|by Wes George
If You' Got The Cojones, Buy AAPL Now
May 30th, 2000
|Sir John Templeton offers investors these classic contrarian rules as a perfect background for today's fearful mood hanging over the market, "Buy when pessimism is at its maximum. Sell when optimism is at its maximum. Therefore, buy what most investors are selling."
OK, let's cut to the chase. Apple's stock, AAPL, for those of you not yet introduced, is a screaming buy at current levels.
AAPL's price-to-earnings ratio at less than 21 is not only at the low end of its normal trading range (it has been as high as 50 recently) but scads more value laden than Dell's PE ratio of 66 or Gateway's 33 or Compaq's 71. Apple's earnings-per-share at $4.14 is higher than any other PC vendor and illustrates the true meaning of value when compared to Dell's lame 64 cents per share and Compaq's embarrassingly low EPS of 37 cents. Earth to Houston
Initiate stock buy back program.
In fact, if you must buy a computer hardware stock this week, Apple is having a Fire Sale! You do the math.
But am I not going to tell you to rush out and buy more AAPL today. Why? Because we haven't hit the bottom of this intermediate bear market yet. Pessimism is not yet at its maximum. The macro-trend now seems perfectly clear. The Nasdaq will rally again for at least one more bull trap before settling below 3,000, perhaps as low as 2800, then bounce along forcing the over-leveraged, the buy-on-the-dipsters, the shortsighted and the weak-handed-bulls to capitulate before sometime later this year rallying back to make fools of them all.
If we're lucky, the Nasdaq will end the year 2000, about where it started, and the secular bull trend with roots going back to 1982 will remain intact ready to forge ahead into uncharted territory.
The best is yet to come.
I don't believe Apple's stock can go below solid support at $77, but it's certainly a possibility that it could fall to $77--for about a minute. The stock is sorely over sold by institutional investors seeking to raise cash while they continue to hold their cherished, but overvalued blue-chips: Cisco, Yahoo, Qualcomm and Dell, etc.
One thing I can emphatically advise is to NOT sell your Apple stock unless the margin-call revolver is pressed firmly to your forehead. It's the sinister nature of stock markets to make selling at the bottom unnaturally tempting and buying at the top irresistibly easy.
The analysts know AAPL is oversold. Jim O'Shaughnessy of O'Shaughnessy Funds is buying AAPL, calling it a "market leader" and saying the price-to-sales ratio is reasonable. UBS Warburg's Charlie Wolf, a respected long time Apple analyst, reiterated his buy rating and $150 price target for AAPL, commenting "the best is yet to come" after a meeting with Apple CFO Fred Anderson who, "feels comfortable that Apple is on track to deliver expected earnings."
On second thought, maybe you should buy AAPL today. It often happens that everyone perceives an opportunity at the same moment. AAPL could bust up to the low 100's to ride out the rest of this bear market and go then stratospheric without ever presenting an $84 buying opportunity again. Breaking news could change this picture significantly. If Apple lets leak a hint of what's to come the stock, combined with a few more analyst reiterations, could be outta here tomorrow.
Voluntarily disclosure: I've already loaded up my boat with AAPL and have put up the storm sails to ride this thing out.
The Obvious: We are in a bear market.
It may be a short lived, intermediate bear market, but make no mistake, that's what it is. 2.5 trillion dollars of market capitalization has vanished since March 10th. I am surprised to find so many people still buying on the dips and predicting the sonic boom days of November through March will return next week. Not so. New Nasdaq highs aren't likely this year, nor are new AAPL highs. Get use to it. Welcome to the New Economy, same as the old economy. The world as we know it may be over but history casts a long shadow.
Nevertheless, the buy-low crowd is dead right. From the long-term perspective this bear market is a mere intermission in the world's longest running bull market. The question is how good are you at calling the bottom?
I started writing the Apple Trader column in October of 1998 when it was fun to be in the stock market. It was easy to see Apple's stock was going to soar and it was fun to tell people about it. Today it's not so fun. Apple is thinking different from the investment community about what is good for the company's future. The stock market is in the toilet. Everyone is underwater, some are drowning, and others are going to lose interest as this bear market drags out. There really isn't anything nice to say about the whole situation. Except that it will turn around someday.
The Federal Reserve has raised interest rates six times since last June. The very first of those rate hikes are just now beginning to affect the economy since it takes at least nine months for a Fed Fund rate hike to work its way into the sinews of the economic order.
