Wednesday, 22 June 2011
By Brett Arends, MarketWatch
BOSTON (MarketWatch) — Great news if you’re Apple.
Your rivals are immolating themselves. Your industry is settling down into a cosy duopoly.
And yet your stock is getting cheaper and cheaper. It’s starting to enter value territory.
What’s up with that?
Last week came the latest shocker from Research In Motion. The BlackBerry maker’s warning on sales and profits sent its stock plummeting to historic lows. RIM’s problems are in danger of becoming terminal. So, too, are those of ailing Nokia — the once brilliant Finnish mobiles giant. Things are so bad there, it is turning to Microsoft for salvation. That’s like an alcoholic turning to Charlie Sheen for help drying out. How bad can you get?
I know Apple fanatics like to think their company is some kind of miracle worker, the eighth wonder of the world. But its greatest asset has always been the competition. With enemies like Nokia and Research In Motion — let alone Microsoft — who needs friends?
James Cordwell, analyst at Atlantic Securities, expects Apple to sell 9 million iPads this quarter — nearly three times as many as it did a year ago.
This industry should be crowded with competing products. But if you want to see Apple’s rivals, walk into any computer store. Most of the tablets are a year late. Some feel like someone snapped off the upper half of a laptop. What a joke. RIMM’s Playbook is a flop.
Old time book chain Barnes & Noble managed to get a half decent Android tablet, the Nook Color, on the market by last November. The big tech companies are still doing pratfalls over each other.
Competence ought to be a given in the big leagues. But Apple keeps playing the Bad News Bears.
I am starting to wonder if the executives at all the other top technology companies secretly own fistfuls of Apple stock in their private portfolios. It’s the only explanation that makes any sense. Why else would, say, Microsoft have acted the way it has? Do you have a better explanation?
(Imagine what would have happened if Steve Jobs had allowed Apple to make an iPhone with a proper, physical keyboard. Jobs’ weird hostility to keyboards is the only thing that has saved his competitors from complete oblivion.)
The collapse of most of the competition is rapidly turning the mobiles market into a duopoly: Apple versus Google’s Android.
A duopoly is much better for investors than a free-for-all. And this situation may be even better for Apple than many realize. That’s because Android doesn’t really matter to Google . It’s a sideshow. So Google will never care anywhere near as much about updating and improving Android as Apple does about its own operating system.
After all, for Apple this is a matter of life and death.
It reminds me of the difference between being “involved” in a project and being “committed.” A businessman from Catalonia once described the difference to me. “Think of a plate of ham and eggs,” he said. “The chicken is involved. But the pig? The pig is committed!” Apple is committed.
But while the picture is looking bright, Apple is suddenly not getting much respect on Wall Street. All of a sudden, the world’s most worshipped stock isn’t getting any respect on Wall Street. It’s fallen more than 10% in the last few months, even while hot new tech stocks have been flying.
Apple has come down from $363 in February to $316 Monday. Furthermore, that masks the fact that the company is sitting on a ton of net cash. At the end of the last quarter, cash, securities and other liquid assets exceeded liabilities by $51 billion, or around $55 a share. This may top $60 by the end of this quarter.
So the cash-free stock price — the enterprise value of the business — may only be around $260.
That’s barely 10 times forecast earnings of $25 for the fiscal year ending in September. It’s just nine times next year’s forecast earnings. And it’s only around 2.3 times this year’s sales.
These are value-stock levels.
It’s true that Apple boasts very high profit margins, and competition ought to be bringing those margins way down. Economists will tell you high margins rarely last. But with this kind of “competition,” you never know.
The last time I urged people to buy Apple stock was in the crash of 2008-2009, when it hit $85. Later, I turned way too cautious, assuming — wrongly — that the competition would, er, compete. (It was still the sensible assumption.) Today, I’m nervous about the stock market overall, and this may be a bad time to take on risk. Nonetheless, it’s hard to argue Apple is an expensive stock these days. Especially when you look at who it’s competing with.
Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for the Wall Street Journal.
Posted by James at 20:02