The Worst Stocks for 2010: Apple

Since you, dear readers, recently anointed Apple (Nasdaq: AAPL  ) as the best stock for 2010, I don't suppose I'll win the popular vote when calling it the worst. However, here at the Fool there's no consensus opinion, and writers are free to speak their minds. So I'll take a different position from my fellow writers, because the risk/reward ratio here is beyond insane.

One the one hand ...
I have to concede that the go-go attitude of your average Apple fan might be spot-on again. The year 2009 was a victory march to the tune of a 147% return on your investment.

But the key word in the previous paragraph is "might." Let me lay out a smorgasbord of reasons why Apple is way too risky for a guy who happily owns shares of Advanced Micro Devices (NYSE: AMD  ) , Hansen Natural (Nasdaq: HANS  ) , and Elan (NYSE: ELN  ) . That's right -- I'm calling Apple a worse risk-to-reward equation than any of these supposedly super-risky stocks.

And here's why
First up, the fact that Apple's stock appreciated by nearly 150% last year and is cruising at all-time record altitudes could be a classic setup for a fall back to Earth, Icarus-style. Trading at 26 times forward earnings, Apple makes Google (Nasdaq: GOOG  ) look cheap. The Big G is worth only 22 times forward earnings, even at a time when a $700 Google share doesn't seem preposterous anymore. Even on Apple fans' preferred measure of cash flow, which helps back out iPhone accounting quirks, Apple trades for a rich 22 times last fiscal year's free cash flow.

We'll get around to a corollary to these lofty valuations in a little bit. Patience, young grasshopper. But many investors have already clocked out, because it looks like they already missed all the gains but certainly could get caught on an express ride back down to less obscene valuations.

And then ...
Some of Apple's core markets do look perfectly safe -- I don't see anybody usurping the supremacy of iTunes in the digital music market anytime soon, for example. And as long as iTunes is the biggest, baddest music marketplace in the world, there will be plenty of demand for the iPod and/or iPhone gadgets that go along with it.

But apart from an enormous moat of public mindshare in that segment, there is very little separating Apple from a deep, dark chasm of commoditization in a vast and growing sea of competitors. The iPhone started a revolution, but others look ready, willing, and able to finish what Steve Jobs started. If Palm (Nasdaq: PALM  ) seems desperate and the Research In Motion (Nasdaq: RIMM  ) BlackBerry line is getting outdated, you still have to figure that Google's Android platform threatens Apple with a never-ending series of capable smartphones in every variety.

That's bad for Apple, because the iPhone has been held up as the company's saving grace and major hope of serious growth going forward. Sales of iPhones and their accessories in the quarter that ended in September were 185% above the year-ago period according to GAAP sales, though up only 7% in units.

That could be considered pretty respectable, since Apple didn't release a new iPhone in this year's quarter ended in September but released the iPhone 3G in the same period last year. Combined with the third quarter, Apple actually posted a blazing 70% unit growth over the combined period. However, these are also periods when the iPhone probably sat in the best competitive position it will for a long time. When the current year's comparable figures come out, the iPhone will be dealing with a host of new Android competitors that will blanket every major carrier, not to mention seeing Palm roll out across several carriers itself.

The iPhone will need to continue these furious gains in unit terms over the coming years as a slew of nearly free smartphones threatens to push per-phone revenue down and the company mulls ending its exclusivity arrangement with AT&T. That's a move that would result in more sales, but it could also result in a lower subsidy from the carrier, meaning that the iPhone would have to either become more expensive or reduce its margins to keep a similar price point.

Another factor is that the iPhone's rise needs to be taken with a dose of iPod cannibalization. Apple's former breadwinner declined 12% in sales over last year. To help justify Apple's current stock price, the iPhone not only needs to grow at its own prodigious growth rates, it also needs to cushion the blow of declining sales from its quickly fading sister product.

Vote with blood and guts
And that's where the rubber hits the road, melts into viscous goo, and sends your portfolio into the ditches of Wall Street with a sickening thud!

You've heard all about stocks being "priced to perfection," but Apple is way beyond that stage already. It's priced through the fabled Reality Distortion Field, as though Steve Jobs will pull out iPhone-class megahits until the end of time -- meaning that the iSlate will be a killer product, Macs will continue to steal market share, and the iPhone will wade ankle-deep through the blood and hydraulic oil of its many adversaries.

