My Brother wrote this. I hope this is the rights place to post this. I would like everyone’s input….

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The weakness of the economy is the globalized effect, which is the ability of a loss in one sector of the economy or of the world to translate into losses in another, like a recession can translate into Apple’s bottom line.  Here is where we gamble the most.  A recession would have two effects; one is to reduce earnings and the other is to reduce the price/earnings ratio.  Right now Apple is trading at 28 times earnings looking forward, and 52 times earnings looking backwards.  A loss of the projected growth forward would cause the looking back earnings to hold, and the 52 would reduce to 28 at best.  That’s a price of 96.72.  And that might be high.

In 2000, the sales of PC’s was reported as being suddenly very low, because it turned out, everyone spent their budget out in 1999 worrying about Y2K, so no one was buying a PC then.  Apple went from 60 to 20 over the weekend.  That is what recession looks like.  Microsoft caused the one in 2000, but the credit markets will cause it in 2008.  Merril Lynch reported $8 billion in losses today, and there is no suggestion that they reported all of it.  I’m seeing reports of in-stride restructuring loans, and this is very good.  But no one is buying real-estate paper, and real estate market carries the economy.  This carries much of the economy.  So gloom and doom says that there will be a Republican recession even though it’s an election year.

On the other hand, Apple’s model is a good one.  Here’s how I calculate it.  I don’t have the numbers to fill in the blanks.  How much did Apple make on 1.2 million iPhones? Plug it in.  On iMacs.  growth in market share was 5.7% to 6.3 in the quarter just ended.  Plug that in.  Add up total earnings.  Take earnings per share anticipated and multiply the current stock price by the percentage growth that results in earnings.

Here’s what I said in a blog
What happens in the numbers if Apple is successful and establishes a real presence in the cell phone industry? Use your calculator. Suppose they get a 10% market share in the billion-cell-a-year world business? 100 million cell phones. Click, click, click – two year business cycle, click, click, revenues of… etc., on 200 million cellular contracts, that’s _____ dollars/yr. What happens if 40% of laptops and desktops sold worldwide are Macs that simul-boot Windows and Mac OS? Click, click, … that’s ______ dollars per year. Reasonable? No PC can follow where the Mac PC is headed, so yes. And I don’t suppose you believe that Apple will bring out other new toys, do you. Guess not, but they will. Convergence is where the world is headed, and few contenders can follow Apple. The iPod is not an mp3 player, it’s a node, a new-world remote in your pocket for converging your digital multifunction lifestyle. It’s a pocket super-computer. Estimate the revenue. Then, Apple’s price is earnings-per-share times price-earnings-ratio. THAT is how you sketch the potential future, not grabbing your unattached percentages out of the air.

At a 6% PC market share and 1.2 million iPhones, Apple is has just begun to emerge. Sketch THAT future.

Apple is hitting on all cylinders, and building more cylinders.  I’d be reluctant to sell at a time like this.  I’m looking for 200 by Christmas and 1000 at 21% market share and 40 million iPhonesin 24-36 months.  What are the chances of a recession in that time?

I’m holding my shares.  My 1000 shares are worth $185,000.  I’m thinking of cashing in an anuity from Rolla for $30K, adding that to $10K I have in the bank and paying down my mortgage by $40K, which will bring it to the point of exactly paying off in 6 years at our current accelerated overpayment level.  That’s when Colina retires, so the house would be paid off the day she retires.  That would reduce our cost of living by $1000 per month.  Social security plus rental house payments plus a small retirement payment from KSU plus paying off the house will give us about $3000 a month without house payments.  We can almost live on that.  Apple stock would be in addition to that, a nest egg to hang onto, probably putting it into a house to rent to get another $1000 per month.  $4000 a month will keep us rather well if there’s no house payments, I think.  That’s if the Republicans doesn’t destroy Social Security.

But if we sell apple, it won’t be there.  Or, is it, if we hold onto it, it won’t be there?  Who knows.

I’m holding.

stew

I separated this post from the intraday topic for discussion on the points raised in the post.