Apple Inc. (AAPL)

[rovo]

There is a "short Apple" thread on the old Market Talk board but I figured it can't hurt anything to start a thread on Apple on this new board, especially since "shorting" AAPL has proven itself to be a not so good idea.

I'm long AAPL, which means I own AAPL shares, and I also am still bullish on the company. AAPL is currently my second largest position in the portfolio but appears to be overtaking my largest position which is Ford (F).

I'm not a fanatic on AAPL and I do not even use an AAPL product but my wife uses and iPhone and iPad. I am heavily into AAPL shares because I think there is money to be made in the stock as an investment.

Jim Jubak has just released a new article and this particular item relates to Apple, Inc. The article is at:

money.msn.com/investing/how-high-can-apple-go-jubak.aspx

[Bluerobin]

I love APPL. I have some, and would like to add more if I can free up some more cash.

[rovo]

I've been buying into AAPL for about a year with purchases in Feb 2011, April 2011, Oct 2011, Dec 2011, and Jan 2012. My average buy-in price is currently $362.67. I say "currently" because I'll probably be increasing my holdings on any substantial dip in the share price providing my opinion on the company does not change.

[Driftr]

Swore I would get some Apple if it got below 300. Almost made it there last June. Shoulda coulda woulda...

I would have been annoyed if it had stayed flat (because there's no dividend) so best for me to just put it behind me. But as John Greenleaf Whittier once wrote: Of all sad words of tongue or pen, The saddest are these: 'It might have been!'”

[rovo]

The AAPL fiscal year ends in September so the recently reported earnings are for fiscal Q1 (calendar Q4). The expected consensus earnings for this fiscal year ending in Sept. is currently $47.47 per share (per TD Ameritrade). This number will vary throughout the year as analysts raise or lower their estimates. My current estimate is somewhere between $45 and $60 per share for this fiscal year.

The most popular data point used is the PE ratio. This is the stock price divided by the earnings. Generally it is a trailing measure, meaning the current stock price divided by the earnings for the last 12 months. There is also a forward PE where the earnings are the expected earnings going forward.

If we use the $47.47 expected earnings and the current share price of $520, the the forward PE is 10.95.

Another common way of looking at the PE is to subtract out the cash held by the company on a per share basis from the stock price and to then recompute the PE or Forward PE. Cash is usually defined as actual cash plus short term investments which can be converted to cash rather quickly. In Apple's case the "cash" is about $100 per share. So $520 - $100 = $420. Then the forward PE becomes 8.85 and this is an very low number for a growth stock like AAPL.

ETA: Edited to correct math error. duh.

[rovo]

Continuing on the previous post and the PE of AAPL.

A typical PE for AAPL is 15 based upon past performance. While this PE is extremely modest for a growth stock like AAPL, it basically "is what it is". More on this later.

The expectation for 2012 earnings is $47.47 and the period ends at the end of September. So, the assumptions are:
1. Earnings per share, EPS, of $47.47.
2. AAPL Price / Earnings of 15.

PE = Share Price / Earnings or Share Price = PE * Earnings when trying to determine the expected share price.

Share Price = 15 * $47.47 = $712.05 This is the expected share price at the end of September. Let's call it $700 to $750.

The current share price is $520 and I expect $712, so the expected growth for the next 7 months is 37%. The annualized value is then 63%.

[Aman A.K.A. Ahamburger]

There is a "short Apple" thread on the old Market Talk board but I figured it can't hurt anything to start a thread on Apple on this new board, especially since "shorting" AAPL has proven itself to be a not so good idea.

Classic...

I see your buying points Rovo, I was wondering about your thoughts regarding re-balancing. I know you are a fan, but in some cases, like MS, you talk about selling after a few years. So I'm just wondering if you are re-balancing profit on companies like Apple during all this volatility?

Great write up on the P/E BTW.. Their EPS must be in pretty good long term shape as well..

Ipad 3 on the way!

[rovo]

Re-balancing? Me? You must have me confused with someone else.

Kidding aside, I am not a fan of re-balancing. I think the term was invented by the brokers to increase their commissions.

You mention "MS". I think you are referring to MSFT, Microsoft, and yes, I sold all of my MSFT stock. It was a fairly safe place to park some excess cash for a while as their dividend was much greater than the return in a money market.

[rovo]

Another data point frequently used to evaluate a stock is the "PEG". This is the PE (as discussed above) divided by the proposed earnings growth rate going forward.

