Apple’s Stock Looks Cheap ( Part 2)

Apple Inc.  New Headquarters
Apple Inc. New Headquarters (Photo credit: MarkGregory007)

( Read with Monday post)

Apple stock has tanked 35% from its all-time high, and now sits at $450.

If things go badly for Apple over the next several years, the stock could fall a lot farther from here.

But if things go even moderately well, the stock should deliver a compelling return.


Because, at $450, the stock looks cheap.

At $450, Apple stock is trading at 10X trailing earnings per share.

For a company that is still expected to grow, albeit at a much reduced rate, that’s an attractive valuation.

Importantly, Apple also has $135 billion of cash and no debt. Much of this cash is available to be returned to shareholders in the form of stock buybacks and, possibly, dividend increases. So it’s worth considering Apple’s market value and multiple excluding this cash.

Excluding its cash, Apple’s business is now valued at about $300 billion, or 2X revenue. Apple’s business currently earns about $40 billion a year. So Apple’s business is valued at about 7-times earnings.

That’s an even more attractive valuation. Even when you consider that Apple’s earnings are now declining.

Think about it this way.

If you spent $425 billion to buy Apple today–the whole company, not some shares of stock–you would be able to immediately pocket the $135 billion of Apple’s cash. You would then own a business that spits out about $40 billion of cash per year. Assuming the business maintains close to this level of earnings, you would get the remaining ~$300 billion of your purchase price back in about 7-10 years. You would then own all of Apple and its future earnings “for free.”

Even if Apple’s earnings shrink over the next few years–which I actually think is likely (Apple’s net income in the next quarter is expected to be down a startling 20% from last year)–it would only take 10-15 years for you to get your money back.

If Apple’s earnings grew instead of stayed flat, meanwhile–which isn’t inconceivable–you would get your money back even faster than 7 years.

In other words, unless Apple’s earnings really tank, and stay down, you will have bought a good company at a reasonable price.

Now, you are not going to be buying all of Apple anytime soon, so you can only think about the description above theoretically. But here is a more likely scenario.

A more likely scenario is that Apple’s earnings will stay flat or drop over the next several years, and Apple will start to get even more serious about returning some of its massive cash pile to investors.

To reiterate: Apple has ~$135 billion of cash.

And it is currently generating more cash at a rate of about ~$40 billion per year.

Apple has no idea what to do with this money.

No company needs $135 billion of cash.

In the past, Apple has demonstrated that it is not stupid enough to make huge, bad acquisitions (at least so far). So one can hope that Apple will not be stupid enough to make such acquisitions going forward.

So that leaves two other ways to use the cash mountain that Apple continues to pile up and doesn’t know what to do with:

Right now, Apple pays a ~$10 annual dividend. With the stock at $450, that’s about a 2.5% yield.

Paying this dividend costs Apple about $10 billion of cash per year.

Apple could easily afford to double this dividend to ~$20 per year.

That would create a 5% yield, which is an excellent yield. It’s also a much higher yield than almost every other stock in the market pays. And even this would only consume $20 billion a year.

And Apple could also easily afford to spend another $20 billion a year buying back its own stock. At $450 a share, this would shrink the share base by about 5% per year. So Apple’s earnings would be split up over fewer shares.

If Apple keeps earning $40 billion a year, and it returns $40 billion a year to shareholders, its cash balance will stay at ~$135 billion, which, again, is vastly more cash than it needs.

Apple could use $50-$100 billion of that cash to buy back stock, and that would shrink the share base even further.

All of which is to say, Apple has multiple levers at its disposal to return cash to shareholders and boost earnings per share irrespective of the business. And the business itself looks cheap relative to its current earnings stream.

Now, I am not suggesting that Apple’s stock is suddenly going to rocket back to $700. For that to happen, Apple would have to release another product that is a quantum leap over the competition, and it would have to sell hundreds of millions of units of this product before its competitors caught up. (As has happened with the iPhone).

