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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (51347)	4/18/2013 10:20:10 AM
From: AFed	Read Replies (2) \| Respond to of 78470

Interesting, thanks for the intel Spek. I lived in Singapore for the last 18 months and my anecdotes are somewhat similar -- many of the young people I saw clearly liked the big screen that come with the Android permutations because it was easier to play games & watch movies, but many more had iPhones. I also spent the month of September 2012 in Hong Kong and watched the Apple stores and assorted cellphone resellers get absolutely swamped by Chinese Mainlanders & Honkies (colloquial term for HK'ers). As a general matter, I feel that these anecdotal stories tend to be colored strongly by the "lenses" people are wearing -- myself included -- which is only further exacerbated by the stock price action. If people think AAPL is a bubble, they cite only stories about Samsung and the Intel/Microsoft era. If people think AAPL is a value play, they cite the strong customer loyalty and Buffett's saying, "When a great company faces a temporary setback, buy." So long story short, I just don't put too much weight in my own personal anecdotes because I don't feel like I can be unbiased. I am swimmingly biased, so I just look around and ask, "What's different about today and 9 months ago?" And after a lot of reflection, I just don't see anything that different. Apple is not "just Steve" (Jony Ive even warned people about assuming that in Walter Isaacson's Steve Jobs). Apple is not standing still -- they're working on new cool stuff, I have no doubt. Apple's loyal customer base will buy whatever cool stuff comes out. And Apple won't put out a half-assed product, so new customers will join the fray. My investment thesis may sound like it's predicated on "hope," but I just see no evidence that Apple has decided to kick back and rest on its laurels with the iPhone / iPad. The market hates information vacuums, but that's exactly what they're getting with AAPL right now. So be it. As for Samsung, I think most of the competitive stuff is just noise -- the data saying they're the market share leader includes a lot of very low-end smartphone products sold in the developing market that make close to zero profit. There's nothing wrong with selling smartphones for lower profit margins, but I don't view this as endangering Apple at all. Apple is just never going to be able to sell an iPhone to an impoverished Indonesian family with only US$50 to spend -- that's OK, no harm done for either party. It's just not Apple's game. Additionally, who knows how much Samsung is going to screw themselves up in 12 months when they make a push to develop their own OS (Tizen) and attempt to move away from Android? I understand this was a demo on crummy older hardware, but it looks absolutely HORRENDOUS. youtube.com As for valuation & earnings, I'm expecting they generate $90 billion in FCF over CY2013-14E and spend $75 billion buying back 150m shares over the same time period at ~$500/sh. That leaves a WASO of 800m and 2015E FCF of $45 billion, so $56/sh of EPS. The buyback still leaves AAPL with ~$130 billion of cash ($137bn + $90bn - $75bn buyback - $20bn of dividends), which is another $132/sh in cash. So if I'm correct and Android doesn't steamroll AAPL in the next 2 years, I believe the market will value earnings at a 10% yield (10x P/E) so I get $560 + $132 = ~$700/sh. How do you get to $35/sh in EPS? I understand everyone loves talking about compressing margins, but I expect them to be growing revenue substantially (+15%) which will offset the margin decline. And I don't believe the +15% growth necessitates any new product releases either for CY2013E. For the longest time I was an AAPL bear as it was seemingly perpetually overvalued. Now I think it's ridiculously cheap.