Wednesday, March 27, 2013

Returning to greatness, leaving others competing for 2nd


Why Apple Inc like Tiger Woods will return to greatness.

(watch the video in the link)

or on YouTube

Interesting analogy between golf and high tech.


Tuesday, March 26, 2013

Ross Stores: honesty is appreciated

During the last conference call for Ross Stores (Rost), we had a taste of how honest the company is. When asked what went wrong in the Home segment in the fourth quarter, the CEO simply stated they've made some executional mistakes in their assortments. How often do you hear this type of frank acknowledgement of mistakes? Rarely.

See the Earnings Call Transcript.

Heather N. Balsky - Morgan Stanley, Research Division
This is actually Heather Balsky calling for Kimberly. We were just wondering how did home perform in the fourth quarter and how do you think that compares versus last year? And what are any strategies you have in place for home in 2013?
Michael Balmuth - Vice Chairman and Chief Executive Officer
Home trailed the company in the fourth quarter, and our strategies going forward are really to improve the executional mistakes we made. We've made some organizational adjustments, but we've made some executional mistakes within our assortments. So this is a year of getting back to basics in that business.
Heather N. Balsky - Morgan Stanley, Research Division
Do you have any examples of execution issues that you kind of are looking to improve?
Michael Balmuth - Vice Chairman and Chief Executive Officer
Just the assortments were substandard, and so we've adjusted those.

Wednesday, March 20, 2013

Thursday, March 14, 2013

AAPL upgrade cycle coming?

On the eve of Samsung's launch of iPhone 5's competing offering in NYC, AAPL is upgraded by one of its early bears, BTIG. Interesting to note that he thinks AAPL may miss its own guidance this current quarter and the next. Also this:



$174 billion revenue expected for 2013. Yet the stock is trading at multiples last seen in 2009, when the company was doing only $42 billion in revenue. For a nice summary and skeptical view, see this article.

Most important thing to remember is that most of the huge installed customer base of Apple products are happy with their experience. This interview with Apple's marketing chief is interesting.

Could this be the start of an upgrading cycle among the analysts?

(3/15/2013. One day later, after the Samsung Galaxy S4 launch, Morgan Stanley came out with a note predicting numbers bottoming.)

Monday, March 11, 2013

The "shock therapy" Sachs?

Remember the "shock therapy" advocate Jefferey Sachs, who in early 1990s prescribed rapid and systemic change to the former soviet block countries?

You would think he might advocate bold economic actions as a way to counter the severe recession of 2008?

To the contrary, he is all for the long-term, careful, structural, deficit-paranoid, piecemeal approach.

Surprising.

Wednesday, March 6, 2013

iWatch: inevitable innovation

A client asked about Apple stock. It is concerning as it keeps on dropping.

Many big funds are bailing out. Why? They got hurt, and they don't like their positions. They don't really have special insights as to how Apple as a business will do in the next 5-10 years. They herd on the way up and on the way down, along with wall street analysts.

Apple's cash hoard is huge. But how to return the cash to investors isn't a big issue. Apple may need it for product development, supply chain investment, or acquisitions. Increasing dividends from 2% to 4% or 6% does nothing to creating enterprise value.

Key will be product innovations. Sometimes the leader can be out-done by imitators or by new technologies. I have enough faith in the company to think that they'll stand still or lose their touch.

I don't want to speculate what's coming next, but something that would extend its iOS ecosystem will come to the market sooner or later.

iWatch appears to be very believable. Let me link to a nice article that says that iWatch fits Jonathan Ivy's definition of "inevitable innovation." From here, you start to see a closer link to the iPayment service that one day will deal away with cash and cards.

And, how about iCar?  Evidence:



However, news like these do very little for AAPL stock these days. Bad news get reflected, good news don't. This has to be the best time to buy AAPL shares and wait.

I have to agree with Barry Ritholtz on his take that Wall Street probably never understood Apple, although his use of the term "law of large number" is ridiculous. 

Tuesday, March 5, 2013

When and where can one buy primary growth options for free?

I used to teach an intro corporate finance course, and one of the important concepts for valuing a company is that its current value equals to the value of its assets-in-place plus the value of growth options.

The value of assets-in-place can be estimated from balance sheets and the streams of cash flows that these assets are expected to generate over the foreseeable years.

The value of growth options can be extremely high for technology companies that can break into new areas of growth. That's what gives tech companies very high earnings multiples. You normally cannot buy these growth options for free. That would be considered a financial free lunch.

Yet, if you look at AAPL today, you can't help but wondering why investors are offering you to take away the growth options for better than free.

Apple, the primary driver of mobile revolution and the maker of a series of iconic products iPod, iPhone & iPad, is now valued at an earnings multiple below 10! (Its share price came below $420 yesterday.) You can argue whether or not analysts' earning estimates are off, or if iPhone's profit margin is coming down due to the fierce competition from Google and Samsung, but you cannot be serious if you think Apple is just going to stand still, with or without Steve Jobs!

The company is doing over $120 billions a year in revenue, and making $40-50 billions in profit. More importantly, consumers love their products. I can't take my iPad away from my 4 and 8 years old kids! And they're having access to iMac and iPad in their schools on the daily basis. I have an Android phone, and my wife has an iPhone. I can tell you that I'd like to switch to iPhone next time.

The big picture is this and it's the most important for Apple investors: the world is converging to digital. We're going to be connected, more than ever, via these elegant devices wherever and whenever. These devices are not only indispensable,  they must also be friendly and a pleasure to use.

Apple is at the very center of this mega-trend. Best positioned, and has the most cash and best brain to push the mobile envelope.

If you like free options, buy AAPL.