Those assumptions have actually worked out fairly well so far, but 2010 could be the year when the stars stop aligning the way Apple needs 'em aligned. You have the mountainous valuation, the confluence of competitors, and the very real possibility that the next couple of Apple announcements could be Apple TV-esque duds or worse. And Jobs himself has gone through one health scare too many.

If Apple doesn't deliver on its expectations in 2010, we could be looking at a meltdown that would make Massachusetts Democrats blush. Apple is a fine company at heart, and I wouldn't mind picking up a few shares after the wreck, but at today's prices, there's no way I'd buy a ticket to ride this crazy train. Sure, I could be missing some key point and Apple could continue cruising this year, but keep in mind the risk/reward ratio I brought up earlier. There's much that must go right for Apple to keep growing, and I'm not buying into a company that's reaching terminal velocity.

Would you? Vote with your head and not your heart, dear Fool.

What do you think is the worst stock for 2010? See the rest of our contenders and cast your vote!

Fool contributor Anders Bylund owns shares in Google, Elan, Hansen Natural, and AMD, but he holds no other position in any of the companies discussed here. Elan, Google, and Hansen Natural are Motley Fool Rule Breakers recommendations. Apple is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (37) | Recommend This Article (23)

Comments from our Foolish Readers

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  • Report this Comment On January 21, 2010, at 12:52 PM, dkamionk wrote:

    No mention of a potentially new market that Apple is creating with its January 27th announcement? No mention of the fact that pretty much every competitor's attempts to introduce the "iPhone killer" have fallen flat, including the Nexus One? And calling the Apple TV a dud implies that Apple was banking on that as a major revenue stream that never paid off. Apple TV was announced on the same day that the iPhone was announced and was never positioned to be a game-changer but, as Steve Jobs put it, a "hobby" for Apple.

    I still find the stock to be highly attractive at its current price.

  • Report this Comment On January 21, 2010, at 12:56 PM, imamatthews wrote:

    I'm @ work and don't have time now to list all of the things u left out and/or refused to consider. You have also mentioned some goood points and for that I am grateful.

    The short answer is you don't get it!! The competition is willing to step in and replace the iPhone, there is no doubt. They are NOT able; they are just mimicking/copying the innovator. They are still asleep. They only wish to make $$$$$$. They are blind to what the people need and want; that's what being asleep means!!

    Being the pioneer and innovator equals the premium value that u don't get. Come on Anders open up your mind and project just a bit out of the box!! Please wake up and smell the coffee; the sky is not going to fall!!

  • Report this Comment On January 21, 2010, at 1:08 PM, martinfool wrote:

    I think the Stock Advisor Fools should have a talk with Anders. First NVIDIA, now Apple. Maybe Anders should start a new service called "Anti Advisor". Or maybe "on the other hand". I'm keeping my NVIDIA and Apple shares. We shall see.

  • Report this Comment On January 21, 2010, at 1:09 PM, beetlebug62 wrote:

    I hate to shoot the messenger, but if that messenger has a track record of bad information, then it's important to point that out.

    For the readers who don't know, when the first Android phone was launched, the T-Mo G1, Anders was the source for the oft-quoted, but mistaken notion that T-Mo had sold 1.5M G1s in their first quarter of sale, based upon some false assumptions. No mea culpa was ever issued.

    Now, on to today's analysis. You say Apple is the "worst" based upon this:

    <<Trading at 26 times forward earnings, Apple makes Google (Nasdaq: GOOG) look cheap. The Big G is worth only 22 times forward earnings, even at a time when a $700 Google share doesn't seem preposterous anymore. Even on Apple fans' preferred measure of cash flow, which helps back out iPhone accounting quirks, Apple trades for a rich 22 times last fiscal year's free cash flow.>>

    Didn't you just prove that Apple's cashflow multiple based upon forward earnings is LESS than Google's? So, isn't Google the "worst"?

    Then, you go on to say:

    <<But apart from an enormous moat of public mindshare in that segment, there is very little separating Apple from a deep, dark chasm of commoditization in a vast and growing sea of competitors.>>

    Apple has been competing against commodity products for 3 decades. Isn't it fairer to say that Apple has figured out how to resist commoditization?

    And, then your third mistake:

    <<Sales of iPhones and their accessories in the quarter that ended in September were 185% above the year-ago period according to GAAP sales, though up only 7% in units.>>

    You are mistaken. SHIPMENTS of iPhones, last quarter, were up 7%, while SALES were up 41%. Either you knew that, and are being disingenuous, or you didn't know that and so your analysis is highly suspect.

