Don't listen to Tim Cook on Mad Money, says Toni Sacconaghi. Watch what Apple is doing in the open market.
Is there money to be made betting for or against Apple when Tim Cook is about to appear on television? In an odd two-part note to clients last week, Bernstein analyst Toni ("Apple's best days are behind it") Sacconaghi analyzed the effect of seven recent TV appearances and concluded that they were not very good leading indicators.
Then Sacconaghi hit on something more useful. "We wondered," he wrote, "if Apple's financial investments in itself, through share repurchases, were a better indicator."
You think?
"What we found was striking: when AAPL repurchased a large amount of its stock in a given quarter (we drew the line at $14B, which is ~2x its current average quarterly buyback), its stock outperformed by 2000 bps in the following 4 months. Generally, the stock continued to outperform for another quarter as well (7 month outperformance averaged 2700 bps). That said, when repurchases were under $14B in a given quarter, AAPL stock underperformed 11 out of 15 times since Q1 12 or 6 out of 9 times since Apple started repurchasing shares in Q3 14."
Here's what that looks like:
Not seeing the interactive graphic? Try the website.
"The old adage of 'Do What They Do, Not What They Say' appears to hold for AAPL," writes Sacconaghi. "We encourage investors to monitor buybacks going forward, given their history as an effective leading indicator."
So what happened last year and this? Apple clearly thought the valuations too low, and bought back a ton of stock, but the market disagreed and drove the prices lower – so low that it looks like a stupid move on Apple’s part to have bought back when they did.
That’s where you need to look at other, less simple, explanations. Prime among them: Apple’s two year cycle of strong and weak years, leading to market “compares”, which foolishly, and possibly even purposefully, are done as year over year comparisons and never bi-year over bi-year.
What I am seeing here is the mother of all slingshots: Investors big and small are bailing on AAPL, as fear tramples not just greed but all good sense. And at the bottom of the cliff, yet again, the pelts are piling up, easy pickings for those who have stampeded this stock, yet again, far, far below it’s true worth.
Yes, Apple is going to pick up a lot of those pelts. But even Apple can’t pick them all up, and the stampeders know that. They’ll dine well on stockholder steak when the facts finally, and inevitably, reassert themselves.
And then, when AAPL has rebuilt itself adequately, probably about this time next year, they’ll cash in their pelts and start yet another stampede….
Sacto Joe
1998: From 1 to 2: Six years
2004: From 2 to 4: Six months
2004: From 4 to 8: 12 months
2005: From 8 to 16: 42 months
2009: From 16 to 32: 12 months
2010: From 32 to 64: 41 months
2013: From 62 to 128: 20 months
Estimate/Guess 128 to 256: 2018-19?
(Average, double every 22 months)
Edit: I hope you don’t mind if I share your discovery with the Braeburn Group.
Sacto Joe
I believe that AAPL will rise again when three things happen: 1. The weekly option players conclude that the AAPL lottery ticket is a loser’s bet and go away, 2. WS does the arithmetic of Apple’s endgame & trajectory of cash generation and share repurchases, 3. WS figures out that Apple sells iPhones to only 6% of the world’s population (approx. only 40% of the world has a smartphone) and there is tremendous upside beyond selling new iPhones to existing customers and converting Android sufferers.
AAPL is CHEAP but it’s hard to convince people of that amidst the negative news echo chamber. How can so many miss what’s really going on past the 90 day calendar? Or is this a replay of the movie “The Big Short” where facts are an unnecessary contrivance to the game played on WS.
Apple can only do so much to reign in the horses (as with stock buybacks), although they could definitely do better at puncturing the FUD. Which is why I have suggested that Tim Cook needs to acknowledge his inability to do a good job as “company spokesman” and hire someone like Neil deGrassey Tyson to be Apple’s public persona. I’ve suggested giving him the title of CVO or Chief Vision Officer, but my bride prefers CCO or Chief Communications Officer.
Tim Cook is a wonderful leader – except in the one area he isn’t. Also, a CVO needs to be a full-time position, and Tim Cook has far too much on his plate to even begin to learn how to do that, let alone actually do a good job.
Maybe you need to put the dollar cost of the stock and the percentage change in price in one chart and the dollars spent on the stock and the percentage of outstanding shares bought back in the other chart.
#:^)