Author Topic: AAPL - Apple Inc.  (Read 1332657 times)

DooDiligence

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Re: AAPL - Apple Inc.
« Reply #6380 on: August 01, 2018, 04:27:27 PM »
I'd rather own (almost) anything through Berkshire, rather than directly.

This may be fuzzy logic but don't we, kind of, get Apple at 1.3 +/- book?

No.  You get Apple at the market price, plus a current premium of ~30+%, plus you owe another layer of corporate taxes on gains that have already occurred and future corporate taxes on any additional gains that may occur.  Most investments are worse inside Berkshire, even for Warren (especially for Warren), which is why Charlie scoffs when writers call Berkshire one big tax avoidance scheme by a hypocritical liberal.  Luckily for you, cash dividends are unlikely - because if Berkshire were to pay out any of those Apple gains in actual cash to you as an owner you would once again pay another layer of tax on that cash.

(you also pay this premium for cash on the balance sheet, btw)

What you do get by owning investments through Berkshire is unique, attractive leverage to offset some of the above negatives.  The main reason to pay any premium to Book Value at Berkshire is the value of the operating subsidiaries and the value of the float/insurance businesses.  There is also occasional access to opportunities not available to commoners.  And some would say that there is a Berkshire system, reputation and corporate culture that has some value above liquidation value as well..

Great explanation.

Fuzzy logic will get me into trouble some day  ;)
(Healthcare 42.9% - ABC BBH CVS DVA EW NVO) | (BRK.B - 14.8%) | (Media & Communication 12.6% - CHTR CMCSA DIS)

(Drinkers & Smokers 13.8% - ABEV MO) | (Auto's & Oil 10.3% - GPC VDE) | (Tech & Comms 5.5% - AAPL SFTBY)

(%'s held @ MV 9/04, excludes $)

[prepared 2 wait?]

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Dynamic

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Re: AAPL - Apple Inc.
« Reply #6381 on: August 02, 2018, 07:23:58 AM »
Everyone's so keen to post the $1 trillion company headline!

SeekingAlpha just notified me and the article was gone by the time I clicked.

I expect yesterday's share count released (4,829,926,000 shares of common stock, par value $0.00001 per share, issued and outstanding as of July 20, 2018) wasn't taken into account so they pulled it.

On that basis $207.04251 is now the magic stock price on the assumption of no further stocks being retired, so still a little way to go!

rkbabang

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Re: AAPL - Apple Inc.
« Reply #6382 on: August 02, 2018, 10:48:47 AM »
Everyone's so keen to post the $1 trillion company headline!

SeekingAlpha just notified me and the article was gone by the time I clicked.

I expect yesterday's share count released (4,829,926,000 shares of common stock, par value $0.00001 per share, issued and outstanding as of July 20, 2018) wasn't taken into account so they pulled it.

On that basis $207.04251 is now the magic stock price on the assumption of no further stocks being retired, so still a little way to go!

It's above that right now

rkbabang

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Re: AAPL - Apple Inc.
« Reply #6383 on: August 03, 2018, 08:58:05 AM »
Nice visualization of Apple's market cap
https://nyti.ms/2n52hff

Liberty

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Re: AAPL - Apple Inc.
« Reply #6384 on: August 10, 2018, 07:23:07 AM »
https://daringfireball.net/2018/08/doug_field_returns_to_apple

Quote
Doug Field — who left Tesla in May after overseeing Model 3 production — has returned to Apple, working in Bob Mansfield’s project Titan group. Apple spokesperson Tom Neumayr confirmed with me only that Field has returned to Apple, but no one should find it surprising that he’s working on Titan.

Field previously worked at Apple as a VP of Mac hardware engineering before leaving for Tesla in 2013. So he spent years working closely (and successfully) with Mansfield on Mac hardware, and spent the last few years as senior VP of engineering at the world’s premier electric carmaker. That makes Field a seemingly perfect fit for Titan.
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LC

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Re: AAPL - Apple Inc.
« Reply #6385 on: August 14, 2018, 12:00:20 PM »
Anyone want to buy some CRE in silicon valley? Apparently its being valued cheaper than an iphone:

https://www.businessinsider.com/apple-trying-to-reduce-cupertino-tax-bill-2018-8

Apple is reportedly arguing that buildings at its headquarters are worth just $200 so that it can reduce its tax bill
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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Dynamic

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Re: AAPL - Apple Inc.
« Reply #6386 on: August 22, 2018, 07:46:19 AM »
My own position
I don't currently hold any Apple directly, having enjoyed a nice double over 2 years, that I only happened to sell recently because I wanted to transfer some money into a different brokerage account and an alternative investment and chose not to buy back an Apple stake once the new account was open.

