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Does Apple Have Something Incredible in Its Pipeline?

By Motley Fool Staff - May 15, 2016 at 6:25AM

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CEO Tim Cook says yes, but investors appear skeptical.

Apple (AAPL 1.62%) stock has been on a decline. It even had a stretch where its share price closed down for eight days in a row -- a feat the stock hasn't seen since the late 1990s.

It's possible that investors simply don't believe what CEO Tim Cook said during his recent appearance on Mad Money with Jim Kramer. He told viewers that the company had "great innovation in the pipeline," promising things that people can't live without.

In this clip from the Market Foolery podcast, Mark Reeth and Jason Moser talk about what Apple is and is not. Find out why the public (and shareholders) may be getting tired of expecting new game-changing technologies from the company. Plus, they explain why Apple is still a fantastic company and a solid buy (depending on what you want from your investment).

A transcript follows the video.

This podcast was recorded on May 3, 2016.

Mark Reeth: Tim Cook, Apple CEO, went on Kramer the other night, trying to convince investors and shareholders that everything is A-OK. And one of his quotes, that you sent to me before the show, I quote: "We are going to give you things that you can't live without, that you just don't know you need today."

Jason Moser: Yeah ...

Reeth: Well, Jason, I just don't know what the hell he's talking about. They've been saying over at Apple that the pipeline is strong, there are more products coming, the next iPhone, the next iPad, the next whatever. The Watch was an attempt at that, which I think largely has flubbed. I'm not confident, personally, in Apple's pipeline. And I think that's drawing a lot of fire from investors these days. What's your take, first of all, on Tim Cook's comments from the show the other night?

Moser: I think, with Apple, let's separate the stock from the business. I think they each deserve their own fair consideration. From a business perspective, this is a phenomenal company. It's huge. The balance sheet is a fortress. And a lot of different resources and ways they can go. And, obviously, it's one of the most important businesses of our time. 

Apple the stock, though, yeah, that's a bit of a different story right now. And I'm not sure there's an easy answer there. I am growing a little bit tired of hearing Tim Cook say that, as well. Every call, he's talking about the pipeline, and these products you're going to need that you don't even know you need. And that sort of sounds familiar, because I think that's what Jobs was always really good at doing, was giving us things we didn't even really know we wanted or needed.

Reeth: Yeah, just one more thing.

Moser: Just one more thing. And I mean ... a lot of people are investing in Apple these days because they think it's dirt cheap, and they think that's a reason to invest. And I get that. I'm not necessarily disagreeing with the idea that it is cheap. It sells for something like 10x earnings, and backing the cash out of the balance sheet there, it's pretty phenomenal.

By the same token, I think a lot of the story is very well-known already. We know they're going to pay a dividend. We know they're going to keep on buying back shares. I think a lot of that is priced in. Maybe not all of it, but I think a lot of it is. The market generally is a forward-looking mechanism. 

I think Tim Cook has done a wonderful job managing this business. I think Tim Cook is not an innovator. And I'm not saying innovating is easy, either. I think innovating is something that is very unique, and that's why you don't see it happening all the time. If it was easy, everybody would be doing it. I think Tim Cook is basically doing the best he can. I think he's making the best of a given situation. And I don't know that it's fair to really expect much more from him.

I tend to agree with you. I think the watch has basically done what I thought it would do. It's done OK. It's not going to be a new direction for the company, I don't think. I think they're facing a lot of challenges on the tablet front. I think the phone is certainly becoming more and more commoditized as time goes on. And I think as technology improves and more companies out there are doing more things, Apple's closed ecosystem becomes less attractive.

I think most people like to be able to utilize all the options that are out there. A number of people love Apple and only want to use Apple. That's great, have at it. But a number of people also want to be able to use everything else that's out there, and maybe have an iPhone while they're at it, and that's cool, too.

I saw a tweet from Joe Magyer maybe a week or so ago that I think really sums this all up. You look at, when Tim Cook took over in 2011, I think it was, they first implemented a dividend in 2012. You look at that stock from 2012 to today, and it's clearly underperformed the market. Even with the dividends and buying back shares and everything. I think that's for a number of reasons, but part of it is, it's obviously a very big company.

They are trying to sell hardware at a high price point, which is not going to work everywhere. There's a reason why the majority of the world is using Android and not Apple. People tend to want to be able to utilize all of the options that are out there.

I think Apple stands a chance to do very well. I think they're going to need to make some acquisitions. I think a catalyst could be in that balance sheet, because so much of that money is overseas. I'd love to see our government here offer up a tax holiday and let some of these companies repatriate some of that cash. I think they could do a lot of great things with it, and shareholders could really win from that. Who knows what'll happen on that front?!

I do think that a lot of people are probably getting a little bit tired of the, "Just wait, we've got a great pipeline talk," because you know what? I'm just not seeing it yet.

Reeth: Been waiting for a long time. Apple shares closed down for an eighth straight day yesterday, which might be a non-headline, but it's the headline today. That's the first time this has happened since July 1998. The stock has lost 11% since April 26. In your mind, it's looking a little cheap. Is now the time to buy?

Moser: I think if you're looking for a steady dividend play that you can sleep well at night knowing is in your portfolio, Apple is a very fine stock to own. You have to put into context to try to figure out, how does this stock double? It's already a huge company. You need to keep your expectations in check. This is a far different Apple than it was five years ago. But, it's a great company that's doing great things, and they have a lot of opportunities to take the business in new directions. 

I wouldn't be backing up the truck on the stock today. I think it's cheap for a reason, and I don't know there's necessarily a catalyst that takes this thing to the moon. But it's a very high quality business, and again, I think Tim Cook has done a very fine job, given the situation. He's not Steve Jobs, and we all knew that. I think the biggest challenge for him is trying to figure out what the next innovations are. And he has a great team there, it's just probably taking a little bit more time than a lot of people feel like they have.

Reeth: Waiting and seeing and hoping and wishing and praying.

Moser: I still like my iPhone.

Reeth: Sure, nothing wrong with that.

Moser: Not at all.

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