I am also not suggesting that Apple’s stock won’t go lower from here. It may very well go lower from here. In fact, it may go lower and stay lower–forever.

As I described a few days before Apple missed Q4 expectations and the stock crashed below $500, Apple could be in the beginning stages of the same sort of implosion that it experienced in the 1990s–the same sort of implosion that has claimed Research In Motion, Palm, Nokia, Yahoo, AOL, Cisco, and dozens of other tech giants over the years. The stocks of these companies are trading at mere fractions of the highs they hit back when they were “must-own” stocks, barring miracles, they will never trade at those highs again. Apple is certainly not immune from this fate. And anyone who still thinks it is is not facing up to the reality of the situation.

But, Apple is also still a good company. And it has good products in fast-growing markets–smartphones and tablets. So if it can merely remain a good company, and keep pace with the competition (again, no guarantees), and if it begins to return even more of its vast cash mountain to shareholders, it should be able to maintain strong earnings per share, at least for a while.

And if Apple can do that, the stock doesn’t just look cheap. It is cheap.

As a reminder, no one knows what is going to happen to Apple over the next few years, including the folks at Apple. So don’t hallucinate that there’s some guru somewhere who can tell you. All of these scenarios are possible, including the “train-wreck” one. Stock prices represent collective guesses about what will happen in the future, and no one knows for sure what the future holds.

One final caveat…

Most of the folks who bought Apple stock over the past 5 years bought it because they considered it a “growth” stock, not a “value” stock. The scenario I described above is very much a “value” stock scenario. If Apple’s earnings do decline over the next couple of years, the “growth” investors who bought Apple’s stock will jettison it, and the “value” investors will have to buy it. This process will take time. So even if Apple does end up delivering a compelling return over the next few years, this “turnaround” will likely take a while.

Research In Motion – Jefferies Upgrade

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Research In Motion

(RIM : TSX : $17,41
Turning things around?

Shares of Research in Motion finished the week strong after Jeffries upgraded the stock to a bullish rating saying RIM’s new BlackBerry 10 devices performed as well or better than rivals in recent tests. The analyst said that recent trials of BB10 test devices showed vast improvements over existing smartphones. “Recent tests and demos have shown a  solid browser, smooth touch interface, and intuitive navigation. We now believe the operating system performance could be better than or equal to Android Jelly Bean and likely on par with iOS 6.

Additionally, the analyst said that “checks indicate that large app developers are going to put resources into developing BB10 apps. Previously we had thought they would take more of a wait-and-see approach.” On top of the positive outlook for BB10, the report said that the BlackBerry maker will allow BlackBerry email and messaging (BBM) on iPhones and Android devices, possibly leading to increased licensing revenue for RIM.


The RIMM Rocket Trading Alert

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Research In Motion Ltd(RIM:TSX, CA)

Above Average
As of 21 Jan 2013 at 1:15 PM EST.


Quote Details

Open 16.60 P/E Ratio (TTM)
Last Bid/Size 17.78 / 4 EPS (TTM) -1.60
Last Ask/Size 17.80 / 84 Next Earnings 28 Mar 2013
Previous Close 15.71 Beta 1.79
Volume 6,575,537 Last Dividend
Average Volume 7,777,864 Dividend Yield
Day High 17.83 Ex-Dividend Date
Day Low 16.52 Shares Outstanding 524.2M
52 Week High 17.83 # of Floating Shares 415.9016M
52 Week Low 6.10 Short Interest as % of Float


Expand/Contract Level 2 Quote

Market Maker Shares Bid Price Ask Price Shares Market Maker
400 17.780 17.800 8,400
4,200 17.770 17.820 1,300
600 17.760 17.830 2,000
3,800 17.750 17.840 1,200
900 17.740 17.850 5,600
900 17.730 17.860 1,900
900 17.720 17.870 100
2,300 17.710 17.880 1,600
1,700 17.700 17.890 1,800

Research In Motion Ltd SELL

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Research In Motion Ltd.