    Then, you said:

    <<The iPhone will need to continue these furious gains in unit terms over the coming years as a slew of nearly free smartphones threatens to push per-phone revenue down and the company mulls ending its exclusivity arrangement with AT&T. That's a move that would result in more sales, but it could also result in a lower subsidy from the carrier, meaning that the iPhone would have to either become more expensive or reduce its margins to keep a similar price point.>>

    The iPhone 3G is already $99. It's as cheap as any cheap smartphone already. That hasn't hurt margins. Apple sells more iPhones internationally than domestically, and internationally, more iPhones are sold in countries without exclusivity. That has not affected prices, subsidies, or margins. Where is your evidence?

    So, you say Apple is expensive, aka risky, but it's less expensive than Google. You say Apple is at risk of commoditization, but that risk has been there for 3 decades, so what's new? You say iPhone sales are up only 7%, but you are wrong, they were up 41%. You say prices, subsidies and margins will drop, but show no proof, although the iPhone is already selling in many countries without carrier exclusivity. If that's what your analysis is based upon, then it's a house of twigs.

  • Report this Comment On January 21, 2010, at 1:21 PM, TMFEditorsDesk wrote:

    Beetlebug,

    Not the author, but to speak for him.

    Here's Apple's press release:

    "Apple sold 7.4 million iPhones in the quarter, representing seven percent unit growth over the year-ago quarter. "

    I think the language of Apple's press release matches up exactly with what he said.

    -Eric (TMFRhino)

  • Report this Comment On January 21, 2010, at 1:51 PM, imamatthews wrote:

    I have an alternate theory. Anders is sandbagging us just a tad to get this blog started. It is difficult for me to accept he is really as biased as he appears. "The worst stock for 2011" !!?? I think most readers will just have a good laugh and not bother to "blog in", thinking it would be a waste of time.

  • Report this Comment On January 21, 2010, at 2:02 PM, MurphyMacdotCom wrote:

    The App Store is underestimated. It stands to gain the kind of market share that Windows does on the desktop.

    Even a relatively solid competitor like Microsoft's PlaysForSure was killed by the iPod / iTunes juggernaut. History will repeat with phones.

    If you're a developer do you want to bother chasing platforms that might be short-lived or do you want to chase the proven champion?

    The App Store success will expand into tablet apps and whatever comes next - possibly TV apps.

    aapl has legs.

  • Report this Comment On January 21, 2010, at 3:03 PM, WoodyDog1400 wrote:

    What a stupid way to get readers....

    I guess I will just go the opposite of reality and see how many ppl will read it.

    I read 3 sentences, all I needed.

    Apple is King, the rest are Fools....

  • Report this Comment On January 21, 2010, at 3:36 PM, pondee619 wrote:

    The Worst Stocks for 2010: Apple

    By Anders Bylund

    January 21, 2010

    "Apple is a Motley Fool Stock Advisor pick."

    "The Worst Stocks for 2010: Starbucks

    By Tim Beyers

    January 21, 2010"

    "Starbucks ... (are) is Motley Fool Stock Advisor Selection(s)"

    The Worst Stocks for 2010: Sears Holdings

    By Alyce Lomax

    January 21, 2010

    "SEARS HOLDINGS, Costco, and Wal-Mart are Motley Fool Inside Value selections."

    TWO of the proposed WORST STOCKS of the up coming year are selections of Stock Advisor. Where do I go to get a subscription to this stellar newsletter?

    Three of 7 the WORST STOCKS for 2010 are picks of a "premimum" newsletter.

    Did anyone read my rant about the race track tout who printed several sheets for that day's races? Each sheet picked different winners for each race. At the end of the day, the tout picked the best combo and hyped it to the tracks patrons the next day. He kept this sham going for several years, until he retired and somone else took it over. You can't be wrong if you play both sides. Particularly if you anit got money in the game. The fool, just as the tout, makes it's money off you who buy these subscriptions

    These fool pages are full of these contradictions. They call it a difference of opinion amoung esteemed collegues. I call it playing both sides of the street. How can something be considered the WORST stock for the up coming year and a pick of a "premimum" newsletter? Difference of opinion or something else?

    Did you see how only 20% of thier Worst Stocks for 2009 lost money. That's as many as made over 400%

  • Report this Comment On January 21, 2010, at 3:36 PM, pondee619 wrote:

  • Report this Comment On January 21, 2010, at 3:49 PM, ConstableOdo wrote:

    As soon as the iPhone moves to Verizon, there is a likelihood of sales going up 50% to 75%. China iPhones sales have not kicked in yet.

