At What Point Is Apple Cheap Enough That Even An Apple Hater Will Buy?
Must an Apple lover be a permanent bull and never sell the stock?
Is there a low enough price that will entice the Apple haters?
Can we put away our biases and look at Apple objectively?
Is binary thinking leading us to poor investment decisions?
No ape draws attention like King Kong, and no company draws attention like Apple. Many a competitor has been top dog only to be driven into irrelevance by Apple, and often their stock is hammered to dust by Apple too. The employees and shareholders of these once great companies share a common bond… a visceral hatred of the 800lb gorilla known as Apple.
So when the hate crowd gets any whiff of bad news on Apple they run with it. For years bad news was rare, but these days there seems to be a laundry list of reasons why Apple is doomed.
The Laundry List of Doom:
Tim Cook is no Steve Jobs.
Apple is a one trick pony.
Apple does not innovate.
The watch is a disappointment.
Apple Pay is not gaining any traction.
The iPad is losing steam.
Revenue growth has stalled.
Let’s briefly examine this list .
“Tim Cook is no Steve Jobs.“
No argument here. Many attribute Cook’s success to riding the wave that Jobs created. There is some truth to that, but to totally dismiss what Cook has achieved during his tenure seems a bit harsh.
“Apple is a one trick pony.”
Obviously this is in reference to the iPhone. Currently a whopping 67% of revenue comes from iPhone sales… one trick pony indeed. Although with Apple, their stable of horses is always evolving.
“Apple does not innovate.”
Fortune magazine lists Apple as the #1 top innovator of 2015. A look at Apple’s patent filings supports this. Indeed, Apple is still innovating and doing so in some challenging and fascinating ways. The sheer number of innovations for the camera alone is mind-boggling. Just because a company innovates in ways that are micro and not easily seen or understood by the masses, that does not mean that innovation is not taking place.
“The watch is a disappointment.”
The watch is a disappointment only for the fact that the bar was set so high. I have read that sales for the year 2015 were 12 million. For any other company this would be a huge success but for Apple it is underwhelming? Walk into any Apple store and look at the crowd around the watch tables… that is look at the dearth. There is no buzz, no traction, and no crowd. Whatever thrust the watch had in 2015, here in summer 2016, the public is waiting for Gen 2… or simply not interested at all. Down the road the watch may one day be a hit, but for now the watch has stalled… albeit still a relatively successful debut.
“Apple Pay is not gaining any traction.”
Apple Pay is a different beast. Pay is going to take time to come to fruition. It will be a slow process with slow adoption by consumers and even more so by businesses and retailers. The trajectory is indeed up, and at times it has been up enough to give PayPal shareholders the jitters.
“The iPad is losing steam.”
The iPad was a phenom. Gen 1, 2 and 3 sold like hotcakes. The problem is that the Gen 1 is still quite functional. The refresh rate for an iPad is stretched out due to prolonged functionality and also due to superb craftsmanship. These devices can take a beating. I figure that this is a primary reason why sales have stalled… there is no immediate need to upgrade. The iPad is still relevant and still has legs, but it is no longer the only game in town. Besides, most consumers already have one (or two or three).
“Revenue growth has stalled.”
No doubt about it, revenues have stalled… of course that is compared to a bonanza year when Apple debuted their first large screen phone. Is this permanent or is this simply a down cycle like 2013?
The laundry list of doom certainly has its merits, but change is inevitable.
Maybe my bias toward Apple has me seeing things in a better light than justified? I consider myself to be very pragmatic and open-minded, yet we are all prone to some degree of delusion. Is there a cognitive bias that keeps the Apple lovers holding their shares when they should take some profits? Does this same bias keep Apple haters from buying shares of Apple when it is at a value that offers a high probability of profit?
For an Apple fan, AAPL is an easy stock to buy at such low valuations. With that in mind it is easy to drink the fanboy kool-aid. I figure it would be prudent to keep the bear case in mind too. I figure that with the bear case in mind, there still has to be some point where AAPL is a buy. At what discount to the market and to historical AAPL metrics is AAPL a buy for the bears too?
Of the Apple bears I ask, is there any price at which you buy AAPL? Is there no discount low enough to garner your attention?
When Apple was peaking above $130 there were bears warning of a fall. Many of the bears that were warning were making salient points. Some that were warning had been warning every month (stopped clock taken with a grain of salt) since AAPL was at a split adjusted $55. I doubt any bear bought above $130, but at some point the stock may fall to a price where some of the more prudent and open-minded bears will buy.
Binary thinking:
Binary thinking denotes a system of thought that predominantly considers things in an "either, or", "right, wrong", "black, white" way, ignoring any subtleties or consideration of third or more alternatives.
As an investor, binary thinking is suicidal. We must eschew with binary thinking, be keen to nuance and discern the situation as it is presented. It is also paramount that from time to time we reassess our methodology as well as our emotional Q. I bring this up for Apple seems to bring out the emotions like no other stock.
“The natural world makes no promise to align itself with preconceptions that humans find parsimonious or convenient.” – Thomas Lewis
The lovers have seen their stock rise for so many years that it is hard not to love AAPL. For the haters the last year has seen a rare Apple swoon. Also, many Apple haters hold shares in other stocks that have suffered due to the competition that Apple wields. If one is a long time Blackberry or Nokia shareholder, they have good reason to hate the tech giants that ate their lunch. That being said, if that reasoning creeps into their investing decisions and keeps them from investing in Apple, Google or Samsung, this can be a problem.
I say this as an Apple bull who once sold all of his shares. Late in 2015, I sold all 1,000 shares at $118 and then two months later bought them all back at $102. If an AAPL bull can sell, perhaps an AAPL bear can buy? I figure that with AAPL under $100 even an Apple hater can buy the stock.
Although I am a Mac man, I have previously invested in MSFT. If I let my bias creep into my investment process, I would have missed out on MSFT and thus I would have left profit on the table.
I do not like MacDonald’s [[MCD]], I would not eat there for free. Yet if MCD sold for a P/E of 11, a P/CF of 9 and a P/FCF of 10 like AAPL, I would probably load up on some shares of MCD. I would hope that I could keep my own emotions and taste out of the investment equation and buy MCD near historically low metrics.
It is a hell of a business selling burgers and Coke, and it is also a hell of a business selling iphones and Macs. Speaking of Coke [[KO]], I don’t drink Coke, I can’t stand it, but if KO falls to $35 I am loading up! If I can buy MCD and KO, certainly there must be a price at which an Apple hater can buy AAPL?
Actionable Conclusion:
Buy AAPL under $100.
If an investor currently holds no AAPL shares, I would consider buying 1 or 2 units at today’s price aruind $107, adding more if AAPL falls dramatically from here.
If an investor currently owns AAPL I would hold for the long term and consider adding under $100.
Note: I am not prone to thinking in terms of lover or hater, especially when dealing in the arena of investing. For the purposes of this article I could not avoid it.
Disclaimer: Please take this article as simply one man's opinion, food for thought. I have no idea as to what your portfolio balance is, nor your financial situation or risk tolerance. Therefore, before you invest on any recommendation in this article, I would suggest that you please do your own due diligence. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.