UPDATE: I stand by my recommendation of Buy in the 90’s and Strong Buy in the 80’s. However, I am in the process of cutting my 2009 earnings estimates and I cut my 2-year price target to $180.
Andy-
You mentioned you were only going to trade in and out of AAPL and not hold a long positiion - is that still the case? 2-year price target to $180 - 180 at the end of 2010? 180 at the end of 2010 doesn’t sound so bad right at the moment.
I’m doing both. I trade in and out, and hold a long position. My long position is a hedge against a potentially powerful rally. Yet, I do think that one could shave several points off of his/her average by trading in and out with just as many shares as he/she is holding long. That’s what I’m doing at the present moment. I was lucky enough to get a massive position on the Steve Jobs fiasco.
Sure, there’s no reason to not take advantage of the mini-rallies, even if you’re long on the stock. I’m doing that with CSCO and so far it’s paid off.
The thing you need to be careful of is not to miss the BIG rally. But that’s probably not going to take place in the near future.
Personally, I expect the stock to either take off sometime in the middle of 2009 (Steve Jobs comes back to great fanfare), or to tank/stagnate in the same time frame (Steve Jobs doesn’t come back unfortunately).
The company fundamentals are probably going to continue to be strong, unless another major bank goes under.
2-year price target of $180 sounds like a sound bet. But then, who knows? Iran may have nuclear weapons by then.
I too have been having been in-and-out while maintaining a good sized-core position. The Jobs news was a great opportunity for a big move in that couldn’t be missed. I’ve found that having the core position is what allows me to trade in-and-out successfully. I no longer try to “be careful to not miss the big rally”. I’m okay to let my core travel with that if I happen to be out at that moment. Without this kind of psychology employed, I used to chase rallies or not take nice gains because I have such a long term core belief in the stock that I felt compelled to ‘not miss the big move’. Getting completely out of that mindset has been been key to successfully manage my trading positions.
I should note that I am way more negative on the consumer this quarter than I was even last quarter. I felt that over the holiday an iPod made for ‘one really worthwhile gift” even when overall gift budgets were being reduced. The MacBooks were still news and it was iPhone 3Gs first holiday too. However, with even more job losses or job loss fears, holiday bills and year-end investment statements in hand, the consumer will be far too scared to open the pocketbook until some brighter news appears. I think we’ll need to see some specific catalysts to break us to the next level (a stimulus package that everyone loves, new iMacs announced, iPhone in China, new iPhone versions, subscription accounting being declared illegal, etc.)
When I compare to this time last year, the product suite is great, the iPhone rollout so much more advanced, the deferred revenue building, future products coming with high probability, I can’t believe I’m feeling so restrained—but I am.
Side question - with so many companies opting out of offering guidance this season, why didn’t Apple join this crowd? While it seems like the tradition sandbagging has started to be somewhat expected, why not take this opportunity to get right out of this dangerous game?
Side question - with so many companies opting out of offering guidance this season, why didn’t Apple join this crowd? While it seems like the tradition sandbagging has started to be somewhat expected, why not take this opportunity to get right out of this dangerous game?
Because this game suits Apple just fine. Note that Apple’s conservative guidance allows it to beat it by potentially wide margins quarter after quarter, while simultaneously to hedge the quarter’s results against any unexpected events. This is the right approach at this time.
I sort of agree with you. Apple’s current guidance will likely be much better than usual because there is higher probability than usual that events actually will match their traditional and excessively prudent approach (I hope I’m wrong here). So, I agree, their method has a reasonably good chance of being right this time. But, I’m looking forward here, and I do hope that their traditional guidance that takes into account too many unexpected events will soon again grossly understate earnings. However, a surprisingly accurate guess this quarter and they may start to lose the “ignore it, they’re sandbaggers” reputation, which will hurt again down the line when it’s again shockingly low and that reputation will start to be rebuilt. Given the reoccurring nightmare Apple guidance has been, I just thought this quarter was a real opportunity to get out a game that they don’t play all that well. It used to be ‘why not be like Google’, this quarter it would be, ‘why not be like Google and dozens of other recognized companies’. Opportunities to make such changes with causing a shock wave don’t come along all that often.
I also don’t really agree that Apple’s guidance is the primary reason they beat expectations by wide margins. There a many factors at work here, and analyst expectations started off more divergent right after the last call and got closer and closer no more information from Apple. I guess overall, I’d note that Apple guidance really hasn’t provided much real guidance at all. The variances are often so wide (e.g. GM by 420 pts) that I’m not really sure it does anything but introduces uncertainty, and uncertainty doesn’t lead to multiple expansion or investor confidence.
Apple actual eps is usually 25% to 30% above guidance. So, is easy to guess the actual eps from Apple’s guidance. As such, I don’t see the problem you guys saw.
