I see many pundits on CNBC commenting on Apple. I believe they are ALL wrong! To begin with, nearly all of them are coming up with revaluations after the fact - which is simply too late and lacks credibility. Second, Apple has someserious steps to take if it is to get back into the mobile computing race. David Einhorn's recommendation to return cash to shareholders (on the CNBC front page today) is not one of them. He's approaching this from a trader's perspective, and not from the perspective of a strategic long term investor. To date, Apple has outperformed nearly all hedge funds in the reinvestment of its cash. If Apple does the right thing, the ability to replicate this performance by only 50% will whip the pants off of nearly every hedge fund, Einhorn's included. In addition, Apple is about to go through a depression style bout of margin compression that it will need cash to battle. I explained this to a group of entrepeneurs last year. Basically, Apple's $137B+ in cash is a call option on future opportunities and a put option on future mishaps. Einhorn is asking management to sell that call/put option straddle now, and forgo the ability to capitalize on future opportunities while running naked against margin compression at the same time that Apple's competition has surpassed it in technical ability (product/service wise) while Apple has shown ineptitude in competing in the cloud (see the maps fiasco), the next battle ground for the end user. This option sale will be had for the one time premium of a cash distribution. Wise, eh?
Does this mentality smack of the short term-ism indicative of a trader to you, or is it the mentality of the long term, innovative vision of Steve Jobs that got Apple where it is now? See the video below where I delve into this in detail...
Since I was practically the only one (at least that I know of) to accurately and timely call the turn on Apple BEFORE THE FACT, I would love to take this time to point out what it is that's wrong with Apple and what it would take for it to regain its shine. Just to illustrate this point, let's reminisce, shall we...
- Gene Munster [Piper Jaffrey] Says Apple Is Going to $1,000 - Businessweek Apr 2012
- Apple's Quarter Was Lousy, But Stock Still Headed To $1,000 - Forbes Oct 26, 2012
- Andy Zaky: Apple will cross $1,000 within 15 months - Apple 2.0 ...Sep 18, 2012 – And hit $1500 before the end of 2014, predicts the manager of an Apple-only hedge fund Zaky called that bottom in mid May.
- Cramer's 'Mad Money' Recap: Apple $1,000 Not Half-Baked...Apr 3, 2012
- The warning - Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue 2011
- The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock: Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All
Now, what do we have in sell sidevaudville today? CNBC reports Apple Heading Toward $200?: McLean.WTF???? What happen to $1,000????
Yes, I'm going after the sell side again. And I'll keep doing it. I'm a monster to the charlatan crew... A monster, I tell you...
Apple needs to start spending money, needs to spend wisely, needs to spend it in droves, and it needs to do ALL of this, NOW!!!! That is what Apple REALLY needs to do to compete with Google and enrich shareholders. Now, those shareholders with short term-ism will consider this Apple management burning cash in a desperate attempt to save the ship. These limited horizon guys will jump ship and drive the share price down. It is then that Apple will be a strong buy if, and only if, management succeeds in making leeway... Much in the same way that Google did in its acquisition spree that gave it some of its most valuable properties and multi-billion dollar franchises that literally run the web in their respective categories - to wit:
- Google Voice
For anyone who thinks this acquisition spree is a foolish endeavor, ask those who listened to the "short Google, long Apple" advice of the pros...
Just as much (if not most, not withstanding the "Muppet Factor") of the Sell Side of Wall Street Doesn't Truly Understand Apple, many of them equally clueless regarding Google as well… Google has used it's call option of billions of dollars of cash and its cash producing cash cow business model of ad serving to literally buy value at discounted prices. Of course, those with short term vision can't see the value - just as fails to see a forest due to all of that tree bark in the way!!!
Google Final Report Sep 29 Page 53 copyGoogle Final Report Sep 29 Page 54As a reminder, I warned in plenty of time to both avoid loss and profit on the short and long side for each company involved in these mobile computing wars. As a matter of fact, three years ago, I laid out in detail the entire mobile computing war map - along with the prospects of the major competitors - Google, Apple, Research in Motion and Microsoft/Nokia, reference "The Mobile Computing Wars" series. How accurate were these predictions, predilections, and analyses?
- I told clients to SHORT Research in Motion in early 2010, right before a 90% drop: Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion
- I warned on Apple from 2010 till the ultimate short call in October just past, right about the company'sALL-TIME HIGH: Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All
- I also laid clear the path to Google's prominence as far back as 2010, when there was not a peep from the sell side, see Google's Q4, 2012: This Looks To Be The Leader Of The New Distributed Information Paradigm. The 9 month performance was actually documented on international TV in the CNBC stock picking contest.
Now, for all of you senstive types who may consider this bragging or boasting, it is far from such. As a matter of distinct fact, the contents of this entire post should have been glaringly obvious to anyone years ago who actively used and followed the products and services of the companies herein, and had even a rudimentary understanding of business valuation. You know, it's amazing how far an awareness of cognitive biases (Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All) and a mastery of second grade math (How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue) can get you on Wall Street.
The Sell Side analytical community and the (sheeple) investors which they serve is another matter though. Subscribers can download the data that shows the blatant game being played between Apple and the Sell Side here: Apple Earnings Guidance Analysis. Those who need to subscribe can do so here.
Below, I drilled down on the date and used a percentage difference view to illustrate the improvement in P/E stemming from the earnings beats.
Again, a master of the basics, the fundamentals, common sense and 2nd grade math can actually bring you tomorrows news yesterday! For those interested in the research behind these many calls, as well as many others,Subscribe to BoomBustBlog today!