    Tablet sales projects are conservative at 5 million units a year. If it becomes popular to the average low-tech consumer and the publishing industry, there is no telling how many Apple will sell.

    Apple will continue to open retail stores to keep pushing quality products with very good customer service. I don't understand why you think that Apple's growth will remain limited. It could reach a critical mass and just take off. Sure it's a stretch, but still a possibility.

    You do realize that it's possible for Apple to start a search engine with their future server farm coming online in the near future to generate their own ad revenue. There should be plenty of ad revenue to be pulled from the combination iPhone, Touch, and tablet apps, too. Mobile ad revenue is the next big thing and Apple will certainly be a leader.

    I know you are just expressing your opinion, but I think it's a bit too early to say that Apple stock is ready to plummet while iPhone/Touch sales are still growing.

    Why don't you jump on Amazon if you're looking for a stock that could be devalued in an instant based on future Kindle sales.

  • Report this Comment On January 21, 2010, at 3:53 PM, TMFZahrim wrote:

    Hey Pondee,

    > TWO of the proposed WORST STOCKS of the up coming year are selections of Stock Advisor.

    That's because The Fool encourages us writers to think for ourselves and do our own research. When I started here, I sometimes asked my editors if it was okay to write something negative about a newsletter pick. They told me to go right ahead until I stopped asking. We're not zombies (though all we wanna do is eat your brains, if you know Jonathan Coulton at all).

    > Did you see how only 20% of thier Worst Stocks for 2009 lost money. That's as many as made over 400%

    That's a track record to be proud of, actually. Only 17% of the entire market declined in 2009, so 20% is better than random chance.

    Carry on, folks -- I just had my asbestos suit Martinized.

    Anders

  • Report this Comment On January 21, 2010, at 4:35 PM, marc5477 wrote:

    Without nitpicking on numbers, I agree with the author. I take nothing away from Apples performance the last 5 years however they also have a history of failure and people seem to always assume that they will succeed in everything they do. Need we remind our fellow folks what happened to Apple in the 80's? How about in the 90's even after Jobs came back?

    Right now Apple is riding a high but like the author noted, there are issues. Right now, smart phones are cannibalizing the mp3 player market. The more phones you sell regardless of brand, the lesser the need for old school mp3 players. Thus, the days of the iPod are numbered. The iPhone is a strong product however it is currently being blocked by Verizon which represents a huge market share that Google is eating up.

    The app store and itunes comments are irrelevant. People generally hate itunes and use it because of the iPod. Similarly, the app store is successful because of the iPhone not vice versa.

    The book reader is yet to be realized. I will never understand how someone can invest around 30 PE into a company based on something that is unproven. This is what happened during the .com crash.

  • Report this Comment On January 21, 2010, at 5:49 PM, timeinthewind wrote:

    I got out too early perhaps but I don't question my reasons for selling which align pretty well with this article. Great company, great products but fewer and fewer real moats and a price that reality can't live up to.

  • Report this Comment On January 21, 2010, at 10:39 PM, ltpage wrote:

    "One the one hand" says it all for this "Contributor"

  • Report this Comment On January 21, 2010, at 11:11 PM, beetlebug62 wrote:

    On January 21, 2010, at 1:21 PM, TMFEditorsDesk wrote:

    Beetlebug,

    Not the author, but to speak for him.

    Here's Apple's press release:

    "Apple sold 7.4 million iPhones in the quarter, representing seven percent unit growth over the year-ago quarter. "

    I think the language of Apple's press release matches up exactly with what he said.

    -Eric (TMFRhino)

    Yes, and we know that good financial analysis means digging a little deeper than the press release, not much deeper but a little will do, especially when Anders practically begged for readers to throw tomatoes.

    Last quarter, Apple shipped 7.4M iPhones. A year before Apple shipped 6.9M iPhones, a 7% difference. We also know that mfrs count shipped devices as sold.

    However, Anders' statement only makes sense in the context that it implies iPhone sales as slowing due to increasing competition and waning consumer demand. Thus, the actual "sales" he is looking for is retail SELL-THRU, and not SHIPPED devices as counted by the mfr.