I sort of agree with you. Apple’s current guidance will likely be much better than usual because there is higher probability than usual that events actually will match their traditional and excessively prudent approach (I hope I’m wrong here). So, I agree, their method has a reasonably good chance of being right this time. But, I’m looking forward here, and I do hope that their traditional guidance that takes into account too many unexpected events will soon again grossly understate earnings. However, a surprisingly accurate guess this quarter and they may start to lose the “ignore it, they’re sandbaggers” reputation, which will hurt again down the line when it’s again shockingly low and that reputation will start to be rebuilt. Given the reoccurring nightmare Apple guidance has been, I just thought this quarter was a real opportunity to get out a game that they don’t play all that well. It used to be ‘why not be like Google’, this quarter it would be, ‘why not be like Google and dozens of other recognized companies’. Opportunities to make such changes with causing a shock wave don’t come along all that often.
I also don’t really agree that Apple’s guidance is the primary reason they beat expectations by wide margins. There a many factors at work here, and analyst expectations started off more divergent right after the last call and got closer and closer no more information from Apple. I guess overall, I’d note that Apple guidance really hasn’t provided much real guidance at all. The variances are often so wide (e.g. GM by 420 pts) that I’m not really sure it does anything but introduces uncertainty, and uncertainty doesn’t lead to multiple expansion or investor confidence.
As Andy Zaky correctly noted, Apple usually gives a guidance that they KNOW well in advance that they’ll beat by around 20%-30%. Therefore, to get the real earnings most bullish investors will just add 25% and get their number.
The problem with this approach occurs when an external event happens, such as Steve Jobs falling ill and taking a leave of absence, and this, coupled with Apple’s low guidance serves to put pressure on the stock. However, we see that a nice guidance beat like we just had helps to correct the downward trend a bit.
UPDATE: I stand by my recommendation of Buy in the 90’s and Strong Buy in the 80’s. However, I am in the process of cutting my 2009 earnings estimates and I cut my 2-year price target to $180.
Apple actual eps is usually 25% to 30% above guidance. So, is easy to guess the actual eps from Apple’s guidance. As such, I don’t see the problem you guys saw.
Apple beat its Q1 guidance by 31.85%, but missed it’s internal earnings estimate by 3¢.
I sort of agree with you. Apple’s current guidance will likely be much better than usual because there is higher probability than usual that events actually will match their traditional and excessively prudent approach (I hope I’m wrong here). So, I agree, their method has a reasonably good chance of being right this time. But, I’m looking forward here, and I do hope that their traditional guidance that takes into account too many unexpected events will soon again grossly understate earnings. However, a surprisingly accurate guess this quarter and they may start to lose the “ignore it, they’re sandbaggers” reputation, which will hurt again down the line when it’s again shockingly low and that reputation will start to be rebuilt. Given the reoccurring nightmare Apple guidance has been, I just thought this quarter was a real opportunity to get out a game that they don’t play all that well. It used to be ‘why not be like Google’, this quarter it would be, ‘why not be like Google and dozens of other recognized companies’. Opportunities to make such changes with causing a shock wave don’t come along all that often.
I also don’t really agree that Apple’s guidance is the primary reason they beat expectations by wide margins. There a many factors at work here, and analyst expectations started off more divergent right after the last call and got closer and closer no more information from Apple. I guess overall, I’d note that Apple guidance really hasn’t provided much real guidance at all. The variances are often so wide (e.g. GM by 420 pts) that I’m not really sure it does anything but introduces uncertainty, and uncertainty doesn’t lead to multiple expansion or investor confidence.
As Andy Zaky correctly noted, Apple usually gives a guidance that they KNOW well in advance that they’ll beat by around 20%-30%. Therefore, to get the real earnings most bullish investors will just add 25% and get their number.
The problem with this approach occurs when an external event happens, such as Steve Jobs falling ill and taking a leave of absence, and this, coupled with Apple’s low guidance serves to put pressure on the stock. However, we see that a nice guidance beat like we just had helps to correct the downward trend a bit.
You are confusing earnings with Investor Sentiment. Forecasting earnings is pretty straightforward, and does not require being exact. On the other hand forecasting Investor Sentiment is much more difficult because it is swayed by a myriad of outside forces. Accurately forecasting Investor Sentiment is the key to accurate price targets.
Apple actual eps is usually 25% to 30% above guidance. So, is easy to guess the actual eps from Apple’s guidance. As such, I don’t see the problem you guys saw.
Apple beat its Q1 guidance by 31.85%, but missed it’s internal earnings estimate by 3¢.
You want to quibble over 1.85% or just saying my observation is correct? My point is there is no need for sophisticated financial modeling if eps is all you want to know. However, u do need modeling if you want to know the unit sales. As for margin, I see none of you guys is capable of estimating. Profit margin is extremely important and is what Apple is very good at maintaining. It means max profitability.
Edit: About your comment on AndyZaky’s price target, is too low if broad market recovers. If not, may be too high.
I guess I’ve just gone through too many earnings debacles to believe that investors will ‘just add 30%’ and start playing the Bob Marley. If the market was perfectly rational, I might agree. If it were rational it would understand the subscription accounting of Apple and value the stock accordingly. The growth story of FQ4 would have knocked your socks off. If the market were rational the huge beats following by ‘predictably weak’ guidance would have been ignored and our earnings parties would have gone late into the night. Either there are games going on that we can’t even fathom, or the market is far from rational. For now, I’ll just believe it’s far from rational.
