Session 28–Apple Stinks! They loved it at $700…They Hate it at $400.

When we started this blog, we said we would not be making stock recommendations.  This will sound like one and I will admit in the interest of full and complete disclosure, I did buy some Apple today.  I did it because I felt that the media/ street rant that followed the release of quarterly earnings was so stupid and such a massive Wall Street fade of sentiment, I could not resist.  Caveat reader, I am very wrong from time to time.  There will be no follow-ups and I will not report when, and if, I exit the stock.

First of all, what I did not hear was the media brutalizing the analyst corps for herding itself into the name at $700 eight months ago.  There was no disgust, nor was there any outrage at the lemming-like race to cut estimates and price targets this morning (4/24) after stock had fallen 40%.  What I did hear was a parade of expert witnesses testifying as to why this was the appropriate action to take.   Here is a little sampling of the pandemonium from an article that appeared on the WSJ Market Watch site…..”Apple Target, Estimates Cut by Wall Street—Analyst look past raised dividend to see later product, slowing sales.”  I am certain that they will be just a prescient on their look into the future this time as they were eight months ago, when the $800 price targets were being slapped on the name.  There is another little ditty attached to this article entitled,  “Does Apple’s Dividend Make It Microsoft 2.0?  Commentary: Income tech stocks aren’t for growth.” This is probably true considering that it is very hard to grow a $380 billion market cap company at a rapid clip.  The boss, Tim Cook, has admitted as much.

According to Bill Griffeths on CNBC’s “Closing Bell”, “Tim Cook said on the call ‘Apple is a mature tech company’.”  Griffeths followed by asking, “Does that make it a bad company?”  To which his trusty side-kick Maria Bartiromo, missing the point completely, responded, “But is it worth $700?” Maybe not now, but it may be worth a bit more than the $406 close.

Here are few stats for your consideration:

• The stock is down over 40% from its recent peak.

• It is a newly minted AA+ credit (carries the same rating as the United States)

• It has a 3% dividend (130 basis points higher than 10 year treasury, which will never experience an increase in payout like a common stock)

• They have a $100 billion authorization (on a total market cap of $380 billion…i.e. more than 25% of the market cap) to buy back stock between now and the end of 2015.

• They may borrow the money at very favorable terms to buy back this stock—a great idea in a hyper-low rate environment…maybe below the dividend rate or future dividend rate.

• The stock, at current price, may be selling at a little over 10 times earnings (if you subtract cash on the balance sheet, the number looks more like 6 times).  It is already priced as a stodgy, slow-growth company.

So why don’t they like it at $406?  Why are they hanging crape and singing funeral dirges?  The financial media is at work for you!! Maybe we should have titled the post “The Street and Media Stink! Apple is OK.”

Again, this is not meant to be a recommendation.  It is meant to illustrate how the street and media can screw up as they often temporarily repeal the Law of Supply and Demand.   Wall Street is the only place that I know of where higher prices create demand and lower prices destroy it.

What do you think?

The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities.  I may,  from time to time, mention certain securities for illustrative purpose, names where I personally hold positions.  These are not meant to be construed as recommendations to BUY or SELL.  All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.