The general consensus is the valuation of a stock price is better defined by the PEG. Most stocks have a PEG of about 1.00 which implies the stock is fairly valued. For example: A PE of 15 with an expected earnings growth rate 15%, 15/15=1.00, is fairly valued. Also, it is important to say most stocks are very close to 1.00 for their PEG. A PEG of 0.90 indicates an under valued stock, about 10% undervalued. Likewise, a PEG of 1.10 defines a stock over valued by 10%. A mis-valuation of 10% is huge and most PEGs are very close to 1.00.

One of the problems I have with this metric is the use of proposed earnings growth. Proposed by whom? The same analysts that tell us to buy or sell a stock.

So let us look at Apple with the PEG ratio. According to TD Ameritrade the PEG of Apple is 0.79 and the current PE is 14.88. I like to run sanity checks on published numbers because errors do happen.

Earnings for 2011 were $27.68. Expected earnings for 2012 are $47.47. The earnings growth is then equal to 71%.

The PEG then = 14.88 / 71 = 0.21 and this does not match the published number of 0.79.

Another source say expected earnings are $42.72 so the PEG = 0.27.

This is exactly why I don't like some of the metrics created by people in finance. They are not math wizards and most of these metrics only work when the numbers are in a very restricted range. Comparing a PE ratio to earnings growth is apples to oranges.

Oh well, let's look at projected stock price using the 3 different PEG numbers. The projected stock price is for the end of September. The assumption on my part is the PEG should be unity, 1.00, and what stock price is needed to accomplish this action.

PEG of 0.79 yields an expected share price of $661.
PEG of 0.27 yields an expected share price of $1934.
PEG of 0.21 yields an expected share price of $2487.

The last two numbers are for sure out in left field but I can not see why.

The major point of this post is to show AAPL stock is currently very much under valued. This stock may not come up to a PEG of 1 but the more under valued a stock is then the more resistant it is to a share price decline.

[Aman A.K.A. Ahamburger]

Yes, I was referring to MSFT sorry about that. Those are some very good buy in points, do you buy on the dips then?

JMO, a company like APPL would be better off splitting their stock before they hit $1500, wouldn't they?

[rovo]

Stock splits are less important today because there is no penalty for odd lot trading. There used to be a penalty for trading less than 100 shares but today there is no such penalty. A friend of mine recently purchased 19 shares of AAPL at $500. It was $465 when I urged her to make the buy but she delayed too long and paid a higher price.

With AAPL now being the most highly capitalized company in the world, they are coming under increased scrutiny by the street. To me it matters not. When earnings growth starts to slow I'll be bailing out of the stock. Until then I'll be holding or increasing my position. I'm not holding AAPL because of love, I'm holding it to make a profit. At some point I'll find something that looks better to me than AAPL does at that time.

[Aman A.K.A. Ahamburger]

I'm holding it to make a profit.

I hear that, it's all about profit, profit, profit!

With the launch of the new Ipad, Ipone, and the markets that APPL still has to tap, earnings should be good for a while at APPL!

Great thread Rovo!

[rovo]

CNBC just said AAPL is going to announce the iPad3 next week. There is no confirmation from the company. Expectations are a quad-core processor, retina display, better forward camera, 4G-LTE connectivity, Siri voice interface.

Read more: investorsforum.proboards.com/index.cgi?action=display&board=main&thread=31&page=16#ixzz1ngzitCia


AAPL stock rises to about $532. .... .... .... ....

[rovo]

I may have just wasted about $10K but I think it is a risk worth taking. I bought 20 contracts of AAPL Mar 17 2012 $550.0 Call for a price of $5.25 + commissions.

Read more: investorsforum.proboards.com/index.cgi?board=main&action=display&thread=31&page=16#ixzz1nh8sUu00

Sometimes one has to follow his gut. or is to be determined. ;D

[Aman A.K.A. Ahamburger]

Feb 28, 2012 11:31:06 GMT -5 rovo said:

I may have just wasted about $10K but I think it is a risk worth taking. I bought 20 contracts of AAPL Mar 17 2012 $550.0 Call for a price of $5.25 + commissions.

Read more: investorsforum.proboards.com/index.cgi?board=main&action=display&thread=31&page=16#ixzz1nh8sUu00

Sometimes one has to follow his gut. or is to be determined. ;D

Sweeet! ;D

[rovo]

For educational purposes:

With commissions the option cost was $5.27 per share or $527 per contract. An option play like this one is a pure gamble. I'm betting the share price of AAPL will be in excess of $555.27 by the 17th of March. If the share price is less than $555.27, then the options will be worth $0.00. On the other hand, if the share price is above $555.27, then I will make $2,000 for every dollar the share price is above $555.27.

I'm thinking there is a pretty good chance the share price will be about $600 by mid-March. So, 600-555.27 = $44.73. Then the options will have a value of $89,460.