In the normal run of things I might have held on a bit longer as I felt the ratio of Intrinsic Value to Market Price (IV/P) for Apple and that for Berkshire Hathaway were blurry spots with a fair amount of overlap making it uncertain that switching out of Apple and into Berkshire was the better decision. Similar to an engineering control system I like to include some hysteresis in my valuation-based buy and sell decision points, especially when doing a switching relative-value trade such as selling some of my Berkshire to buy Apple in 2016 or selling Apple to buy more Berkshire in 2018. In this case I was forced to sell to cash as I couldn't transfer the stock to the new broker directly, so I made a fresh decision whether to buy Apple at the then-current price and ended up adding more Berkshire instead (partly due to downside protection).

In the short run the Apple-to-Berkshire switch element of my reallocation is being scored by Mr Market as a modest relative mistake, though Berkshire's recent rise isn't too far behind Apple's, and both are beating the index and I'm still very comfortable holding Berkshire with my perception of its downside protection and compounding potential.

I still have ample Apple exposure via Berkshire Hathaway and believe that Apple is likely to remain well represented in the Berkshire portfolio and likely to deliver good long-term results that will more than justify the current price, but it's not so cheap that I'm taking on a large concentrated position at present. I don't even own any Apple products personally, though I do use them occasionally and appreciate certain qualities they have.

What set me thinking...
This Seeking Alpha Article: Apple's iPhone Refresh: Next Catalyst? by D.M. Martins Research is partly typical speculation about the upcoming iPhone Refresh line-up and the possible price points.

However, an interesting point to me, mentioned in the article was that, in the event of macro-economic troubles, the discretionary nature of much of the public's smartphone upgrade spending could then cause a temporary decline in sales and profits for Apple.

This prompted me to think through some possible scenarios that might present a very attractive buying opportunity in future.

If a macro-related decline does happen, I would say it would be a temporary impairment likely to have a very minor impact on the long-term Intrinsic Value of Apple by delaying upgrades mostly rather than seeing people switching to cheaper new phones, and indeed we should expect such poor years as well as some fantastic years to occur in the next decade or more when assessing long term Intrinsic Value.

But how would Mr Market see it?
As we saw in 2015-2016, Mr Market can be prone either to projecting short-term reductions turning into long-term declines, or into fearing that Apple will duplicate the Nokia/Blackberry experience and be supplanted from its position of dominance as the most admired high-end phone producer (and as earner of most of the industry's profits even with a moderate market share).

Back in May 2016 and for some months before, Apple was for sale at ~9.5% trailing earnings yield, or even a ~10.5% yield after backing out cash at face value. The prior year was fantastic for iPhone in particular but made for a tough year-on-year comparison, so the popular opinion of Mr Market seemed to be that Apple's dominance was over.

I wasn't as quick to start buying as Berkshire was, but I had a contrary opinion to Mr Market with a high enough conviction to take the plunge with a 24.9% position and the price, dividend and buyback rate were attractive enough to tempt me even if future earnings had remained flat.

Future buying opportunity?
It's possible that in similar circumstances, at some point in the future, another extremely attractive buying opportunity could present itself, although perhaps the medium-term annualized returns are unlikely to exceed 40% next time around (I got a huge tailwind from how fast Apple's result rebounded from 2016, from the US Tax Cut in Dec 2017 and from a highly optimistic stock market that I can't expect to coincide next time round).

How it looks now...
This financial year has also been fantastic so far, with an increased price point for iPhone X demonstrating Apple's continued strong pricing power. Any future signs of reduced pricing power and reduced brand cachet were among the potential warning signs I noted that I wanted to look out for in my 'pre-mortem' notes I made when I purchased my high conviction Apple stake in May 2016. Midnight queues for new models at Apple stores and a willingness to pay increased prices and sustain high margins are signs that Apple's dominant position is at least as strong as ever in attracting those with high disposable income and a large willingness to dispose of that income via Apple.

I'm no macro investor and I'm generally of the leaning that I'd much rather compound well for 2-5 years more and then ride out a crash than risk switching to cash too early in incorrect anticipation of a looming bear market and miss out on years of strong compounding that would outweigh the bear-market decline.