    A year ago, Apple had to restock the channel inventory as it had run the old EDGE iPhone inventory down before launching the 3G version. How much was channel inventory? 2M. Look up the conference call transcript. So, actual sell-thru last year was 4.9M iPhones. How does that compare to last quarter? Last quarter channel inventory increased by about 500k phones, so actual sell-thru was 6.9M. That's a 41% INCREASE in sell-thru sales, while only a 7% increase in shipments. Demand wasn't waning, it was exploding!

    You may technically be correct by saying Anders was just repeating what was in Apple's press release, but that is lame. His point was that sales were waning for Apple's flagship product. The fact is sales were not waning, regardless of what the press release says. A little research would have ferreted out this fact. That fact has been noted in Philip Elmer DeWitt's Fortune Mag blog. It has been noted by Dan Frommer at BusinessInsider, and a variety of other places in Seeking Alpha. Any thorough analysis of Apple and its business future should be able to figure this key metric out.

    I've already pointed out that Anders has a history of shoddy analysis, stemming all the way back to the T-Mo 1.5M G1s sold in the first quarter nonsense.

  • Report this Comment On January 22, 2010, at 12:57 AM, ozzfan1317 wrote:

    I agree with the author i'm not saying Apple isnt a great company but honest how much higher can their market cap or revenues go from here? I plan on buying an I Phone myself but that doesnt mean most who want one dont already own one.

  • Report this Comment On January 22, 2010, at 8:35 AM, pk22901 wrote:

    The positive comments responding to Anders' argument don't come close to explaining Apple's upside potential.

    In case your new to the stock, here's the Schaum's Outline cheat sheet:

    - iPone and iPod touch exploding in WW markets

    - 3B downloads, 120,000 appa, 40,000 developers

    - 32%+ of WW smartphone profits on 4% mkt share

    - all mobiles shipping in the billions and Apple is taking mkt share (see Morgan Stanley mobile rprt)

    - Mac laptops and desktops taking mktshare

    - Apple bringing music to the Cloud via Lala

    - PA Risc team will make the fastest, most efficient chips for Apple's mobiles

    - Apple's GAAP change will move forward P to E ratio from 23 to 15 OVERNIGHT

    -

  • Report this Comment On January 22, 2010, at 9:44 AM, TMFRhino wrote:

    Beatlebug,

    Again, I'm not the author... But in his defense, he did later say they had a 70% increase over the combined Q3/Q4 period, which helps smooth out the invetory issues you mentioned.

    -Eric (TMFRhino)

  • Report this Comment On January 22, 2010, at 11:52 AM, boldspoo wrote:

    What we have here.... is a failure to communicate.

    Please stop citing the iTunes Store as a center for profits... the amount of cash they bring in per download is tiny. Even in the billions of downloads its not a driver for their success.

    The real consideration is how long will people keep paying for a premium on computing (phones, desktops, laptops...) for the labeling. I think the Vista flop is one of the biggest contributors to Apple's success. Even though it's not directly measurable to Apple's growth and "market share", Vista's failure drove many people to another OS and since most people are too simple to handle linux/unix they went with the shiny objects that Apple produced. However, as Windows 7 starts to repair the damage from Vista (my jury is still out), how will Apple's growth continue? I know I'm going to buy my next top of the line computer for under $1k...

    Oh, and an afterthought, just because you have an Apple product - doesn't mean you need to scream and yell when someone points out upcoming issues... that should be moved to Perez Hilton.

    AP

  • Report this Comment On January 22, 2010, at 5:24 PM, dstb wrote:

    This article is nonsense.

    First of all I should disclose that I have NOT been a long term Apple fan and I do NOT own a single Apple product. I even find it less than amusing that the Apple boards fill up with posts endlessly speculating and discussing the intricate details of each current and future Apple product.

    My grumpiness aside, to say that this stock is priced for perfection is just false. Particularly when compared with many alternatives in the current stock market. Take a look at FAST, a company I have liked for many years. That stock is priced for perfection.

    Apple has had such a large run up for two reasons:

    1) It has performed throughout the recession when almost every other company has not.

    2) It was ABSURDLY cheap when it broke below $100 per share.

    I have three purchases with an average cost of about $90. I bought not because I was an Apple "fan" but because I opened my eyes to what this company was doing and the market was offering a great price. Even now though, it is not overpriced or even fully valued.

    Apple MUST be valued using cash flow (not earnings or PE) until it implements the new accounting rules that will make their earnings directly comparable with other companies. People who discuss PE ratios with Apple make me want to tear out my hair. Although their lack of understanding is usually my gain.

