Reminder - JIG meets Monday night, April 26, at my house.
Below is an article from today's WSJ on Apple:
------------------
APRIL 23, 2010
Seven Reasons Apple Shareholders Should Be Cautious By BRETT ARENDS
Apple (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=AAPL )
investors could be excused for feeling on top of the world. Another blowout quarter has
sent the stock booming to another all-time high. The iPad seems to be a success.
Everything the company touches seems to turn to gold.
Savor the moment, by all means. But don't get complacent. If you're an Apple
shareholder, here are seven things to be concerned about—and one thing you can do about
it.1. Apple's good—but not that good. It's just that the competition is so bad.
Nokia (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=NOK ),
Microsoft (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=MSFT ),
Samsung, Palm (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=PALM
): From smartphones to Internet tablets to computers, it's hard to believe so many
big companies have blown it so badly. And they've committed mainly unforced errors,
such as terrible user interfaces. I bought a non-iPod MP3 player the other day. It's
great ... except making playlists is nearly impossible.
As long as the competition acts like this, Apple will keep winning. But its success owes
less to the genius of Apple than the incompetence of everyone else. And that's
something you can't control.
2. Apple fatigue. Was anything so ridiculous as the coverage of the new iPad? A computer
company launched a new computer. Time and Newsweek put it on the cover, for heaven's
sake, complete with fawning copy from the likes of Stephen Fry. A lot of people are
getting absolutely fed up with this circus. Fashions come, but fashions go. Is Apple
becoming overexposed? Right now Steve Jobs could sell his old underwear for $200 a pair
(the "iPants"), and the sheep would line up at your local Apple store. If this
mania lasts, it will be a first in human history.
3. The share price. At $260, Apple's stock price has more than doubled in a year.
Amateur investors say, "It's going up." Present tense. Serious investors
say, more accurately: "It has gone up." Past tense. No one knows the future. And
the more it rises, the less attractive it gets. It's now 20 times annual cash flow
and 5 and a half times annual sales. At $235 billion, the company is being valued at more
than Sony (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=SNE ),
Research In Motion (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=RIMM ), Dell (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=DELL ), Motorola (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=MOT ), Nokia, HTC (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=2498.… ), SanDisk (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=SNDK ) and Palm ...
put together. That assumes a lot.
4. Steve Jobs's ego. I don't care how much of a genius he is: Nobody is perfect.
Yet Mr. Jobs has been subject to extravagant cheerleading, and it's not as if he was
overendowed with a sense of humility to begin with. Bottom line: If and when he makes
mistakes, who is going to stop him? A small but telling example: One thing keeping Apple
from lots of extra iPhone sales to business users is that Mr. Jobs, for some reason, has a
thing against keyboards. There's no business reason for it. It's a silly,
unforced error.
5. The cellular networks. At what point will they stop giving away the store? Right now
they're paying most of the cost of each new iPhone, and under-charging for the data
plans too. That's great for customers and great for Apple, and bad for the networks.
The iPhone is an expensive data hog that soaks up airtime, and there's always a risk
the networks will start playing tougher. Verizon, which lost out to AT&T three years
ago for the right to carry the iPhone in the US, doesn't seem to be suffering as a
result. Its investors have done no worse than those of AT&T. And its data traffic just
jumped 20%, even without the Apple phone.
6. Apple backlash. As the competition forfeits game after game, Apple is starting to
dominate industries from cell phones and games to music and media. Now it looks like it
wants to dominate ebooks too. But if Ken Auletta's account (
http://www.newyorker.com/repo%20rting/2010/04/26/100426fa_fact_auletta?curr… )
in the latest New Yorker is correct, Apple's game plan to defeat Amazon means teaming
up with book publishers—and that may mean higher book prices for consumers. How will
consumers react? And what will that do for Apple's "friendly," rebel image?
Anyway, you can't play the underdog when you're the third-biggest company in the
world by market value. Apple is already worth more than General Electric (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=GE ), Wal-Mart (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=WMT ), Chevron (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=CVX ) or Procter
& Gamble (
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=PG ).
It is worth nearly as much as Microsoft. At some point it starts to look like the Big
Brother it once vilified (
http://www.youtube.com/watch?v=OYecfV3ubP8 ). It may even look
like the new Microsoft.
7. Steve Jobs's health. This is the "ick" issue. But Apple cheerleaders
can't have it both ways. They can't hail Steve Jobs as a visionary genius and
the world's greatest CEO, and then say it's none of shareholders' business
whether he will still be running the company in three years' time. It's only a
year since he had a liver transplant, and investors can hardly feel confident they got all
the relevant information clearly and early. We all hope Mr. Jobs enjoys the best of health
and lives to a ripe old age. But he still looks worryingly thin. This is something for
investors to keep an eye on.
Some of these are issues that could erupt into problems quickly. Others, if they do
emerge, would take more time. But if you're a nervous Apple investor, what are your
alternatives? Sure you could sell some stock and take your profits. But if you don't
want to get off this train quite yet, here's another idea: You could buy some
insurance using "put" options. These pay out if the stock falls. So for $19 you
can buy $200 puts, good until January 2012. These will limit your downside on the stock to
$200. But if Apple keeps booming upwards, all you can lose is the $19.
Write to Brett Arends at brett.arends(a)wsj.com
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