Although there are fears about imbalances in the Eurozone and Trump's trade wars, I suspect we're probably not going to dive into a recession for 8-12 months and possibly quite a lot longer (especially the US, given the boost of tax cuts, though that stimulus could encourage business mis-investment that then requires a crisis to correct). But the bull market must run out of steam eventually, and it might well be the type of bear market that follows a classic yield inversion by 6-18 months or who-knows-what.

If we enter a worrying macro environment, it's likely that Apple could have a tricky period for sales and earnings and a slashed stock price, but equally that most stock prices could be similarly depressed, providing ample opportunities for sound investment and great future returns across the market, not just with Apple.

If the macro environment remains optimistic, however, perhaps Apple could encounter another 'tough year-on-year comparison' period like '15-'16, get marked down by Mr Market and be priced as if the decline is long-lasting. If so, I'd be on the look-out for another high-conviction big-bet entry point.

Jurgis

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Re: AAPL - Apple Inc.
« Reply #6387 on: August 24, 2018, 12:29:07 AM »
"Before you can be rich, you must be poor." - Nef Anyo
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Cigarbutt

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Re: AAPL - Apple Inc.
« Reply #6388 on: August 25, 2018, 10:22:40 AM »
...
But how would Mr Market see it?
As we saw in 2015-2016, Mr Market can be prone either to projecting short-term reductions turning into long-term declines, or into fearing that Apple will duplicate the Nokia/Blackberry experience and be supplanted from its position of dominance as the most admired high-end phone producer (and as earner of most of the industry's profits even with a moderate market share).

Back in May 2016 and for some months before, Apple was for sale at...

Future buying opportunity?
It's possible that in similar circumstances, at some point in the future, another extremely attractive buying opportunity could present itself, although perhaps the medium-term annualized returns are unlikely to exceed 40% next time around (I got a huge tailwind from how fast Apple's result rebounded from 2016, from the US Tax Cut in Dec 2017 and from a highly optimistic stock market that I can't expect to coincide next time round).
...

Just want to add some "color" on your comments about your description of entry and exit points and the relative importance of intervening factors during the holding period, with, in mind, the linked reference.

Disclosure: my understanding of Apple as a company is too superficial for any decisive insights.

A simplified perspective for Apple is that many factors that contributed to its market cap rise (capital structure change, use of cheap debt to buy shares that are characterized by rising FCF multiples, rising market perception of the brand value) may become saddled by the laws of diminishing returns. That does not mean Apple is or will be a bad investment. It only suggests (like you mention) that expectations perhaps have to be toned down and possibly that you need to apply even more hysteresis before you redeploy capital in AAPL. :)

https://www.reddit.com/r/SecurityAnalysis/comments/9a6k7n/aapl_more_debt_higher_valuation/

Dynamic

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Re: AAPL - Apple Inc.
« Reply #6389 on: August 26, 2018, 01:57:53 AM »
I'd agree that a cautious entry point should anticipate diminishing returns and compounding and weaker growth and not expect the tailwinds of the last couple of years. A 8.5-10% FCF yield would probably suffice as an entry point, especially if there's a chance of growth and a return to 5-6% FCF yield.

In the Reddit thread some were wondering why Apple is not rolling over debt, but this does seem to tie in with the CFO's stated intention to become cash/debt neutral over time after the tax cut and repatriation to the US.

Another post talked of diversifying away from IPhone because smartphones are becoming commoditized. To me this is flawed. Sure, services revenue is likely to become more important, but IPhone and the iOS ecosystem is retaining its brand power, pricing power and non commodity status. Many smartphone components are commodities, and that is to the benefit of Apple's margins, but the pricing power of iPhone and it's ecosystem, and Apple's share of phone profits at >80% far exceeding its <20% market share in revenues or units sold seems to say it's not true that iPhones are commoditized - only rival Smartphones. Apple's customers seem to be those least price sensitive and most willing to pay for additional services like apps and content. That keeps developers keen to develop for iOS. It also reassures investors looking for preservation of brand cachet and pricing power to sustain long term intrinsic value.

Apple's modest market share may protect it from anti monopoly laws as people could easily switch to Android phones with nearly identical features.

My hysteresis is only partly about seeking a very cheap entry point if I have cash available to buy.

Where hysteresis is more important is when doing a Value Trade - selling one stock to buy another to increase the intrinsic value of my portfolio and to reduce the downside risk.