Steve Jobs Takes Another Break

Apple (Nasdaq: AAPL  ) lives and dies by frontman Steve Jobs. Therefore, it's no surprise to see the stock suffering today, the first market day after Jobs announced that he needs another medical leave. There's another unspecified medical issue on the table, and Steve wants us to respect his privacy. No problem. His medical history is not a matter of public record.

But in Jobs' particular case, perhaps it should be. While the U.S. market was closed yesterday, Apple shares fell 7% in European trading. In a $320 billion market cap, that 7% equals more than $22 billion, making this one of the most expensive medical leaves in history. As of the opening bell today, U.S. investors took the news less harshly, but the stock is still down 4% in early trading, and it may fall further if tonight's earnings call doesn't provide more clarity.

What happens here clearly affects the future of many portfolios, large and small. Isn't it Steve's solemn duty to keep us apprised of what's going on, so that we can make the appropriate investment decisions?

Simmer down, Apple acolytes
I'm only playing devil's advocate here. There are many reasons why we shouldn't stick our noses in Steve's medical files:

  • Celebrity and business status do not override the right to privacy, and medical data is intensely personal stuff. If UnitedHealth Group published my medical history -- or yours -- for all to see, the company would be in a world of trouble. Apple itself is under legal fire because its iOS devices may or may not handle personal data properly. Jobs should know his rights in this matter, and he's perfectly entitled to exercise them.
  • That 4% drop may feel large now, but it's a drop in the bucket next to the $123 billion of market value Apple created over the last 52 weeks. You're looking a gift horse in the mouth. I fully expect to see shareholder lawsuits demanding clarity or else, but they're throwing out the baby with the bathwater.
  • This has happened twice before, and Steve always bounced back with a vengeance. Soon after his cancer drama, Apple debuted the iPhone. His liver transplant led up to the iPad launch. Maybe Jobs uses these forced vacations to polish his next project to a high gloss.
  • During those other medical intermezzos, COO Tim Cook filled Steve's enormous shoes admirably. There's no reason why he won't do so again.

In short, Apple will be just fine. That doesn't necessarily make it a great investment -- the size of today's damage underscores how quickly the stock's fortunes can change, and how much blue-sky opportunity has already been priced in.

Also, Apple may be universally loved by analysts, but our CAPS community is not so sure. It's just a middling three-star stock with a 92% approval rating. You could take part in the iPhone/iPod/iPad success story by investing in Gorilla Glass maker Corning (NYSE: GLW  ) or audio-chip designer Cirrus Logic (Nasdaq: CRUS  ) , both of which sport higher "outperform" ratios and star ratings than Apple does. CAPS takes valuation into account.

So give Steve his privacy, and let me wish him a full and speedy recovery from whatever ails him. If the lack of transparency really concerns you, there are other ways to benefit from Apple's triumphs.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. UnitedHealth Group is a Motley Fool Inside Value recommendation. Apple and UnitedHealth Group are Motley Fool Stock Advisor selections. The Fool has written puts on Apple. Motley Fool Options has recommended a diagonal call position on UnitedHealth Group. The Fool owns shares of Apple, Cirrus Logic, and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 (6) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On January 18, 2011, at 12:11 PM, naandrews wrote:

    Thanks for the article Anders.

    However, once again, you make the claim that Apple is overvalued ("how much blue-sky opportunity has already been priced in"), similar to your earlier article where you claimed that Apple has a "nosebleed valuation."

    Can you just clarify how you come to the conclusion that Apple is overvalued? I think it is undervalued: it's selling for less than its growth rate. And, noted value investors like David Einhorn have recently gone on record saying Apple is an excellent value. Why would a value investor be interested in Apple if it wasn't a good value?

    Being huge market cap-wise doesn't mean you're overvalued. It just means you are big.

    Please explain.

    Neil (long AAPL)

  • Report this Comment On January 18, 2011, at 1:34 PM, TMFZahrim wrote:

    Neil,

    Apple sure looks cheap compared to current growth rates, but therein lies the rub: I'm worried that growth may slow down faster than most analysts seem to think. Jobs' health worries make up one real stumbling block to future success; a lack or real innovation is another. This gravy train can't roll forever and there could be an abrupt stop at the final station. Risky stuff in my book (though I realize I'm in the minority). Again, not a cut-and-dried "Apple will fall" but a higher risk level than I'd like to handle. This from a guy who invests in AMD and Netflix at current levels.

    Anders

  • Report this Comment On January 18, 2011, at 1:50 PM, naandrews wrote:

    Hey Anders,

    Fair enough, fair enough; thanks for the explanation. I don't view Apple as a risky stock because 1) it's cheap now, mitigating any effects of slower than expected growth; 2) the balance sheet is a fortress; 3) still in the early stages of iPad, still lots of room for growth for iPhone, as well as for the computer lines; 4) great margins; since it's a luxury brand, people are willing to pay big bucks and did so even during the economic crisis.

    A cheap stock with a pristine balance sheet that held up incredibly well during a brutal recession and financial crisis = low risk to me.

    Jobs' health is an issue long-term (5+) years, in terms of the long-term direction and vision of the company, but even if he were to never come back, short-term (2, 3, maybe even 4 years) this company is still in excellent shape.

    I own NFLX too, and though I'm not really worried about NFLX's future, I'd be more worried about its future than Apples'.

    Only time will tell...

    Neil (long AAPL and NFLX)

  • Report this Comment On January 18, 2011, at 5:10 PM, naandrews wrote:

    Anders, any thoughts on the Apple results released after the bell?

  • Report this Comment On January 19, 2011, at 2:37 PM, TMFZahrim wrote:

    Good stuff, very impressive iPad sales, but all expected. Shares are hardly jumping today despite awesome numbers. Another indicator of sky-high expectations, which is fine as long as the company can deliver. Will the gravy train keep rolling indefinitely? Doubtful. I remain a skeptic, but at least an impressed skeptic.

    Anders

  • Report this Comment On January 19, 2011, at 4:45 PM, naandrews wrote:

    Anders, thanks for the opinion on Apple earnings, but I think it's incorrect to say that the shares not moving on earnings is an indication of sky-high expectations, since, over the past several months, the share price had already moved up substantially. So to me one can't really make a strong cause and effect link between the earnings announcement last night and the stock price movement (or lack thereof) today.

    I think the real question is, why are Apple shares so cheap? (I'd love for you to explain to me why David Einhorn is interested in this stock from a valuation perspective; he ain't no dummy!). The shares are selling at a discount to Apple's growth rate, and approx. 1/5 of Apple's market cap is in cash. I know you argue that the shares are cheap only because people have excess growth expectations, but even if you dial down those expectations back -- say to 10 or 15% -- shares don't look expensive to me -- in that case they'd be fairly valued.

    Maybe shares are so cheap because people want to see them do something with all that cash? Maybe shares are cheap because Steve Jobs' health is an overhang on the stock? Maybe shares are so cheap because people just don't think a 300+ billion market cap company deserves a premium valuation, and so they won't give Apple a premium multiple that growth companies often get? Maybe shares are so cheap because people don't believe they can keep growing at 30+ %?

    I wish I knew the answer. Instead, I simply see a safe, cheap stock to hold for the long-term, keeping an eye on what happens with Jobs. What they decide to do with all that cash -- eventually you'd think they'd have to do something good with it -- is an interesting question to me, though they seem content to just keep sitting on it.

    Neil

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