    In a discounted cash flow analysis I value Apple at about $310 in three years. This is based on a 11.5% discount rate and 15% cash flow growth each year for the next four years and then gradually dropping to 3% growth in perpetuity. This of course utilizes enterprise value which subtracts Apple's cash hoard from market cap. From a price of $210 per share this still works out to over 13% per year. Not stellar like the past returns but still pretty good compared to what most companies will probably get you over time.

    The bottom line is that to own Apple you have to believe they will continue to innovate better than the other guys. I for one believe that they will. If it became truly priced for perfection I might lighten up a little bit but for now it is fine.

    All I can say to the above author is....good luck with AMD.

  • Report this Comment On January 22, 2010, at 8:29 PM, imamatthews wrote:

    WOW!!!

    So many strong opinions and posistions!! So much ambiguity! Can't even come to a consensus to the rate of sales/earnings increase?? This is a wildly unique situation. This up and coming tech stock that is now considered the gold standard and the "bellweather" etc., by many, is still viewed with confusion and ambivilence. Very interesting and mysterfying to me! What gives?? I've seen the "short-selling" industry fully take advantage of this situation. Maybe Apple is just far enough ahead of the innovation curve that enough people don't get the longer range investment implications, making this stock a far better than average buy and hold strategy.... My thanks go out to all of u short-sighted fools.

    I've made a lot of $$$$$$ with this excellent company; please tell me all about the ambiguity of this!!! Yeah right this is the worst stock for 2010; what have u guys been smoking?? R u daft?? Man, some of u guys really know how to blow smoke. Life is very tough in America!! Gets grip and grow up!!!

    Namaste!

  • Report this Comment On January 23, 2010, at 8:58 AM, marc5477 wrote:

    To imamatthews:

    You do realize, that the entire tech market pretty much matched Apple's performance right? You say you made lots of money? Well I say if you invested in Apple at around $90 all you did was match the market. You beat little to no one. MSFT, MCHP, NVDA, HP, DELL all has similar gains. Heck you could have invested in the Nasdaq and had similar results. Matching the Nasdaq means you only performed average.

    Not saying you did poorly but Apple is not what made your gains, it was the market correction. You could have invested in almost any tech and had similar gains only difference is the premium on Apple seems high to me now but I am no guru on valuation.

  • Report this Comment On January 23, 2010, at 10:06 AM, daveandrae wrote:

    Amen-

    Thank you for having the common sense to write something worth reading for a change. For anyone in his right mind would NEVER pay more than 14 times forward earnings for ANY stock.

    As of January 1st 2010, the market cap of this business was 189 billon dollars. This compares to 147 billion for Pfizer.

    Now Pfizer is going to generate more than 20 billion in free cash flow this year which equates into a yield of 20/147 = 13.60%.

    This means that Apple would have to generate at least 25.5 billion dollars in free cash flow in 2010 to offer the same value per dollar.

    I, for one, don't think Apple will earn anywhere NEAR 25.5 billion dollars in 2010, so that pretty much rules out paying 210 bucks a share for this stock, and why anyone paying 18.19 a share for Pfizer got a lot of value for his money.

    Why is that a person will drive down the street to pay 2.43 for gas when prices are 2.53 at the current intersection, yet fail to use this same logic when it comes to investing?

    It is very difficult to get rich paying 22 times earnings for stocks. Just ask anyone that bought the s&p 500 in 1998 at 1133. This is especially true when stocks like Pfizer are laying around at 11 times earnings. It doesn't take a rocket scientist to figure out which stock is up year to date, and which one is down.

    Thomas Edmonds

  • Report this Comment On January 23, 2010, at 12:09 PM, demodave wrote:

    Davaandrae,

    When you say "Apple would have to generate at least 25.5 billion dollars in free cash flow in 2010 to offer the same value per dollar" are you considering that Apple already has about 25 billion in cash on its books? (I'm asking, honestly.)

    As to P/E ratio, when I bought at an split adjusted $9/share back in 2002, the P/E ratio was reportedly 40 (or higher, see source link below).

    http://ycharts.com/companies/AAPL/pe_ratio

    I'm pretty happy with the 2,082.67% return. With Apple, yes, there is some "irrationality" to it. It's because they "Think Different" and make new products that people will continue to want to buy.

    DD

  • Report this Comment On January 23, 2010, at 12:53 PM, langco1 wrote:

    with the depression in the US now in its second year 2010 will be the year of the bankruptcy here are a few sure to go..GM,chrysler,aig,hertz,sirius,rit aid,etrade,aol,ual,harley and moody's...........