I guess I’ve just gone through too many earnings debacles to believe that investors will ‘just add 30%’ and start playing the Bob Marley. If the market was perfectly rational, I might agree. If it were rational it would understand the subscription accounting of Apple and value the stock accordingly. The growth story of FQ4 would have knocked your socks off. If the market were rational the huge beats following by ‘predictably weak’ guidance would have been ignored and our earnings parties would have gone late into the night. Either there are games going on that we can’t even fathom, or the market is far from rational. For now, I’ll just believe it’s far from rational.
I think you didn’t understand my meaning.
When Apple guides low, it is actually aiming high. You can see this pattern played over and over again, and it’s practically becoming predictable. So, when Apple guides for $1 eps, you can safely bet the earnings will come in at around $1.20-1.30. This has nothing to do with market rationality, this is real dollars and cents.
When a company - any company - beats the street by 30%, the street will correct its erroneous assessment, if not outright apologize for being so completely off target. They have to - they’ve just lost their investors money. Again, this has nothing to do with investor sentiment.
What you’re probably referring to are external events that have nothing to do with dollars and cents and which serve to put pressure on a stock. Like Steve Jobs falling ill. This is the kind of hook Apple-hating analysts use to put a drag on the stock they love to hate. Smart investors will know ahead of time to disregard these kinds of cheap, manipulative stunts and continue to focus on the company fundamentals.
I sort of agree with you. Apple’s current guidance will likely be much better than usual because there is higher probability than usual that events actually will match their traditional and excessively prudent approach (I hope I’m wrong here). So, I agree, their method has a reasonably good chance of being right this time. But, I’m looking forward here, and I do hope that their traditional guidance that takes into account too many unexpected events will soon again grossly understate earnings. However, a surprisingly accurate guess this quarter and they may start to lose the “ignore it, they’re sandbaggers” reputation, which will hurt again down the line when it’s again shockingly low and that reputation will start to be rebuilt. Given the reoccurring nightmare Apple guidance has been, I just thought this quarter was a real opportunity to get out a game that they don’t play all that well. It used to be ‘why not be like Google’, this quarter it would be, ‘why not be like Google and dozens of other recognized companies’. Opportunities to make such changes with causing a shock wave don’t come along all that often.
I also don’t really agree that Apple’s guidance is the primary reason they beat expectations by wide margins. There a many factors at work here, and analyst expectations started off more divergent right after the last call and got closer and closer no more information from Apple. I guess overall, I’d note that Apple guidance really hasn’t provided much real guidance at all. The variances are often so wide (e.g. GM by 420 pts) that I’m not really sure it does anything but introduces uncertainty, and uncertainty doesn’t lead to multiple expansion or investor confidence.
As Andy Zaky correctly noted, Apple usually gives a guidance that they KNOW well in advance that they’ll beat by around 20%-30%. Therefore, to get the real earnings most bullish investors will just add 25% and get their number.
The problem with this approach occurs when an external event happens, such as Steve Jobs falling ill and taking a leave of absence, and this, coupled with Apple’s low guidance serves to put pressure on the stock. However, we see that a nice guidance beat like we just had helps to correct the downward trend a bit.
You are confusing earnings with Investor Sentiment. Forecasting earnings is pretty straightforward, and does not require being exact. On the other hand forecasting Investor Sentiment is much more difficult because it is swayed by a myriad of outside forces. Accurately forecasting Investor Sentiment is the key to accurate price targets.
If you can tell me how you can accurately forecast human emotion, I’ll be more than happy to learn.
You are confusing earnings with Investor Sentiment. Forecasting earnings is pretty straightforward, and does not require being exact. On the other hand forecasting Investor Sentiment is much more difficult because it is swayed by a myriad of outside forces. Accurately forecasting Investor Sentiment is the key to accurate price targets.
If you can tell me how you can accurately forecast human emotion, I’ll be more than happy to learn.
You have to start with a change in definitions.
Wall Street has corrupted the term PE. While it does measure the relationship between price and earnings, it is neither good nor bad. It is what it is.
What the formula P divided by E truly measures is the result of Investor Sentiment. As that sentiment goes up, so too does the ratio. When sentiment goes down, so too does the ratio. Because investors buy on their sentiment/expectations of future earnings, I have renamed the term PE and now call it ISM - Investor Sentiment Multiplier.
Until 2008 I was very successful in forecasting the next quarter’s ISM by averaging the change in ISM from the previous three quarters. Remember, sentiment can be seasonal to a large extent. Paying attention to analyst comments and various research group reports also is an indication of tone. It helps to know who the idiots in those fields are.
My method isn’t perfect. Based on the average change in sentiment for fiscal 2006, 2008 & 2008 I invested in February Put contracts thinking AAPL would go down right after earnings. I should have taken into account that AAPL was already at its bottom, but I didn’t.
The one thing my method can’t tell me is when, within a quarter, AAPL will hit its high, or low.
Thank for sharing your thoughts. Very refreshing, what I expect from a Mac user (Eric, hear me ). Are you saying $78.20 is a multi-week, multi-month or multi-year bottom?
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). Are you saying $78.20 is a multi-week, multi-month or multi-year bottom?
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