RIMM : NASDAQ : US$14.12
SELL Target: US$9.00

Investment recommendation

RIM reported soft but better than expected Q3/F2013 results, with sales of $2.7B and pro forma LPS of ($0.22) versus our estimates of $2.6B and ($0.49) and consensus estimates of $2.7B and ($0.35). While results beat our expectations and we were impressed by cost savings execution and working capital management, our bearish thesis on BB10 remains unchanged and we expect ongoing quarterly losses. We reiterate our SELL rating and lower our price target from $10 to $9 due to our estimates for declining services ARPU leading to a lower sum-of-parts valuation.
Investment highlights
 While resilient sales of BB7 smartphone in markets such as Indonesia, South Africa, and Venezuela demonstrate the strength of the BlackBerry brand in international markets, we believe strong global sales of new BB10 devices are critical for RIM to return to profitability. With our analysis indicating increasing competition from iPhone 5, Android and Windows 8 smartphones in Western markets and from ramping lower-tier smartphones based on Qualcomm and MediaTek turnkey solutions globally, we expect softer sales of BB7 smartphones in future quarters with persistent pricing and margin pressure.
 While RIM management remains bullish for its BB10 smartphone launch January 30, we do not believe BB10 devices will turn around its struggling business. With a very low probability the market will support RIM’s new mobile computing ecosystem, we believe RIM will eventually need to sell the company.
 Given our cautious BB sales outlook and our belief RIM’s subscriber base and services ARPU will decline over the next several quarters and years, we maintain our SELL rating and lower our price target to $9.
Valuation: Our $9 price target is based on our sum-of-parts analysis

Tech Trends That Will Make Someone Billions Of Dollars Next Year

Big Data
Big Data (Photo credit: Kevin Krejci)

The world will spend a whopping $2.1 trillion on tech in 2013

The world will spend a whopping $2.1 trillion on tech in 2013


2013 will be a make-it-or-break-it year in mobile for some vendors

2013 will be a make-it-or-break-it year in mobile for some vendors

Steve Kovach, Business Insider

When it come to mobile, 2013 will bring us these three things:

  • Mini tablets with screens less than 8 inches in size will be the rage, accounting for 60% of tablets sold.
  • The market for smartphones and tablets combined will grow by 20%.
  • 2013 will be a make-or-break year for mobile platforms. Those that don’t attract interest from at least 50% of app developers won’t survive. Google and Apple are past that threshold. Microsoft now sits at 33%. RIM is at 9%.

Big IT companies will feast on smaller cloud players

Big IT companies will feast on smaller cloud players

The software-as-a-service phenomenon really grew up in the past 12 months, with big vendors like Oracle and SAP spending billions to buy their way into the market.

IDC thinks we haven’t seen anything yet.

“There will be over $25 billion in SaaS acquisitions over the next 20 months, up from $17 billion in the past 20 months,” it says.

Some companies are too highly valued to make for easy acquisitions, like the publicly traded, worth $22 billion, or the fast-growing, still-private Box at $1.2 billion. But a bunch of others could be ripe for deals: Okta, Zenoss, and ServiceMax come to mind

A lot of smaller, specialized clouds will sprout up

A lot of smaller, specialized clouds will sprout up

In 2012, a lot of new cloud tech came out that made it easier and more affordable for anyone to build a cloud.

That means that in 2013, a whole bunch of new clouds will crop up. These will serve specific industries, for instance hospitals, construction companies, banks.

Big data will get bigger

Just like 2012 was the year that mobile devices and cloud computing became the must-have things for every company, big data will be the thing everyone will use in 2013.

IDC says the big-data market will grow at an annual rate of 40%. It will hit about $5 billion in 2012, $10 billion by 2013, and $53 billion by 2017.

The data center as we know it is over

The data center as we know it is over

Meet Yellowstone, the super hero supercomputing fighting climate change


New data-center technologies that took root in 2012 will become the big thing in 2013.

These include “converged systems,” where companies buy machines that have computation, storage, networking, and software bundled together.

Another is software-defined networks, which is a new way to build networks.