In April, the durable goods orders, a measure of items sold that last 3 or more years, registered their biggest decline in nine years. If the durable goods data isn't a fluke and the economy really is slowing due only to the first couple of rate increases from last year, what will the more recent rate hikes bring us? The end result could be a serious slowing of the economy by mid-autumn. This means missed earnings projections and continued bleakness in the equity markets.
It's hard to even utter the word 'recession' in our current booming economic condition, but Wall Street doesn't need a recession to wipe out your capital gains if you have any left. The mildest hint of one will do.
Most certainly we are entering a "recession" for the dot.coms. Venture capitalists have put their moneybags away and are planning to let literally dozens of half-baked Internet schemes starve to death for lack of a second or third cash infusion. Some will consolidate or be bought out but the financial news this summer will be a litany of dire bankruptcies tempering any resurgent enthusiasm for highest flying technology stocks. The New Economy is stalling out at 35,000 feet. How good are you at knife juggling?
Meanwhile many observers believe the Feds have another 50 basis points to slap us with, 25 in June and 25 in August. Perhaps they'll hit us with a half point in late June just to get all the rate hikes out of the way ahead of the US presidential elections this autumn. It's historically been considered bad form for the Feds to raise rates close to the elections.
Conventional wisdom holds that the end of the rising interest rate cycle by the Federal Reserve will hail a robust across-the-board rally in the stock markets. But nothing is likely to be so clean cut. Half of the Fed's formidable power to moderate the economy's temperature lies in the bluff -- in the Federal Reserve's poker face. It's unlikely the Federal Open Market Committee (FOMC) will give an all clear signal to start the engines of irrational exuberance again. Instead wizened old Mr. Greenspan will give us a difficult speech about the ameliorating effects of rising productivity on inflation due to the implementation of new technologies, while lamenting the ever tightening labor market and unsustainable rates of growth. In the end, he'll put us on hold to wait -- forever waiting -- for that next round of economic data. The more things change, the more they stay the same.
Soon Wall Street will stop worrying about further interest rate increases and start fretting over the coming effects of what is already in place. Recessions typically follow five or more Federal Reserve Interest rate hikes. There are even those who believe the FOMC really would like to see a short-lived recession.
There are Republicans who would revel in a grim outlook for the economy by the November elections, so that Mr. Gore -- who once claimed to have invented the Internet -- can't ride into the White House on the US economic miracle the Clinton administration claims to be responsible for. The politics of 2000 create uncertainty and investors tend to sit on cash positions in uncertain times.
The Feds are the guys wearing the black hat. They popped the high tech bubble, tanked the equities markets and burned the highly leveraged. But you've got to give them credit for having the cajones to stand up for the Big Picture-- the longest running secular bull market in US history -- under immense political pressure from Wall Street to let the silliness continue.
The 85% gain on the Nasdaq in one year was a true historical anomaly, which could not continue without systemic economic lashbacks well beyond anyone's control. The Fed is merely trying to bring us down gently from our overdose of speculation. In the course of which everyone is learning important lessons about the stock market. Investing is the assumption of risk. Investing in tech stocks is an extreme sport, not for the feint of heart or for those who can't afford to lose the money.
Your comments are welcomed.
Check out the Apple Trader Forum in the new Mac Observer Forum section! Talk about Apple's stock, the markets, or give your best stock tips, just come on in!
The Apple Trader's Most Recent Columns
The Dawning Of The Age Of Aquarius?
Apple's K-10 And Apple's Future
Apple's Stock: A Double Your Money Gamble?
The Apple Trader Forums
The Apple Trader Archives
Back to The Mac Observer For More Mac News!
Wes George writes about the financial side of being a Mac nut. Wes has followed Apple's finances for the last 7 years and comes to The Mac Observer every Monday to tell all about his opinions. He is, in his own words, "inordinately fond of money." If you would like to write Wes, make it nice. Someday you might own a company that has something to do with Apple, and Wes will probably still be writing for The Mac Observer...... On the other hand, Mr. George is known to love a rousing, hair-raising debate, so send him your worst!
Disclaimer: This column is for informational and entertainment purposes. While Mr. George may be sage indeed, his writings can not be construed as a solicitation to buy, nor an offering to sell any particular stock. As with any trading in the financial markets, you must use your own judgment to make the best trades that you can. Neither The Mac Observer nor Wes George may be held accountable for trading advice.