MacDailyNews Take: An aside: Think about AAPL ten years ago. “Most widely followed stock on Wall Street” it was not. It’s amazing how far Apple has come!
Schwarz continues, “The current perception among traders is that Apple is expensive because of its 150% rally off of the March 2009 lows. Seriously, if I polled 1000 traders I believe that 95% of them would look at the 33 p/e ratio on their screens and tell me that they’d love to own Apple but it is just too expensive. What they don’t know, is that the 33 P/E is about to drop significantly and will set up the opportunity of 2010.”
“Since 2003, Apple has consistently traded at an average P/E ratio of 32.17 which is consistent with today’s current P/E of 33. You can tell that traders have done their homework and are strict followers of the P/E valuation. If you’re like me, you don’t care too much about current P/E ratios because they are calculated from past results. The number that really matters is the forward P/E ratio because it is calculated from future estimated earnings,” Schwarz writes.
“Well, the average forward P/E ratio for Apple since 2003 is 22.48. Any guesses what it is now? Based on the new accounting rules soon to be put in place, and the 37 billion in cash that Apple has on their books, Apple’s forward P/E is below 13,” Schwarz writes. “This stock has not been priced this cheaply since Steve Jobs came back to Apple in 1997.”
“Based on expected earnings per share of only $11.70 in fiscal 2010 (many think earnings per share according to the new accounting standard will end up closer to $13) the stock should be priced at $263 today and should reach $376 by September 30, 2010. These prices do not reflect great years for Apple, they simply reflect the averages,” Schwarz writes. “You want to know what a great year would look like on September 30, 2010? Let’s use the P/E ratio from just before the recession began in 2007. With the iPhone added to the Mac and iPod lines, Apple stock was soaring. Its forward P/E was 28.63 and its current P/E on September 30th 2007 was 39.05. If we used those ratios in 2010 it would put Apple stock at $456 by the close of its fiscal year on September 30th.”
Full article here.
[Thanks to MacDailyNews Reader “Mike in Helsinki” for the heads up.]
Eyes they have but they do not see
Be sure to check your history here. It is time to sell AAPL. AAPL always crashes right after a major Apple Event and product announcement. Apple will hit $150 before it hits $250.
You can always buy it back in March.
This is why the stock market bears no resemblance to reality.
@Dallasm
In recent years Apple has resisted its tradition of crashing after an event. However this time I fear too much expectation has been invested in the iSlate.
Dallasm
Ah, no.
Well finally, someone gets it..
Funny those magic words….More…as in: don’t get more of these so we can keep it to ourselves…shhhh…
Dallasm:
Is that when you go shopping for brains or for reality?
Okay, if you don’t believe me, it’s your money. But Go check out Dec. 06-Jan 07. Right about the time the iPhone was announced. Rumors of a magic phone had pushed the price to $95. Then SJ announced the iPhone and by February the stock crashed to ~$50. Here is how this works. AAPL’s price has been rising, not because Apple is doing better, but because huge hedge funds are buying up lots of AAPL. Then, when SJ announces the iTablet, there is going to be a selling race among the funds. THe Hedge Fund that sells the most shares the fastest, wins. This crashes the price of the stock. Sell your AAPL. Again, you can always buy it back in March.
I know because I owned AAPL then. You should always invest for education. Any time you invest money, you should learn from your investment. That month I learned about a concept known as “Short Selling”.
Dallasm is correct.
In the past this always baffled me. But lately this reaction to apple earning reports and announcements hasn’t happened.
I will play it safe, 1/2 of my investment in now, and 1/2 later if it does drop after the announcements. I can put the other 1/2 in during any future pull back.
That would be another 118% jump in AAPL. Sounds good to me and my retirement fund! Thank you Steve Jobs and the rest of the Apple team.
@Dallasm,
fact is, if you had held on to your stock back then until today, it would have been worth twice as much as when you shorted it.
I’ve had Apple stock since 2005, and have made back roughly six times my initial investment, exactly because I didn’t panic or play the short game.
Sure, hedge funds have manipulated Apple’s stock for years, but it has always bounced back. Fact is, even if the rumored-but-not-yet-announced tablet initially sells poorly against expectations, the rest of Apple’s business -particularly its Mac and iPhone businesses- is solid, making Apple a good stock to invest in.
I think I’ll buy some AAPL. Just this disclosure – every time I buy stock, the price plummets. Every time. I have a long history of this phenomena.
Things like P/E ratio, great products, great retail store crowds, or even great hoards of cash don’t matter at all.
So, either stop me while you can (I won’t make the move until noon CST), or short some AAPL now.
Forget the iSlate! It’s the earnings blowout that will push Apple past 225
@gzero
No, no. You misunderstood me. AAPL is an excellent long term stock. It will hit $250, and probably this year. But if you sell now, you will be able to buy it back in March for $150. If you have Three AAPL stocks now, in March you’ll be able to buy Four. And then hold onto them for another peak. That’s what it means to buy low/sell high.
Don’t get married to an investment. Know when it is time to sell. If you are married to an investment, you are going to get burned. That is how you learn to play the game.
