share/margin compression is hidden behind spectacular growth - for now. True fundamental investors now easily see the writing on the wall that I identified two years ago, but there are now other threats to looming that exacerbate the fundamental picture.

 Enter Macro Mode with a Quantitative Bent - In other words, let's use some common sense!

Apple is held, literally,  by a near majjority of US institutional investors. As a retailer, now has a larger market capitalization (at $542 billion), than the entire US retail sector (as defined by the S&P 500), as per Zerohedge: It's Official - Apple Is Now Bigger Than The Entire US Retail Sector

A company whose value is dependent on the continued success of two key products, now has a larger market capitalization (at $542 billion), than the entire US retail sector (as defined by the S&P 500). Little to add here.

Is Apple truly worth more than the entire (S&P defined) retail industry? Just sit back and let that settle right next to the margin compression theory.

Such concentration allows Apple - a single stock - to be responsible for massive swings in the entite NASDAQ (from ZH): Apple Responsible For 90% Of Intraday NASDAPPLE Gain

So, this begs the question...

What happens if (no,not if but when) these investors (large and small alike) take out their calcuators/spreadsheets and realized thier really is no free lunch (even if there is an Apple in it)? Well, if one were to pontificate and surmise, it may be happening soon...


This interesting observation was brought up up in my Twitter feed, to wit:

# of funds in this order (%) since 12/2010: +1.4%, -4.0%, +8.7%, +4.3%, +5.4%, +3.2%, -25.8% (1st big drop) 

@PierreLeroux28 @ReggieMiddleton I just find it interesting (if the data is accurate) that more than 1,000 funds sold out during rise 

PierreLeroux28 Pierre Leroux  So if institutions dump some $AAPL on strenght after that THEY ALSO BUY THE DIPS Like i will rebuy my 10 calls 

Of course the lovefest with Apple dictates the BTD will reign, but suppose the dips are accompanied  - better yet caused - by widespread use of technologies known as calculators, spreadsheets or BoomBustBlog subscriptions?

Food for thought as markets correct and the buy the dip phenomenon takes hold this morning in the US equity futures market.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Stubert's picture

As I've stated before, I have no care for Apple, but I also have none for Google as well.  Why not see the two companies from both sides.

Here's an open post from the founders of Google:

The letter stated in part, "Today we announced plans to create a new class of non-voting capital stock, which will be listed on NASDAQ. These shares will be distributed via a stock dividend to all existing stockholders: the owner of each existing share will receive one new share of the non-voting stock, giving investors twice the number of shares they had before. It’s effectively a two-for-one stock split—something many of our investors have long asked us for. These non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute our governance structure. We recognize that some people, particularly those who opposed this structure at the start, won’t support this change—and we understand that other companies have been very successful with more traditional governance models. But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users. Having the flexibility to use stock without diluting our structure will help ensure we are set up for success for decades to come."

How dilutive is this to the stock?  How does this provide shareholder value?  It's like modeling after the Facebook style share structure.  It's all about power and control.  Not really about enhancing the shareholder value for anyone but themselves.  Ponzi.




Zero Govt's picture

very interesting

well Reggie was all over the Facebook founders power hungry IPO set-up like rash, i'm sure we're only moments away from Reggie dissing his beloved Goonbubbles new power-grab faster than a rat up a drainpipe...


(cue deafening silence)


tumbleweed . . . . . x . . . . x . . . . x . . . . . . x . . . 


um, anyone seen Rampaging Reggie and his fiery sword of truth???


resurger's picture

Reggie! the market share of the Ipad is gg +5

Lost Wages's picture

Aren't Apple and Google both horribly overpriced?

Google is more than likely the all-encompassing Robocop-style supercorporation (Omni Consumer Products) of the coming century, so it may hold on longer than Apple, simply because Apple doesn't have any market at all in surveillance and information.

Apple is the chump who invented & popularized the idea of the portable scrying stone. Google is the one who will nail it and send the iPhone the way of the 8-track.

But did you see those retarded glasses they want to sell? Anyone with those on their face might as well have "douchebag" written on their foreheads. It's even worse than those bluetooth headset cyborgs that still tromp around.

Zero Govt's picture

Lost wages  -  Goofball are going to lead Apple????

what you smokin Son

Goonbubble are as we speak copying every part of Apples products and even their vertically integrated business plan (of 3 years ago).. they've only just worked out they need to sell the hardware in phones (hence Motorola), not just flog (subsidise/making losses) their also-ran Android software

Unlike Apple with a smooth integrated biz plan, executed with precision, and products that 'Wow' and provide consumer satisfaction the Goofball wheezing nag are years behind just cribbing Apple like Microshite

tamboo's picture

apple would never use a back door to poke around on your various storage devices, icloud files, browser history, etc.

Dingleberry's picture

Companies. like people, have life spans. Clearly Apple is in bubble territory, which by definition means no one can tell when it will pop. Only that it will.  How many "hot" tech companies have you seen come and go in prominence?  Even Apple itself nearly went under.  This market is too competitive and too fickle.  The trendy, beautiful people (such as yours truly) that use Apple products will jump ship when something else is made that is cooler, hipper and chicks dig more. Until then....don't fight the tape!

Zero Govt's picture

some bubbles are because of hyperbollox (eg. dot.com), some are 'me-too' following the herd/market ..i don't doubt there's much of that in Apple but let's be crystal clear, Apple are a Class Act and deserve a following

too much class for Reggie who backs the rotten wheezing also-rans at every turn and can't understand why the Goo/MS share prices have gone nowhere (like their me-too copy-cat Apple products)

so Reggie is out on his high horse (flogged donkey) about Apples share price again.. he's failed at every fence so far, just when will Reggie make a prediction rather than just all the empty huffing and puffing???

RECISION's picture

Few doubts Apples' share price will crash.

But not because of margin compression or market share issues.

It will be because Traders chasing Momentum and Trend and other "technicals" bail out in a panic.

The price from approx $400 has more to do with Fast-Money.

Fast in and fast out - when they can't see a quick buck to be made anymore.

All the parabolic rise is fueled by Hedgefund vultures and algorithms.

But first they will push it to (more)stupid heights. 

q99x2's picture

What happens when all those funds change course? You have a very long time to get out.

Zero Govt's picture

nice maths Reggie

but you haven't been right about the share price since 1978 and hippies were in vogue

wanna make a prediction?

does it hurt that Apples SP was half Goonbubbles but has now raced past it? ..when you gonna turn your calculator on Goo's tragic biz model?? ..i shan't hold my breath on that one, you are afterall an unashamed serial Apple-hater (yawn)

hbjork1's picture

Once it is certain that Ben has stopped printing and everyone has their functional Ipad, Apple's bottom line may look a little different. 

What will the next blockbuster product be?  We cant ask Steve.

aston's picture

Reggie !!!!


Are you still Long Google and short Apple at +170 $ ???

You loose 150 $ per share on your spread.

I love your fundamental analysis but most of the time, you forget the "human component". Like in 1998, shorting internet stocks was a great idea but......you can loose a lot if you don`t trade like everybody. Trend is your friend whatever fundamental is.

Timing, timing and again timing...is everything

indio007's picture

RIP Steve Jobs

All hail the price fixer. 

Pladizow's picture

Reggie: At what share price did you first feel this way about apple?