Apple, no more blockbuster products

Posted by Ray on October 20, 2010 under Main | Be the First to Comment

Apple has been the alpha position to own in this market with virtually all mutual and hedge funds holding shares. It is not surprising since the company is on a roll with products and has great earnings, although I think the stock is way too expensive. I also seem to recall the last time all the ‘smart money’ was piled into just a few holdings like MSFT, INTC, and Pets.com (joking of course, but you get the point). That did not end well and I assume the same thing will eventually happen to Apple.

The iPod and iPhone took the world by storm, but the iPad seems less exciting for some reason and the Mac is just holding its own. Since the iPhone 4 there has not been anything else that the company has produced that seems exciting. The way the iPad quickly came to market it seemed like the company felt like it was forced to put the product out, it is just a huge iPhone. What has the company done to follow up on those blockbuster products? Not much. A new iPod Touch and now a new operating system for the Mac, hardly anything to get people really excited.

Without a new wonder toy I do not believe the company will be able to maintain its earnings growth momentum. Even if Apple launches the iPhone with Verizon it will surely be good in the short-term, for both companies, but I think you will just see more switching from AT&T to Verizon with people keeping their same iPhones that they got from AT&T, why spend more money since you just upgraded. Most iPhone customers have said that they would drop AT&T if Verizon or any other carrier offered the iPhone, which is why Verizon will get more subscribers, but the sales of new phones may be slower than most think.

Yes, I know new phones will sell, a lot of them at first, but, frankly, if people haven’t switched from Verizon to AT&T by now I highly doubt you will see the same success at Verizon. Not only that, but Verizon has sold, to happy customers, many Droid phones which means the iPhone does have competition on the shelf. So far it appears that the Droid type phones are gaining market share as well which probably explains why Apple inked the deal with Verizon.

In short, I think the iPhone at Verizon will be good for Verizon shareholders, but why would iPhone sales increase past a couple of quarters after the Verizon deal is done. The rush will be right away and then it will die down and people like me will not buy an iPhone because we actually like being able to talk on the phone. Verizon is the big winner out of all of this, I own shares in Verizon, and Apple, in my opinion, is simply trying to capture as much near-term success as possible since they have no new killer product to announce.

Of course, Apple does have China to sell its products to, but I think we may be surprised to see that the Chinese might not be as head over heels for Apple products as the yuppies and guppies are here in the states. Everyone has enormous price targets on Apple as well and any miss will be very painful for shareholders. I am also of the belief that when everyone agrees on something it is bound to do the opposite. The valuation of Apple is high and so is the beta, market weighting and its market cap, unless you believe Apple is more valuable than, say, IBM, I do not believe Apple is worth more than IBM, sorry.

I am well aware that being negative on Apple is just plain wrong and that people will undoubtedly flame me to death with their comments. However, that does not change the fact that the company is overvalued, doesn’t pay a dividend, has nothing Earth shattering in the pipeline and is doing what with its cash right now? Nothing. I do not subscribe to forward P/E multiples either so by all current metrics I wouldn’t touch it. Instead I would play Verizon instead and look for other companies that aren’t trading at crazy multiples, like Amazon or Salesforce.com… oh, wait, never mind.

Stick to income at a reasonable price like Verizon, BPT (BP Prudhoe Bay Trust) or commodities, specifically silver, and other soft commodities, it is too late for rare Earths. Yield plus inflation protection makes great sense right now, Apple just doesn’t.

Subscribe to Annuity IQ's Feed

LS Blogs


Sphere: Related Content

If you just got worried…

Posted by Ray on July 21, 2010 under Main | Be the First to Comment

If you are just getting worried now about the economy over what Ben Bernanke said about the economy in today’s testimony I have to ask, where have you been? Did you not read the Fed minutes when they came out? Have you not read any of the economic indicators that have been showing we are heading for a slowdown? How about IBM’s cautious warning or other firms who are being cautious about the immediate future?

My point is simple, the data is fairly clear, a slowdown is coming, period. Double dip? Probably, but we will not know for some time now. However, it is likely we are facing severe challenges moving forward and Ben is scared, he is out of ammo and he knows it. Everyone is speculating and asking what he is going to do to spur the economy ‘if’ it weakens which is an absurd question because it is weakening and what is Ben doing? Nothing, why? Because he can’t.

Sure, he can stop paying interest on bank reserves, but banks will not lend because they are impaired still, he admitted that today. Plus, banks will just turn around and buy treasuries because lending is just too risky right now which is why banks are not lending, on top of their balance sheets being loaded with debts marked to make believe. Everyone also believes quantitative easing is on the way, but it is not. I have said this many times before and will say it again, QE accomplished its goal, lowered mortgage rates, treasury rates and the dollar. I ask, what direction are mortgage rates, treasuries and the dollar headed? We are out of the “liquidity” crisis part of our issues and are into the nobody wants to buy anything part of the problem, QE will not solve that problem.

Earnings season is a dud, period. I know, Apple, Apple, big deal they have the hottest products out right now and you expected them to fail or something? The question you have to ask yourself id this, what can Apple do next? They clearly had to push the iPhone 4 out and the iPad is something they really did not want to do, they were forced into it because they were told to by the geek squads. What product do they have next up their sleeve? Nothing so you better hope a whole lot of people want to keep buying an iPhone that doesn’t really work as the title implies. Outside of Apple we had a couple of other standouts in the earnings department, but more misses than anyone wants to admit. There were lots of revenue misses which means cost cutting worked, but poor sales are still poor sales. The Fed cannot stop that people.

If you were not nervous before you should be nervous now, but I have no idea why you were not nervous before. All the speeches or all the rigged stress tests in the world will not change the facts, the economy on a global scale, is slowing down. Even China says that Europe’s problems are creating big problems, like I forecasted previously, for their exports. How much do you want to bet that the Yuan strengthens further? I do not believe China is slowing down as much on purpose as much as China is just slowing down, but time will tell there. The real question is, if China does slow significantly more than forecasted what happens to the rest of the world? Answer, it isn’t good.

Subscribe to Annuity IQ's Feed

LS Blogs


Sphere: Related Content