AAPL is going down to $35-40 range
- Thread starter toc
- Start date
I'm not sure about the Xmas season, however according to some reports, AAPL only derives less than 30% of revenues from China, so as long as there is no disruption in inventory, my guess is AAPL will have another robust selling season.
By the way, there was talk today of another AAPL gadget, the fourth generation "AAPL TV" plus there are new product introductions coming on September 9th regarding the iPhone6.
All I know is consumers demand the latest and greatest, and are not too price sensitive when it comes to AAPL products.
too bad AAPL is highly correlated with SPX, sorry to say that. No matter how company is good, market drags you down
why are? were not too price sensitive.
Well you've been trading this stock since 2005, so you remember the -45% drawdown of 2012?
Why not this time? I am curious.
Maybe Apple is a BUY @ 75 dollars, but @110 dollars it is a STRONG SELL.
CM
I disagree with your view.
If you pretend that AAPL at an adjusted price of $60 (the nadir in the last 5 years) was the right price at the time (fundamental based fair value) . Then today earnings per share have gone up 60%. To trade at the same PE as it was then, the stock should be closer to 130. Additionally since then the company has added 60Bn in cash (about 10% of current market cap) which would put the equivalent price at 140.
The only bear case is either technical (people will sell the stock because its over owned, but for the stock go to 75, the markets would have to be down over 50%) or fundamental (you think earnings are unsustainable). I don't share the latter view, though I don't think earnings will grow. I think AAPL is over owned, but I think it will be the last stock they sell in their portfolio.
Of course it is technical ! Why is Apple down 4% today? Any news? Nope.
Institutionals are selling like hell, because Apple is overweight in their portfolio.
Why was Apple down 45% in 2012/start of 2013 ? Because of fundamentals? Of course not.
Institutionals were selling like hell, because Apple was overweight in their portfolio.
Same story. History repeats.
CM
So you have to own one major cap stock through this cycle. What is it?
The Apple iPhone 6 was being bought in Hong Kong and sold in mainland China for an arbitrage profit. They Apple diehards line up in droves for every new gadget, regardless of price. They are charging close to $700 for the iPhone 6s, and consumers are gobbling them up. The carriers here in the U.S. are allowing consumers to pay off the phone over 2 years, but in many foreign markets you have to buy it in cash.
So the consumers are not showing any price sensitivity to Apple's products, and investors keep bidding up the stock.
Yes, I remember the draw in 2012, and of course the bigger one in 2008.
AAPL already fell from a $134 high to a $92 low recently, or roughly 30%+. Could it fall 45% from the recent peak? Sure it can, so a trade is all relative to cost basis and time horizon.
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Regarding its fundamentals, the one thing I don't like about AAPL is they did a bond offering for over $17 billion dollars to raise cash for buybacks and dividend payments, instead of using their cash hoard overseas, which they would have to bring back to the U.S. at a 35% tax rate.
Steve Jobs would never have agreed to issue debt for such a strong cash-rich company that never had debt, but of course after his passing, it wasn't his call. However, Tim Cook was under intense pressure as the stock languished (and as you correctly pointed out, took a 45% draw in 2012).
The bond offer was in so high demand that over $50 billion in orders flowed in, paving the way for possible more future offerings. They've done other smaller deals in other countries (Japan, Australia), etc.
This could potentially become a double-edge sword. Once you start to issue bonds and raise tons of cash, you are also obligated to pay the interest to your bond holders before the dividend to the stockholders. And since AAPL has a dividend on the common and has already raised it, they MUST continue to generate billions in cash just to satisfy their capital obligations.
It was cheaper to issue debt, so they took the bait. If and when consumers stop buying their products, then it could create an eventual cash crunch. However, given they have over $100+ BILLION in overseas cash, it's simply not an issue...yet.
Steve Jobs would never have agreed to issue debt for such a strong cash-rich company that never had debt, but of course after his passing, it wasn't his call. However, Tim Cook was under intense pressure as the stock languished (and as you correctly pointed out, took a 45% draw in 2012).
The bond offer was in so high demand that over $50 billion in orders flowed in, paving the way for possible more future offerings. They've done other smaller deals in other countries (Japan, Australia), etc.
This could potentially become a double-edge sword. Once you start to issue bonds and raise tons of cash, you are also obligated to pay the interest to your bond holders before the dividend to the stockholders. And since AAPL has a dividend on the common and has already raised it, they MUST continue to generate billions in cash just to satisfy their capital obligations.
It was cheaper to issue debt, so they took the bait. If and when consumers stop buying their products, then it could create an eventual cash crunch. However, given they have over $100+ BILLION in overseas cash, it's simply not an issue...yet.
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They issued a bond because borrowing at 1% was preferable to paying 35% in taxes to repatriate the money. Additionally it gave them the ability to access credit markets more quickly if the need were ever to arise where they had to make a significant acquisition.
Borrowing 17Bn costs about 170MM/year in interest expenses. They would have had to repatriate almost 25Bn to cover the tax liability. If they can earn 2% on that 8Bn that they would have paid in taxes, it will pay for the interest on the bond.
Such is the wacky world we live in. Fortunately for AAPL, the CFO is smart enough to figure these things out.
Borrowing 17Bn costs about 170MM/year in interest expenses. They would have had to repatriate almost 25Bn to cover the tax liability. If they can earn 2% on that 8Bn that they would have paid in taxes, it will pay for the interest on the bond.
Such is the wacky world we live in. Fortunately for AAPL, the CFO is smart enough to figure these things out.