Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Three Reasons Why Carl Icahn Is Wrong About Apple Stock

Companies / Apple May 27, 2015 - 05:06 AM GMT

By: ...

Companies

MoneyMorning.com Michael A. Robinson writes: Just try to find a bigger Apple Inc. (Nasdaq: AAPL) bull than me.

I was among the first analysts to put a pre-split target price on the stock of $1,000. (Following last year’s 7-to-1 stock split, that works out to a price of $142.85, just 7.7% above today’s opening price.) And I’ve been helping you find good entry points on Apple stock ever since.

But for me, Apple is not just a way to make money. Sometimes it seems like my whole life depends on Apple products and the Silicon Valley legend’s unique tech “ecosystem.”


So, when I tell you that Carl Icahn’s recent bullish stance on Apple is wrong, I speak from both my head and my heart.

Icahn made waves last week when he said Apple shares are worth $240… right now.

Sure, I’d love to see Apple shares make the 81% gains Icahn is calling for – and they probably eventually will. But in this case, I think the famed corporate raider and activist investor is way off base.

And that’s why today I’m going to give you three reasons why you shouldn’t base any Apple investment decisions on Icahn’s bonkers valuation…

Big Fan, But…

I’ve been an Apple fan since the first Mac came out in 1984. I remember the iconic “1984” anti-IBM Super Bowl ad as though it ran last night.

And remember, it aired only once – 30 years ago.

Today, my life revolves around Apple products. For instance, I’m writing this note to you on my MacBook Pro.

I start each workday at 6:30 a.m. by monitoring the markets on my main iPad while listening to online music streaming from my iPad Mini.

Of course, my iPhone’s nearly always in my pocket, and I rely on it to make calls, stream music, set reminders and send messages.

I was among the first people to order the new Apple Watch, and I already wrote a pretty glowing review about this piece of wearable tech. Not more than 15 minutes ago, I used it to make an appointment with my chiropractor.

Meantime, my computer and wireless networks run on Apple routers and range extenders. And when I watch a TV show or movie, it’s almost always through my Apple TV set-top box.

And that last item leads indirectly to what exactly Icahn is wrong about.

See, Icahn, a major investor in Apple, wants the company to get into the business of making and selling not just set-top boxes but also TV sets.

Indeed, in an unsolicited note to CEO Tim Cook, dated May 18, Icahn urged the company to get into the TV business. And he factored Apple’s entry into the TV business into his a $240 share-price valuation.

The idea would be for Apple to join the rapidly growing field of ultra-high-definition TV (UHDTV), also known as 4K TV. No doubt, there’s some opportunity here.

The Consumer Electronics Association (CEA) predicts roughly 5% of televisions sold in the United States by the end of 2016 will be 4K sets. If the industry hits the CEA’s projected 1.43 million units sold, that would represent a 60-fold increase from 2013, when the first UHD TV sets began arriving here.

For years now, Apple has made a 27-inch high-def monitor to be used as a big-screen display in a desktop workstation. Of course, you can also use the monitor to stream video.

So, to that extent, the iDevice King is already in the “TV business.” However, to go from making a limited number of computer monitors to becoming a full-on mass TV firm would be a difficult and unwarranted transition.

That said, I could be wrong…

In less than two weeks, Apple is holding a developer’s conference in San Francisco – and some company watchers are betting the firm will announce a new 4K TV set. On the other hand, a recent report in The Wall Street Journalsays Apple quietly shelved a TV project last year.

So, while a new TV remains a possibility, I don’t think it will happen. And if it does, it won’t be for a mass consumer audience.

There are three reasons why I say that…

Why Not Apple TV Reason No. 1: Not Core

First, televisions are not part of Apple’s core business. Yes, the Cupertino, Calif.-based company has branched out beyond personal computers into several new products and sectors over the past decade as its stock went on a tear.

But each of those fields stems from its deep expertise in computing and software.

Take the iPhone. The company turned the mobile industry on its ear with the introduction of the iDevice in June 2007. Apple essentially created the smartphone category from scratch, and today people around the world buy 1.2 billion of these handheld minicomputers each year.

Apple did something similar in 2010 with the iPad, taking the idea of a tablet computer and making it a popular consumer and business productivity tool. IDC projects global tablet sales of 353 million by the end of 2017.

By contrast, a television is a very different piece of consumer electronics than a handheld computer – or even the wireless routers the firm makes so its customers can run all their iDevices on a single Apple network.

Moreover, each of these products allows Apple to escape the second reason it should avoid getting into the TV business.

Why Not Apple TV Reason No. 2: Commodity Pricing

While smartphones and now smartwatches remain high-margin items, televisions have become commodities.

There aren’t enough hours in the day to pursue all the offers you see to buy big-screen TVs as steep discounts. Televisions are on sale all day long at storefront retailers like Best Buy Co. Inc. (NYSE: BBY), 24 hours online at Amazon.com Inc. (Nasdaq: AMZN) and at regional chains like Silicon Valley’s own Video Only.

With such brutal competition, profit margins are thin at best. Just look at LG Electronics Inc. (KRX: 066570).

The South Korean consumer electronics company is major TV manufacturer. For its efforts, the company has negative free cash flow, declining quarterly earnings and operating margins of just 2.8%.

At Apple, the situation is completely reversed. It recently posted a 33% quarterly earnings increase, generated $46 billion in free cash flow last year and boasts 30% operating margins – 11 times that of LG.

And that brings me around to my third point.

Why Not Apple TV Reason No. 3: Industry Consolidation

Profits are so elusive in the TV industry that some of the world’s top brands have significantly cut back. Panasonic Corp. (OTC: PCRFY) once made one of the world’s best plasma TVs, but it exited that unprofitable business in 2013.

Not only that, but Sony Corp. (NYSE: SNE) announced in late 2013 that it was spinning off its TV business because the unit was such a huge drag on earnings.

Thus, while I share Icahn’s enthusiasm for Apple as an investment, I don’t think Apple is worth $240 because it’s about to make a television.

Don’t get me wrong. You should still be investing in Apple because it’s incredibly well-run firm whose stock has a long way to run.

I believe it will reach and then surpass my own $142.85 price tag fairly soon.

But it will do so because the company is focused on its fundamentals – not because it succumbs to the ill-informed guidance of an activist investor like Icahn.

P.S. I hope all are “Liking” and “Following” me at Facebook and Twitter. We’ve got a great community there who are eager to make big money in tech stocks today.

[Editor’s Note: What do you think about the TV business? Is there any juice left there for investors? Michael loves hearing from you and answering your questions.]

Source :http://strategictechinvestor.com/2015/05/three-reasons-why-carl-icahn-is-wrong-about-apple/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in