  • Report this Comment On January 23, 2010, at 3:06 PM, hlmeans wrote:

    Seriously langco? Back your comments up with reasons. GM and Chrysler arent going anywhere in the near future, yes they have a lot of rebuilding to do, but they are on the right path. Sirius is in very little to no danger of bk in 2010 or anytime soon after that for that matter, they are shedding operating costs, and hopefully will either get rid of Horward or bring him down to an appropriate salary. Harley announced their first quarterly loss in 16 years. One quarter doesn't define a company, and they have a loyal following which has helped them weather tough economic times before.

  • Report this Comment On January 23, 2010, at 3:30 PM, riwaterman wrote:

    @ marc5477

    <You do realize, that the entire tech market pretty much matched Apple's performance right? You say you made lots of money? Well I say if you invested in Apple at around $90 all you did was match the market. You beat little to no one. MSFT, MCHP, NVDA, HP, DELL all has similar gains.>

    Compare 12/31/2008 to 12/31/2009 and you get the following (data estimated from Yahoo Charts):

    AAPL ~131% at about $91on 12/31/2008 and on 12/31/2009 at about $210.

    NVDA ~110%

    HPQ ~40%

    MSFT ~50%

    MCHP ~50%

    DELL ~35%

    Dow Jones ~15%

    NASDAQ ~45%

    S&P 500 ~25%

    So I am not certain you have your facts straight about performance for these stocks, indicies and aapl in 2009.

    Granted timing is everything and IF I picked some other time of year returns would be different. But this is the performance for 2009 and I like my real life gains in aapl, nvda and hpq for calendar 2009.

    happy investing in 2010!!

  • Report this Comment On January 23, 2010, at 3:39 PM, daveandrae wrote:

    1. Congratulations on your success with apple computer stock.

    2. Cash on the books is not even in the same zip code as comparing future operating earnings to market cap. I use operating earnings to market cap because it answers the basic question of "how much?"

    3. In 2002, Apple was NOT selling for 40 times earnings. Back in 2002, the stock was selling for approximately 19 times the 5 year average earnings of 2002-1998. Once you include all the debits and credits, the earnings power of the stock was much closer to 5%, in terms of your cost basis, not 2.5%

    All of this equates into a total market price that was right around 7.2 billion dollars. Keep in mind, the company had more than 4 billion in tangible equity back then so the price to book ratio was around 1.78 to 1.

    Thus one could intelligently argue that they were getting 56 cents of Apple's assets, for every dollar they invested in company back in 2002, and I am using the average price of 2002, not the low.

    Today, the stock price has no relationship to the underlying assets of the business whatsoever. Nor is the 5 year average earnings power anywhere near a p/e multiple of 20.

    Thus, make no mistake.

    This stock, at this market price, is VERY EXPENSIVE.

    End of story, next subject.

    Thomas Edmonds

  • Report this Comment On January 25, 2010, at 1:40 PM, kgveit2020 wrote:

    Analysis paralysis........

    What do people want and what are they buying ??

    That drives earnings and stock price.

    AAPL is headed upward. Bend your technical rules and you can make some nice money.

  • Report this Comment On January 26, 2010, at 12:00 AM, beetlebug62 wrote:

    <<Beatlebug,

    Again, I'm not the author... But in his defense, he did later say they had a 70% increase over the combined Q3/Q4 period, which helps smooth out the invetory issues you mentioned.

    -Eric (TMFRhino)>>

    In his defense?!? That's the crux of his argument that Apple's homerun ball, the iPhone, had waning sales as they were now growing only 7%. Are you saying he equivocated? How does equivocating strengthen his argument that Apple is the "worst".? And why are you defending the defenseless? Where's Anders to defend his own shoddy analysis? If he can't structure an argument, then perhaps he shouldn't structure it at all.

  • Report this Comment On January 26, 2010, at 11:10 AM, beetlebug62 wrote:

    Now that Apple shipped DOUBLE the number of iPhones from a year ago, do you think Anders would like to restate the premise of his analysis?

  • Report this Comment On January 27, 2010, at 8:55 PM, imacg5 wrote:

    In the past I have argued ad nauseam and at length with the anti-apple people, but I'm tired of it. You just don't get it. It's like Dems and Repubs, no amount of rationale will bridge that gap. Go ahead, wallow in your ignorance.

