From Dan Gallagher’s “Apple Needs One More Thing Again” ($) in Thursday’s Wall Street Journal:
This isn’t the first time Apple has seemed on the threshold of challenging Detroit. The Wall Street Journal reported in 2015 that the company planned to launch an electric car in 2019. A year later, the company was laying employees off from the project and rethinking its plans. Automobiles have indeed proved to be a tricky area for tech giants to disrupt. And Apple investors who treasure the company’s 38% gross margins would be in for a rough ride; the world’s top-10 auto makers by market value average gross margins of 15%, according to data from S&P Global Market Intelligence.
Apple certainly has some interesting things cooking. The company spent a record $18.8 billion in research and development for the fiscal year ended September. That equates to just under 7% of annual revenue—the highest portion since 2003, when Apple was in the early days of developing the first iPhone.
But after running up more than 78% this year, Apple shares now trade at 33 times forward earnings—more than triple its multiple in 2015 when the first car rumors were swirling. Which means investors are already banking on dreams of the next big thing.
My take: Plenty of time before the car shows up to knock the stock down again.
I sold out of my trading position yesterday around $132.50 and am back to holding my core which I built on the dip from summer around $103.
I’m still a buyer on a pullback though, but with the news of 30% increased iPhone orders already out, stellar M1 reception, the Apple Car doing the rounds again (excuse the pun) and no bad news from “analysts with contacts familiar with the matter yet” this seems like a good peak to jump off from even if I miss another run up.
We’ve all been through January blues before and while I expect a mammoth earnings report of unparalleled proportions , a lot can happen between now and then.
Thanks for the blogs Philip, and to everyone for such interesting commentary. It’s been while since I’ve participated in AAPL much or discussed it to trade around. Merry Christmas, Happy Solstice, or whatever phrase best suits your personal beliefs.
Happy Holidays to you, Mr. Philip, all the members & readers of Apple 3.0.
Maligayang Pasko!
You know the old saying: Bulls win in bull markets; Bears, in bear markets; and pigs, they just get slaughtered.
And selling a trading position too soon, though painful, is a pretty good problem to have.
That said, I think AAPL’s break out has little to do with the Reuters news on car and battery technology, and more to do with iPhone 12 uptake, expected increase in the installed base that follows, upside in services rev that follows that, and M1-driven Mac market share growth. Fundamentals are pointing higher and the chart suggests potential ath take-out, then 140, then 150 in fairly short order.
I know you have more than you sold, so, cheers!
Happy holidays to my AAPL brothers and sisters in the PED 3.0 community! Thanks to Philip for creating it!
The rally has been relentlessly good news on flawless execution and the best product lineup I’ve seen in over a decade, along with strong evidence of simply enormous demand (just go on Tik Tok and see how many teens will not be seen dead using anything other than an iPhone 12 and wear Apple Watches – trends in the making).
The car and battery news definitely caused a surge in the stock up yesterday though, without question. It may not keep it there but it did add 5% onto the price overnight without question IMO.
Thanks for clarifying that you’re a trader. As a long term investor, I welcome your sales of AAPL, since there’s a pretty good possibility those shares were then retired by Apple, thus increasing my percentage ownership of the company without having to lift a finger – and with no tax hit!
Post 1. Hardly just a trader. I’ve been an AAPL investor since 2001 and always traded around my core position. Many people will recognise my openness and consistency in adopting this approach as I posted 43,000 comments about it during 2005-2011.
I’m an investor always on the lookout for trading opportunities. If I can benefit from a long term run up while also occasionally bagging a 30% swing trade in just a couple of months using 20:1 leverage and return then I’d be crazy not to.
Trading is heart stopping sometimes but then so is my relationship with the company, its management and the stock. It’s in my blood along with a lifelong love affair with apple from the Macintosh onwards. Unlike most people I wasn’t a big fan of the Apple II – overpriced and underpowered, and nowhere near as remarkable as nostalgia would have it be – the competition had caught up with Apple by then especially outside of the US market.
