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Well, after thinking about it for a while, I have decided to sell my AAPL holdings at $22.95. Mostly I have done this for two reasons:
1. AAPL is no longer at a bargain basement price (got some @ $13 & $16) and
2. The US markets are getting a bit to crazy for me
Admittedly I haven't made as much money as the price rise would indicate, because the $NZ has appreciated significantly against the $US in the last 12 months (gone from 0.44 -> 0.57 today), but I am quite happy to pocket the profits at this point. Over the next 12 months, I can't see the $NZ going below 0.50, so I decided to convert the money back to $NZ. Incidentally, one definite advantage that buy-and-hold investors have in NZ is that they don't incur a capital gains tax. Minimal trading is my style, so it suits me down to the ground. Overall, I am up about 40% when all is said and done. Not an amazing return, but not bad either and well worth taking.
The thing is, is that it is hard to see much of an upside to AAPL at these prices. Maybe over the next 12 months it will hit $US 27, but I can't see AAPL generating the profits required to hold it at that level over that time. From looking at Yahoo the highest estimate for profits in the new financial year is around $0.55. Being generous, I'll say that Apple may do better than that and hit $0.65 (assuming a lot of good things happen: great G5 sales, new PBs, other revenues expanding rapidly, etc). At $22.95 this gives AAPL as P/E of around 35, which is fairly rich pricing for AAPL. Even if we take out the 'cash floor' of AAPL which I'll call $US10, you still have a P/E of around 20. Historically this is still fairly rich for AAPL.
Obviously, P/E doesn't tell the whole story and the earnings estimate may be way too generous, but hopefully the point is made. AAPL is no bargain at $US 23. To push it significantly above this mark and towards $US 30, the company is going to have to perform miracles - something which may not be possible if rationality returns to the marketplace.
Just for fun, I keep track of a whole bunch of technology stocks just to see what the general market is up to. A rising tide lifts all boats, and I think this is what has helped push AAPL as high as it is. As you probably all will have noticed the market as a whole has been rapidly appreciating since March of this year. In fact, I believe that the US market is re-entered bubble mode (particularly in the tech sector) and investors should be extremely wary. Some of my favourite examples of overabundant optimism:
Gateway (GTW) has almost tripled since March - I struggle to see why from looking at its financial picture and the its 'plan' to regain profitability.
Intel (INTC) has almost doubled since March - the tech sector is most certainly improving, but it is far from being as robust as it was prior to the bursting of the last bubble.
Since November of last year Amazon, eBay & Yahoo have tripled, doubled & tripled respectively. On a value basis, I struggle to justify their current pricing and I think that eventually the market will as well.
In short, I think that it is becoming more likely than not, that the reality of the US economic situation will set in and these stocks will be dragged back to more realistic valuations. When it does, AAPL will also probably pull back to a mid-teens trading range (which, all things been equal I will probably buy again) until it can show the market that it can it can produce sustained profit improvements (not necessarily every quarter, but over the longer term).
Cheers, Chris W.
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