    Admit it, you were ready to call the new tablet a failure before you even heard the details. You don't understand the enormity of the Apps, and their future benefits. Just because you can't find a reason to buy an Apple product, doesn't mean you should ignore the obvious, They make must-have products. You are happy with your old Dell, because you are too stubborn to try a Mac.

    And you can't possibly conceive, that once you go Mac, you never go back.

  • Report this Comment On January 28, 2010, at 11:03 AM, RBSeekerScot wrote:

    Let's step back and take out a little emotion.

    First, YES, Anders article is highly suspect because it totally ignores the potential of the tablet -- now unveiled as the iPad. And it's suspect because he ignore the track record of design and innovation at Apple.

    If you read investment stories about Apple from a decade ago, you see a lot of this baloney about saturation, market share, competition from the P.C., etc. All of it was utterly and completely beside the point, as it turns out, because Apple goes out and invents new markets and segments. It has a track record of doing this. So the investment thesis with Apple is NOT an investment in its current products -- they're reflected in the stock's current price -- but in its R&D pipeline and ability to innovate.

    The concern with Apple is very simple: As it grows, it needs more and more blockbusters to sustain its rate of growth. As they say, while it's relatively easy for a good small company to double sales, it's almost impossible for a behemoth to do the same. As Apple grows, it will start feeling the gravity of this imperative to innovate. At some point, it becomes a REALLY BIG company which simply can't turn out blockbusters fast enough to sustain huge growth, and it has to settle in as a blue-chip stock like JNJ or IBM. Not there yet, but the question is, how far is Apple from that future?

    I believe there are markets yet to develop with media devices, and the confluence of broadcast and interactive media offers Apple many opportunities to come. The iPad embodies the same idea that TV makers are trying by adding Web functions to their sets -- but it puts that capability in the palm of your hand, and adds e-mail, 3G and a slick interface. It will be a home run. What's next? They're going to sell a ton of books, and take a slice of high-margin profits on each. And probably home-theater movie delivery of some sort, and I trust Apple to nail down the mass-market product for that. From there, where does Apple go? That's probably beyond the reign of Steve Jobs, so the company's ability to maintain his focus and vision post-Steve is the crux of the matter.

  • Report this Comment On February 03, 2010, at 11:05 PM, imamatthews wrote:

    To imacg5 & RBSeekerScot:

    My compliments go out to you for your respective insights and superior ability to write it all down so well for the few of us, who fully understand the hugh potential here. I do electronic analysis and troublshooting but majored in Anthropology and I'm thriving at investment. I am fascinated by this situation; the emergence of this revolutionary period of media/computing/cyber connectivity and the emergence of those who will lead and "blaze that trail". So many people ignore history and the inevitable consequences of doing so, always becomes clear in hindsight. We are entering another period of rapid change and there will be those who get it, adapt and leaverage the opportunity for profit. The others will just follow along, some with a distinct, and stubborn pig-headedness!!

    Please confer to Harry McCracken's article, "Are iPad Skeptics as Wrong as iPhone Naysayers Were?". It includes the expert's insight on the iPhone and its commercial potential, before and during its release. It takes exceptional character to admit when one is dead wrong. Now, some of these folks realize they were shortsighted and others still do not get it yet!! Here is the link, it is telling:

    www.pcworld.com/article/188386/are_ipad_skeptics_as_wrong_as...

  • Report this Comment On December 31, 2010, at 1:55 AM, kbear2 wrote:

    I suppose it is unfair to post a year later with the value of hindsight, but had I read this article when first published I would probably have responded the same:

    Ha, ha, ha...

    I guess Anders will come out with similar arguments that Apple can't possibly continue with such blockbusters, yadda, yadda. Maybe it won't forever, but the end is not in sight.

  • Report this Comment On August 19, 2011, at 9:38 AM, DiogoCuba wrote:

    I wish I could see your face now Anders. After 18 months AAPL is @ US$366 and growing

    No iPad killer has accomplished its mission and the same to iPhone Killers. Sammy was so proud of their revenues on the Galaxy Tabs that they did not reveal the figures to world, HP has just gave up on the TouchPad and is being killed slowly by the iPad effect. Where is the Xoom?

    Apple has created from the scratch a whole-new-market on tablets, changed the game on the mobile phone industry, created a new market for games and is now the second most valuable company in the world and might be the most one in a couple of months.

    The name of this site suits perfectly for you: Fool!

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