When the Macintosh came out and I needed more desktop publishing power it was so absurdly expensive that apart from the original unit I purchased to launch my first magazine, I ran MacOS under emulation on a suite of Commodore Amigas – a computer which so outclassed the Macintosh it made it look like an overpriced doorstop.
Sadly Commodore was so epically mismanaged it squandered the opportunity to be where Apple led. I knew RJ Mical who designed the custom chips for the Amiga and interviewed him. He and his team were the silicon pioneers of their time and designed the custom
co-processors and GPUs which were light years ahead of their time, similar to Apple’s current bleeding edge silicon expertise
History is cruel to failures. The Amiga is the forgotten almost-ran which outclassed the Macintosh by a country mile in so many ways, wasted and squandered by a CEO who made John Sculley look competent.
“Forward earnings” is a guess, not a known quantity. I know they’re stodgy, but I prefer price over revenue share and earnings per share for comparative purposes. They’re known quantities.
And don’t talk to me about multiples when AMZN is still in the stratosphere. We’ll talk when that finally comes down to Earth.
Also, multiple shrinks as EPS ascends. And Apple EPS is about to skyrocket.
Is AAPL worth a 40 P/E? Yes, if AMZN is worth a 94 P/E and TSLA is worth a 1,233 P/E.
Is that an answer? Not really. But it does indicate that stock valuation is in the eye of the beholder….
My view is that as long as this “view” is held by the consensus, stay long AAPL because it is a marker for expectations being too low.
This “view” rests on the hardware/blockbuster film revenue model instead of the ecosystem recurring revenue model and does not hold a consumer products multiple expansion in its “box.” Thanks to Rod Hall and Toni Sacconaghi and a few others for influencing the consensus to hold onto that view. It allows more time to accumulate.
The relative multiple will continue to grow, not always linearly, but, it is still too low. That’s my story, and I’m sticking to it.
The 3x+ multiple expansion from 2015 is a commentary on the misperception in 2015, not the level in December 2020.
Valuation per the WSJ has something to do with past performance.
Baloney. That right there is an indication of a “hit job” on Apple, not because it’s a false statement, but because it excludes the possibility that Apple has been horribly, woefully undervalued for well over a decade. Ironically, it’s precisely this kind of crap that’s been depressing AAPL all that time.
AAPL’s worth what Apple’s worth: More and more with each passing year.
I don’t think it means what he thinks it mans. 🙂
Right on 🙂
cnbc dot com/2020/12/22/jim-cramer-reacts-to-apple-car-rumors-the-upside-could-be-enormous.html?&qsearchterm=Jim%20Cramer%20reacts%20to%20Apple%20car%20rumors:%20%27The%20upside%20could%20be%20enormous%27
Apple won’t challenge Detroit. Tesla is trying to challenge Detroit by making a car not significantly different than any car coming from traditional automakers except that it has an electric motor and battery.
I have no idea what Apple will do, but I’m pretty sure they won’t just make another car, just like they didn’t just make another cell phone, tablet, or watch. They will somehow reinvent the category in a way that will delight customers and produce good margins for Apple.
Want to know which business and sales model Apple is likely to follow? Here’s a vehicle line which has a 49% gross margin and makes up 29% of its company’s overall revenue. Same demographic as iPhone 12 Max users IMO. Again, Apple could do much worse than to emulate the Porsche 911 story, in fact, it already has emulated it over the past 12 years.
https://www.bloomberg.com/news/articles/2019-09-11/the-porsche-911-is-the-most-profitable-car-of-2019
A few parallels:
“Wiedeking, then 40 years old, with his spectacles and moustache looked like “a clerk at a venetian blinds manufacturer”, according to Der Spiegel magazine” Wiedeking asserted in a 2006 interview that “every product must earn money. Otherwise you are simply pursuing a hobby, which is no task for an auto-business”. And In 2007 (Porsche’s) stock market value rose from 300 million to 25 billion euro.
Sound familiar?