Again ..... this is a gamble type play.

[rovo]

The AAPL options I purchased yesterday have increased in value a bit and it gives me a little breathing room on this short term play.

Total cost .... = $10,535.22 including commissions.
Current Value = $21,800.00 at closing bid price

[Aman A.K.A. Ahamburger]

Ok, so 1 contract is 100 options? Is that standard?

It looks like you are about to hit that last CHERRY rovo. Good call gambler!

[rovo]

Aham, Yes, an option contract is always for 100 shares and a contract is the minimum unit. The price is always expressed in $/share.

The Call option I bought, AAPL Mar 17 2012 $550.0 Call, reads as follows:
Stock: AAPL, Apple Inc.
Expiration Date: March 17, 2012
Strike Price: $550 per share
Type: Call

A single contract gives the holder of the contract the right to purchase 100 shares of Apple stock on or before 17 March for a fixed price of $550 per share.

Generally the option is not exercised by little guys like me but is resold prior to the expiration or is allowed to expire worthless. The holder of an "In The Money" option, meaning the stock price exceeds the Strike price, must do something on the Friday before expiration (at the latest) or the shares will be dumped into his account at the strike price.

So in my case I will have to sell the option prior to expiration if the stock price is above $550.00. If I don't sell the option under these conditions I will be forced to buy the 2,000 shares (20 contracts) for a total of $1,100,000. It is not my desire to exercise this option but to sell it off prior to expiration. Fortunately there is always an active market in options.

[rovo]

An update on the status of this short term play.

02 March: AAPL closed at $545.18, +$0.71, +0.13%.

28 February: Bought 20 contracts at $5.25 per share. Total $10,500 plus commissions.

02 March: Last sale at $10.60, Bid = $10.50, Ask = $10.65.

Current value at Bid is $21,000.

Options near the strike price at very volatile because they are a derivative play. Also, since this option is still "out of the money" and near expiration the price will decline on a daily basis unless the AAPL stock increases in value enough to offset this "time decay".

[usaone]

I'll be selling more Apple this week.

[rovo]

usaone is selling some shares and I'm planning on holding onto mine for quite a while. Everyone has different objectives and reasons for what they do. There is no right or wrong.

One thing is a certainty, well, almost a certainty. It will be an interesting week with the Apple announcement Wednesday.

[usaone]

I'm selling shares I bought at less than $100.

We will both make $$$$$. There is more than one way to skin a cat.

[bimetalaupt]

Feb 26, 2012 19:03:31 GMT -5 rovo said:

Re-balancing? Me? You must have me confused with someone else.

Kidding aside, I am not a fan of re-balancing. I think the term was invented by the brokers to increase their commissions.

You mention "MS". I think you are referring to MSFT, Microsoft, and yes, I sold all of my MSFT stock. It was a fairly safe place to park some excess cash for a while as their dividend was much greater than the return in a money market.

Or some NUT that is writing a thesis for his MBA in Finance on risk??? We sold AAPL, INTC and MSFT in 1999 to pay for the Bonds and Utility Stocks.. Like DUK and AEP..Now AAPL has an intrinsic value of 2440.74... per ValuePro

Just a thought,

[rovo]

The stock price of AAPL choked a bit this morning when someone dumped shares on the market. Nearly a million shares traded on the dip in one minute. My buy order did not fill ($521.10) as the stock declined to $526 before reversing.

I did manage to pick up another 10 option contracts at $5.00. These are the same as I am already holding. The options have been as high as $11.85 and as low as $3.00 this morning. More than a little volatility. ;D The options are currently at $7.40.

[usaone]

Wasnt me Rovo.

I was done selling by 1030. ;D

$$$$$$

[usaone]

Mar 3, 2012 14:37:20 GMT -5 usaone said:

I'll be selling more Apple this week.

[rovo]

Mar 5, 2012 12:34:28 GMT -5 usaone said:

Wasnt me Rovo.

I was done selling by 1030. ;D

$$$$$$

Oh sure. I'm going to blame you anyway.

[Aman A.K.A. Ahamburger]

USAwon you gotta let rovo hit his mark.... ;D

If the ipad three hits this week there should be nice pop...

Thanks for the explanation rovo I'm starting to get a better idea of how options work. DI has taken the time a bit as well. Are you looking to take the profits from the options and but more actual shares? or in a different company?

I'm with ya BTI.. Bring on the interests rates so we can re balance in to some good bonds!

[rovo]

The options will probably be in the red upon today's open. Hind sight says I should have taken my 100% profit last week.

I don't know whether or not I'll be adding more shares to my AAPL holdings at this time. I already have quite a few shares and prudence says not to over-do it.