These represent a tremendous opportunity for the established players like Cisco, Dell, HP, and Oracle. But they are also a big risk if they get it wrong. A whole class of startups are rising up to disrupt these guys.

Your work computer will be an ID you keep in your head

Your work computer will be an ID you keep in your head


The bring-your-own-device trend, also known as BYOD, will morph into BYID—bring-your-own-ID.

That is, your work computer will be available to you anywhere, on any device. All you have to do is properly log in.

This is the ultimate result of investments in new cloud, mobile, and data-center technologies

BB 10 Won’t Save RIM : Forbes

Mike Lazaridis - Founder and Co-CEO of Researc...
Mike Lazaridis – Founder and Co-CEO of Research in Motion (BlackBerry) (Photo credit: textlad)

Nov 17

Beleaguered tech giant Research in Motion, which has finally announced the release date of its long-awaited BB10 operating system. At the risk of sounding insensitive, I wonder why anyone should care.

On the heels of the company’s announcement, not only have there been calls to buy the stock, but glossy-eyed investors with overwhelming hunger for a “feel good story” rush to proclaim that 2013 will be “RIM’s year.” Not so fast. Let’s not forget this is the same company that has become synonymous with chronic self-inflicted wounds, which includes twice delaying BB10.  So I worry that any ounce of optimism spent will only become wasted energy, which in a nutshell described its most recent earnings report.

Too Much Needs To Go Right Just To Become Average

RIM investors are known for their “glass-half-full” outlooks – it’s a quality that I admire. But at some point, cheering for a report that arrived “less bad” than expected should get tiresome. For instance, RIM’ revenue dropped by over 30% in the fiscal second-quarter. Yet the stock inched up a bit since it was much better than the 40% decline expected by analysts. Likewise, though the company reported a net loss of 45 cents per share, it was considered impressive since it arrived a penny better than estimates of 46 cents. The standards have been lowered. But how did we get here?

When assessing what RIM has become and how investors have embraced low expectations, it’s hard not to fault the company’s management and what has been a series of misfortune. So is now the time to put all faith in BB10? Does the company have the track record of execution to pull this off? As much as I want to give RIM the benefit of the doubt, I think too much needs to go right just for the company to reach par level.

The Competition Will Allow No Opening

It’s a foregone conclusion that RIM has lost the war in the smartphone and devices market to Apple andGoogle. What’s more, with Microsoft’s recent release of Windows Phone 8, there are now three operating systems with which BB10 must compete. While it can be argued that since Apple’s IOS is exclusive to Apple devices, therefore RIM’s main competitors might actually be Android and Windows 8. Still, RIM’s market position is little to be desired.

That said, the company does have decent shot at somehow capturing wins (if nothing else) for being a non-Android platform – especially since Apple’s patent suit against Samsung created such a tangled web of Android-related chaos that phone manufactures are now looking to avoid. Nonetheless, the space remains crowded and littered with one legal battle after another as rivals fight to put each other out of business. Let’s not forget there is also Nokia, which just released its Lumia 920 to rave reviews. Can RIM overcome these alternatives?

The good news is that amid all of this mess, RIM has been able to keep its nose clean. But that’s only because it has been irrelevant for almost 3 years. During which it has seen its market share and stock price erode to absurd levels. So the idea that BB10 can all of a sudden change the company’s fortunes is a bit farfetched, if not entirely misguided. On the bright side, that the company has now provided a date (Jan 30) can be considered a small victory after two embarrassing delays.

What’s more, in addition to having significantly more apps that are considered critical to the company’s success, RIM proclaims a faster and smoother phone experience. This is the same company that once places enterprise advantages above the user experience. But investors should not get too excited. This is yet a disappointment in waiting – even though the company has finally adopted touchscreen capabilities. But it’s been 5 years after touch was introduced in the original iPhone.