I have to agree with Dallism as well.
gzero is right, too, you can make more money by riding out the turbulence, but Jason Schwartz is clearly taking a short view of Apple stock. Apple doesn’t even predict the kind of wild earnings growth that Schwartz suggests. Apple realizes that there are external forces (competition, macroeconomy, etc) that will push earnings down from the theoretical highs that Schwartz wants us to believe.
Apple did not drop to about $50 in Feb of 07. I bought it near its low at $84 back then.
@Dallasm
You have a point about artificial volatility but the dip/rise trend is moving away from your position. It gets less and less as Wall Street starts to ‘get’ Apple – a v slow process as they are not too bright.
Secondly, if you only learned about short-selling so recently, are you an expert today, guru enough to advise Joe Public, as you do here?
Play your game. Let others do the same.
@Dallasm
I played that game over 5 years ago. After every earnings report the stock usually dropped. So I decided to sell stock (bought at $19 2 splits ago) when it was at $30 just before an earnings announcement. Guess what that time the stock ballooned and never went back down to that value.
I’m now in a $70 with the same number of shares that I had at $19. They obviously cost me more but have tripled in value.
I agree that you can make money buying and selling Apple shares but it is very hard to predict what is going to happen.
Deepdish has the right idea. Selling 1/2 and keeping the rest gives you a hedge on your bet. You also have to be patient. It can take months for the stock to go down or up to the point you want.
@Rubber Johnny
I don’t think Wall Street is trying to ‘get Apple’. Wall Street doesn’t care about Apple. They only care about AAPL. They know Apple doesn’t pay dividends, so the only way to make money on the stock is the rise in the price of the share. Long term AAPL is great because Apple is great. Short term, AAPL is a Sell, because Goldman Sachs Corp. is an evil and greedy Mafia.
@ Dallasm
Dont forget that earnings are reported on Jan 25 and the slate (theoretically) will be unveiled on Jan 27. If Apple changes the accounting system on Jan 25, you may never get to see the stock at today prices.
You may be right about the drop after the slate presentation, but I would rather stay and ride the wave if it does happen. I will be sure not to miss the big jump.
@Dallism
Why do you think Apple announced their product release just a hair before their quarterly results, which should be awesome yet again.
Apple knows what it is doing. Their results will balance the scale.
Maybe they’ll do a stock split and pump it further.
With employment down, many big companies are spending their money becoming more tech efficient rather than hiring people, and, currently, becoming more tech efficient is buying Apple products and iPhonitizing their staffs.
Even if AAPL does drop some, they will only ever hit 150 again if the Dems idiocracy’s bring the whole market down again or if they were to split the third time.
Yep, it’s the new world financial order of “time-the-market and get rich quick.”
Given that fact, I’ve been fighting my Schwab broker(s) for at least two decades now as I insisted on holding AAPL through thick and thin. No selling, no buying, no timing, just sitting.
The results: 5700 shares, split-adjusted @12.42, or $1,100,000 over my original investment. OK, could I have reaped fabulous rewards by “timing” the rise and fall of the equity over the years? Hell yes . . . and Hell no. Depending upon which move I might have made at which time, I could either be embarrassingly rich or have nothing left of my original investment.
That said, good luck to all day-traders. I’ll continue to hold AAPL through this latest market manipulation (same thing happened a few months ago at 192), for I can see Apple’s future, even from here–and it’s so bright I gotta wear shades.
As far as Jason Schwarz’s argument goes, I would point out that I wrote along these same lines back in October 08, right here on MDN, back when Apple was only about $90. Just check out MDN’s Opinion page:
http://macdailynews.com/index.php/weblog/comments/18882/opinion/
…”Don’t get married to an investment. Know when it is time to sell. If you are married to an investment, you are going to get burned.”
Dallism, you are correct for the most part, but the quote above, as it relates to AAPL, contradicts your statement just a paragraph earlier. As you had said, AAPL is an excellent long term stock. Thus, if you “get married” to AAPL (meaning, commit to it long-term), you’ll be fine (As pretty much everyone has, if they bought before the recession started).
You can either take great risk and jump in and out at times you think it will dip and peak, or you can buy now and look at it three years from now. Even if you bought at the peak of pre-recession run-up ($200), you’d still be ahead today.
There’s trading, and there’s investing. Both methods are valid; you just need to figure out which one works better for you.
I sold 100 shares before Christmas to offset accumulated capital losses, and so the taxable income (one-half of the gain) was minimized. However, had I sold half, then my taxable income would have shot up, and I would not have had the cash to buy the shares back at even money. In all of the discussion above, the tax impact of the decision is missing. Speaking purely as an accountant, I am expecting the cessation of deferred accounting for the Apple TV and iPhone, as and from October 1, 2009. Why management kept silent on their proposed treatment of the existing deferred asset account is a mystery to me, but at least Apple does publish a pro forma statement showing the effect of deferred revenue accounting, and so the (lower) P/E ratio can readily be calculated. One assumes that the deferred asset account will be taken into income mutatis mutandis.