Author Topic: How to think about options?  (Read 13455 times)

Packer16

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Re: How to think about options?
« Reply #10 on: April 20, 2013, 03:14:21 PM »
That is true but for the most part there are either reasons why or they are on sale only during a crisis.  Malone/Liberty - complex structure and AmExp the salad oil scandal.  As to AAPL's growth I do not think it is sustainable given the lack of locked in recurring revenue in many of their revenue streams (iphone and ipad for example).  How many of these devices do folks need and as the competitors catch-up with functionality they will compete on price and revenue will drop off as competitor take share.  The other issue of growth is that it is harder and harder to grow a large revenue stream. 

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GrizzlyRock

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Re: How to think about options?
« Reply #11 on: April 20, 2013, 03:37:50 PM »
First, let me say that I have never owned Apple stock so I'm not a fanboy or a Apple homer...

WRT to the "moat" at Apple it is certainly not exceptional like Coke or AmEx but it does exist - think I Tunes ecosystem, synching devices from home, mobile, table etc.

The question to ask with Apple currently if you are going to make an argument that its cheap is why its cheap. The best explanation I have is a behavioral explanation. Last summer, non-finance people began asking me if I thought Apple was going to hit $1,000.  That is clearly a ridiculous question.  But that is the situation with Apple - so as the sheen comes off Apple then it's no longer popular to own and the traders have taken over to push it down.  Marginal sellers set price. The market appears to be somewhat irrational in its pricing of Apple currently...  Time will tell.


Lastly, using options for a leveraged play on a new cash company really can work especially in the case of a cannibal like DTV. Another trade I've never done but I know a bunch of guys who have cleaned up with this trade in DTV

Packer16

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Re: How to think about options?
« Reply #12 on: April 20, 2013, 03:57:55 PM »
You are correct but the question how much of the apple demand is from these non-finance folks.  If AAPL was such a great bargain I think some of the larger more sophisticated buyers would bid the price up.  I think AAPL has the same problem as MSFT with a great business (itunes ecosystem) generating alot of cash flow that is being re-invested in not so great or cyclical businesses (phones and consumer electronics).  As another benchmark if you look at the Morningstar FV, AAPL is modestly undervalued. 

I feel DTV is better business due to its recurring revenues and better buy due to its buybacks with cheap leverage.

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ItsAValueTrap

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Re: How to think about options?
« Reply #13 on: April 20, 2013, 04:29:42 PM »
Quote
The question to ask with Apple currently if you are going to make an argument that its cheap is why its cheap.
I'm gonna be cheeky here and say that their earnings have grown faster than the share price.  :P  Revenue has grown 37%/yr over the past 10 years, FCF and EBITDA and book value have grown even faster than that.  This is without using debt.

On the other hand, I sold my Apple shares because I think that Android will likely win the smartphone and tablet wars.  It's hard to figure out.
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twacowfca

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Re: How to think about options?
« Reply #14 on: April 20, 2013, 05:06:57 PM »
First, let me say that I have never owned Apple stock so I'm not a fanboy or a Apple homer...

WRT to the "moat" at Apple it is certainly not exceptional like Coke or AmEx but it does exist - think I Tunes ecosystem, synching devices from home, mobile, table etc.

The question to ask with Apple currently if you are going to make an argument that its cheap is why its cheap. The best explanation I have is a behavioral explanation. Last summer, non-finance people began asking me if I thought Apple was going to hit $1,000.  That is clearly a ridiculous question.  But that is the situation with Apple - so as the sheen comes off Apple then it's no longer popular to own and the traders have taken over to push it down.  Marginal sellers set price. The market appears to be somewhat irrational in its pricing of Apple currently...  Time will tell.


Lastly, using options for a leveraged play on a new cash company really can work especially in the case of a cannibal like DTV. Another trade I've never done but I know a bunch of guys who have cleaned up with this trade in DTV

Please explain the DTV trade.  Thank you.

PS  It's not necessary for many on this thread to create stories about why Apple has declined.  It has declined because it was virtually impossible for it to advance beyond the near universal 5% limit imposed funds.  When Apple approached 5% of the total market cap of the S&P500, it hit the limit.  :)
« Last Edit: April 21, 2013, 01:35:56 AM by twacowfca »

LC

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Re: How to think about options?
« Reply #15 on: April 20, 2013, 05:44:22 PM »
Probably simply call options of DTV...Malone is pretty much issuing debt to buyback shares. Which makes sense given the lower capex of Satellite versus Cable providers. And of course the "low interest rate environment"  The question is how much more debt he wants to saddle the horse with.
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Packer16

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Re: How to think about options?
« Reply #16 on: April 20, 2013, 06:06:19 PM »
From what I have read his goal is 2.5x EBITDA which would be an addition $7 to $8 billion or 2 more years at the stated rate of $4 billion per year.

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compoundinglife

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Re: How to think about options?
« Reply #17 on: April 20, 2013, 06:21:11 PM »
From what I have read his goal is 2.5x EBITDA which would be an addition $7 to $8 billion or 2 more years at the stated rate of $4 billion per year.

PAcker

Value Line has estimated share counts of 2013: 528M, 2014: 500M, 2016-2018: 475M.  It says there were 586M outstanding for 2012. Seems to jive with what you are saying since the # of shares reduced will go down as the price per share goes up.

no_free_lunch

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Re: How to think about options?
« Reply #18 on: April 20, 2013, 07:42:29 PM »
Quote
How many of these devices do folks need and as the competitors catch-up with functionality they will compete on price and revenue will drop off as competitor take share.

I too am not an apple fanboy and I don't want to say that Apple will necessarily maintain their revenue and earnings, it's very hard to say.  I would say that there are historical precedents with apple for maintaining their revenue in different segments.  Mac prices are significantly higher than comparable windows based PCs and they continue to sell well.  I would say there is generally a 50% price premium if not more.   There is also a precedent with the IPOD where they continue to charge premium pricing a decade after the product was released and despite numerous competitors in the market.  Will the same happen with Iphone / Ipad sales, too hard to call but certainly possible.

LC

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Re: How to think about options?
« Reply #19 on: April 20, 2013, 08:36:49 PM »
This is why I took a small position: 
 
Apple has a history of surviving. Somehow, the Apple Mac was able to survive the onslaught of Windows. In fact, recently the Apple brand has become so powerful that a comparable Windows PC can cost 25% of the price of a premium Mac. Windows may be the best selling OS of all time, but Apple can price their hardware to the stratosphere. Now Android may win the mobile OS space, I don't know. But I'm thinking Apple will still be able to price it's I-Whatever's above the commodity handsets everyone else releases.
 
When I think of the other mobile handset producers, I have no brand identity of a single one besides Apple. 
 
What is Samsung known for? What is Nokia known for? What is Blackberry known for? (ok, maybe blackberry: they are the only guys left with a keyboard). What is Motorola known for?

But I know Apple is high quality.

I'm sure these are old arguments that have been mentioned in the Apple thread countless times, but I figure with the Price:Cash ratio of the shares, the history that Apple has battling in the computing space, and their brand name, it's worth a small bet.
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