What has become of RIM is not the “tragedy” that many wish to make it out to be. What’s more, RIM is a testament to the Wall Street reality that market leaders don’t hold that title infinitely. This is despite the significant competitive leverage that the company once enjoyed after having established such a large enterprise position. At one point the company had the entire smartphone market all to itself after extinguishing Palm. But now the

company is facing the same amount of pressure to survive. And I think betting your entire future on BB10 is the wrong move.

Bottom Line

Sometimes it pays to listen to that little voice in your head. I have wanted to like RIM since the stock traded in the mid-teens, but I’ve decided to wait. Shares then tanked to the $6 range. Since then it has seen a 20% recovery – largely due to the release of BB10. However, for now, I think a “wait and see” attitude is the right approach – at least until the company’s management can prove that it can get this launch right. In the meantime, the stock is at best a good short term trade. But the long term narrative for RIM has not changed, BB10 will not be enough.

Research In Motion Sets January 10 To Introduce New BlackBerry / Apple Starts iPhone 5S

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Research In Motion Sets January 10 to introduce new BlackBerry 10 devices 


Nov 12

Research In Motion Ltd plans to introduce its new line of BlackBerry 10 smartphones on January 30, the company said on Monday, giving investors a measure of confidence that the long-awaited devices are nearing completion.

The Waterloo, Ontario-based company, a one-time pioneer in the smartphone industry, is betting its future on the new products, which will be powered by its new BlackBerry 10 operating system. Its shares rose 5.5 percent to $9.01 in trading before the U.S. stock markets opened.

RIM has struggled over the last two years as its devices lost ground to snazzier and faster smartphones like Apple Inc‘s iPhone and Samsung Electronics‘ Galaxy line.

RIM said the twice-delayed launch would take place simultaneously in multiple countries. It will introduce two BlackBerry 10 smartphones as well as the platform that powers them.

The company has said the first devices will have touchscreens. Phones with the mini QWERTY keyboards that many long-time BlackBerry users rave about will come a few weeks later.

The company did not say when the devices will be available in stores.

RIM says its new devices will be faster and smoother and have a large catalog of applications that are now crucial to the success of any new line of smartphones.

Last week, RIM said the new platform and devices had received U.S. government security clearance, potentially allowing U.S. and Canadian government agencies to deploy the new smartphones as soon as they are available.

These were the first BlackBerry products to win Federal Information Processing Standard 140-2 certifications ahead of their introduction, the company said.

RIM began carrier tests on the BB10 devices last month. The Canadian company hopes will help it win back some of the market share it has lost to the iPhone and devices that run on Google Inc‘s Android operating system.


Some analysts fear that RIM faces tough challenges in an ultra-competitive smartphone market.

Pacific Crest analyst James Faucette said earlier this month that BlackBerry 10 was likely to be dead on arrival, with an operating system that gets “a lukewarm response at best,” due to the unfamiliar user interface and a shortage of apps.

Others disagree. Paradigm Capital analyst Gabriel Leung said the devices could help reverse RIM’s market share losses in crucial markets such as North America.

“We believe the company has significantly improved its ability to attract developers to build apps for the BB10 ecosystem,” Leung said in a recent note to clients.

RIM’s stock has fallen more than 90 percent from a peak of over $148 in 2008. But at Friday’s close, the shares were up about 20 percent over the last two months on signs that the BlackBerry 10 devices are finally likely to make it to market.

Apple Is Not standing Still : Apple Is About To Start Production Of The iPhone 5S 

Apple is expected to start “trial” production of its next iPhone, the iPhone 5S, in December, reports Steve Shen of DigiTimes, citing a Chinese business newspaper. The initial run will be small: 50,000-100,000 units.

Apple has reportedly “accelerated” the certification process for parts and materials in the new phone because of production problems with the iPhone 5.

The iPhone 5S is expected to hit full production in the first quarter, which might suggest a spring release. That would be a first for a new iPhone. For the first several years, the new models were launched in June, with the launches shifting to September in the past two years.

DigiTimes also says that Apple is planning to release a new iPad in the quarter following the new iPhone. The obvious guess is that this would be an iPad Mini with a “retina” screen.