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You may see this appearing in other places on the Internet as we are starting to write some articles based on the data we are pulling from you and combining it with other sources. Any feedback is much welcomed. Thanks!
Six Simple Reasons Why Betting Against Apple Now is a Mistake
The Apple doomsayers had a field day last week when independent research company NPD announced that sales of Mac computers were down by 6 percent in January in U.S. stores. Based on that decline, Apple's market share dropped from 13.7 percent to 16.4 percent. A second study, by forecasting company ChangeWave Alliance, also showed an incremental weakening of Apple sales, particularly in the desktop segment. We think these changes are borderline irrelevant. Apple continues to be the highest-rated stock in the Piqqem Sentiment Index and for good reason. Here's why last week's bad news and the subsequent price decline into the low $90s is actually pricing anomaly pending a rebound into the low $100s as the news shakes out.
1) January is sequentially a very weak month for PC sales in general - Face it, few people buy PCs right after Christmas and even fewer in this horrific economic environment. It's hard to imagine a worse datapoint touchstone upon which to base a long-term decline trend. And a good portion Apple's drop comes from its desktop segment. This makes perfect sense. Creative agencies and designers, deep in the deepest slump of their lifetimes, are cutting back as media spending craters. And consumers don't want to buy Apple desktops because the Mini and the iMac are both long-of-tooth with rumors of replacement models running hot and heavy. The upshot? This is the wrong time to do a comp.
2) MacWorld 2009 had very few exciting product announcements - Apple has tried to buck the January blues with killer product announcements at the MacWorld confab. This year, there simply were no major announcements. Sure, some nifty software enhancements, a moderately improved MacBook Pro but nothing to drive people to hit the buy button. So this January is probably even a weaker comp than past Januaries due to the lack of new product mojo.
3) Focusing primarily on Mac computer slowdown underplays importance of the iPhone - <a href="http://seekingalpha.com/article/82183-the-hidden-financial-impact-of-apple-s-iphone">Andy Zaky</a> have written about the massive cashflow that the deferred "subscription" based accounting Apple has elected to employ for iPhone sales will create over the next two to three years. Add to this the unbelievably rabid adoption of iPhone apps and the rapid transition to mobile computing as the most prevalent form of computing and it's clear that focusing most of your attention on the Mac computer lineup is akin to focusing most of your attention on sales of telegraph transmissions right after the telephone was rolled out.
4) The Coming Kindle Killer and Mac Netbooks -- This is a similar argument to the Boxee one above. I guarantee that in Apple's skunkworks there is a text reading product being readied for Market. The Kindle's rapid adoption for what is a somewhat clunky device and offering prices that are still very high for what people are buying clearly illustrates the market is ready for this type of device. Should Apple come in with a Kindle-killer at a decent price and with a strong offering from publishers channeled through iTunes, this could be something of a small-sized iPod effect. True, the iPod has never packed the profit punch of the computer line. And a digital reader would, likewise, not pack the same punch. But it would provide an unexpected incremental boost. After all, iPod sales alone in 2004 had rocketed to $1.25 billion a mere two years after launch. The Air laptops have been a moderate success addressing a premium market. But Apple could easily drop in a cheaper version of its Air to quickly capitalize on the rapid growth of Netbook sales. I'd look for an announcement on one or either of these products in June.
5) Overstating the Importance of Steve Jobs -- When Palm came into CES with its new mobile OS and very cool touchscreen product, the geeks were wowed. A familiar name was largely behind that impressive product push -- Jon Rubinstein. Sound familiar? Yes, he was formerly the head of the hardware division at Apple. So what does this have to do with overstating the Cult of Steve? Palm designed a killer new product and got a huge marketing push on par with what Apple can deliver. It did this by rolling out a very nice product that was well finished and well thought out. A former Apple guy was a driving force behind it. And that's always been the case at Apple, too. Jobs has been the vision and the marketing muscle. But there are plenty of other people at Apple who are perfectly capable of putting together a Jobsian buzz effect.
6) The Balance Sheet -- Apple is sitting on $25.6 billion in cash, or roughly $28 cash per share. So subtracting out that cash, Apple's current share price would be roughly $63. Based on consensus analyst earnings estimates of $5.19 for the coming year (estimates that don't include the full impact of the deferred iPhone revenues), that give Apple an insanely low FP/E of 12. That's a heck of a bargain. Even should Apple revenue estimates fall, bumping minus-cash FP/E upwards, the multiple is so low that its hard to not jump in (just ask value players on CNBC Fast Money like the ever skeptical Jeff Mackey and Karen Finerman). Now, if Apple's downward trend picks up and NPD numbers start to get worse, then you might need to revisit. But at present, Apple has a nice shine to it regardless of what the Mac counting crowds say.
