The Bull Argument
Rick Aristotle Munarriz (TMF Edible)
Great news! Apple Computer (Nasdaq: AAPL) just closed out a strong fiscal year 2000 with a 30% spike in sales and a 31% surge in profits. What? You've heard otherwise? Sales momentum has turned south? The stock is trading at levels unseen since April 1999? The G4 Cube is a flop as a desktop, but might pan out as an overpriced tissue dispenser?
It's all true. Well, except for the part about the Cube dispenser. Yes, the market is down on Apple. It's earned some of the recent malaise, no doubt. But have you noticed how the shares have held steady over the past month? The rest of the tech stocks have continued their painful slide, but Apple is just where it was four weeks ago. I'll tell you why it seems that Apple has bottomed out. Then I'll tell you why I think it's heading higher.
Way too many companies took to walking a tightrope that served as a fine line between unsustainable promises and death-defying gravity -- without a net. Apple Computer never went that far off the ground. It always had a huge puffy cash cushion ready to break its fall.
With more than $4 billion in cash and short-term investments, and an investment portfolio consisting of stakes in companies such as ARM Holdings (Nasdaq: ARMHY), Samsung, Akamai Technologies (Nasdaq: AKAM), and EarthLink (Nasdaq: ELNK) valued at nearly $800 million, the company has nearly $5 billion in liquidity.
That's $13.40 a share right there. Knock a buck off for Apple's long-term debt and you have a company fetching a tweaked enterprise value of $6 a share based on Monday's close.
That is why Apple has held its ground here. Nobody thinks Apple is worthless and, even if somebody did, what good is shorting a company with just a few bucks of downside?
Failure is Apple's biggest selling point. What? Sure. For every groundbreaking Apple II you have an Apple III dud. For every user-friendly, standard-setting Macintosh, you have the ambitiously ill-fated Newton. Now you see that, for every iMac, you have a G4 Cube.
Apple's history is not one filled with bunt singles. It's homer or whiffer. It's a glorious stretch -- over the past two dozen years -- in which Apple has been able to manage its risk and reward to overcome blunders quickly while milking its successes as long as possible.
So, yep, we're at a lull here. Our own John Del Vecchio summed up Apple's last quarter by pointing out that "Apple lives and dies by the innovation sword," and it's obvious that the company has pricked itself. The squared Cube isn't selling well and, over the past year, Apple has let Dell Computer (Nasdaq: DELL) take the lead in the education market. Revenues are dipping and the company is now looking at profits to be cut in half this new fiscal year.
If this was all you had to go on, history would still be on the side of the bull. The Apple seesaw is ripe with analysts who get off when the company is down and then look to hop back on when the company goes back up. It's twisted logic. Apple the company has always bounced back. The time to believe in Apple the stock is now.
Yes, the Cube hasn't lived up to its boxy hype, but the one real knock on it has been its high selling price. Apple's cozy margins have given it the pricing flexibility to work up $300 rebates to stir demand. As the only computer maker who isn't a slave to someone else's operating system, Apple is unique. We'll see how that discount goes... but, again, Apple has survived the strikeouts in the past. With Apple's new operating system, OS X, swinging away in the on-deck circle and just a few months away from the plate, it's not a matter of which new Apple line is going to be the power hitter. It's only a matter of when.
School's out for Apple? Says who? Yes, Apple lost its top education sales executive over the summer and made matters worse by taking its academic sales force in-house. That's in the past. It's already brought on the well-regarded Cheryl Vedoe to take charge. Apple still commands 12.5% of the educational market (Dell has just 15% for the lead). Even if the slice doesn't get bigger, the pie sure will. The educational market is only going to grow as more and more school's get wired.
Yes, wired. A great point that Bill Barker raised in last year's Apple Duel is that all of the Apple software library shortcomings relative to the popular Windows platform are made null and void by the universal nature of killer apps such as email and surfing the Internet. That boils it all down to system ease-of-use, and that is where Apple rocks even before you consider the colorful blueberry, indigo, and tangerine packaging.
Earlier this month, my wife bought her mother an iMac as a retirement present. It was an easy decision. There was no need for Wintel shopping when all she wanted to do was keep in touch with her friends and family, hit the Web, and scribe a letter every now and then.
The Internet is an amazing forum and it is why investors should be excited about the Web development bent of OS X and the fact that even the mighty Microsoft (Nasdaq: MSFT) is looking at an open software platform with its Microsoft .NET initiative. The standardization of software will place the personal computing decision strictly on the lap of the hardware. And, face it, look at your ugly machine -- haven't you always craved an Apple?
The schools will come back. Wall Street will come back. I just hope they bring a stepladder.
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