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Bail on Apple Shares While You Can



Apple shares

Anything with a half eaten Apple printed on it seems expensive, especially the company itself. The iPhone XS starts at around $1,000 USD and goes up from there. Most people think of computers when they think of Apple. Yet from a business perspective, the company has been a smartphone powerhouse.

At least that has been the case until this year.

Here’s the problem: smartphones are carrying the company’s profits. There is a tremendous amount of competition in the smartphone market. Earlier this year Huawei overtook Apple as the world’s second-largest seller of smartphones, but the stock market just keeps bidding Apple shares higher (apart from the stock selloffs yesterday that saw all major tech companies take a sudden downward turn and Apple (AAPL) down almost 3.5%).

Long Way Down

Apple is valued at more than $1 trillion USD. Their trailing price to earnings ratio has climbed to around 20 over the last few months. A price to earnings ratio of 20 isn’t abnormally high, but it isn’t exactly at value levels either.

Other massive technology companies, like Amazon (whose price to earnings ratio is north of 140), are trading at stupefying levels. Apple’s valuation isn’t nearly as high, but they are highly vulnerable to a substantial drop in earnings. They rely on the Western world to support a business model that may not be able to adapt to the next phase of global growth.

Taken together, these two factors make Apple unattractive as a stock.

Big technology players around the world are highly leveraged to continued consumer growth and a stable financial system. Apple’s presence in the Chinese market has been suffering. Right now Chinese tech heavyweights are expanding into their own nation and other growing markets across Asia.

Apple has depended on Chinese consumers for more than a decade, now they seem to be coming up short. This isn’t great for a business that is highly leveraged to global consumer spending and is able to maintain their valuations because of an accommodative central bank policy.

Wall St. Loves Apple (Which Isn’t Great)

Another reason to avoid Apple shares relates to their relentless rise in value over the last decade. Major investors have made a lot of money on AAPL. The overall economic picture has been looking less stable all year, so sticking with a stock that has lots of profit locked up may be difficult for some investors.

Tech mega caps like Google have risen to earnings multiples around 50, which seems optimistic with Syria heating up again, and an uncertain interest rate situation in the USA. If there is any sort of problem in the global markets, tech heavyweights might be first on the chopping block.

The recent uncertainty in government debt been hard on global markets, imagine what would happen if there was an even larger negative surprise!

Expensive Money is Bad for Growth, and Consumer Spending

Interest rates are still at ultra-low levels around the world. Last week a decent jobs print in the US sent the 10-year yield to levels that haven’t been seen for years. There has also been a string of hawkish statements coming out of the US FED, which could mean a tighter monetary policy in the world’s largest economy.

Apple relies on a consumer that has easy access to high levels of disposable income. In a world where their competition is expanding rapidly, Apple’s business model looks increasingly questionable. Despite the recent higher-than-expected jobs print in the US, the vast majority of US consumers have less money to buy toys than they did a few years ago.

Apple Isn’t a Compelling Story Anymore

A short glance at a weekly chart for AAPL will show that the MACD indicator is at elevated levels, and the RSI is approaching overbought territory. This chart isn’t a slam-dunk short, but it should give anyone who is holding AAPL second thoughts. AAPL shares have been on a winning streak for more than a decade, and there are sure to be some fat profits waiting to be locked-in.

AAPL chart

         AAPL chart

It is possible that APPL shares will continue to increase in price for a short time, but when the next round of selling comes to the markets, it would be wise to either be out of your position or at the very least sell some calls to offset your potential mark-to-market losses.

Over a longer-term, Apple may be in for a rough ride.

Apple’s core computing business hasn’t generated enough profit to justify their valuation in a long time. As a smartphone manufacturer, they aren’t in a great position. The company sells an expensive product that has a hard time competing outside of the US.

Apple was able to expand in China for many years, but today companies like Huawei and Xiaomi are displacing Apple. The last 20 years have been amazing for Apple, but nothing lasts forever.

Featured image from Shutterstock.



  1. rigel7

    October 11, 2018 at 9:02 pm

    Nicholas – You don’t know what you are talking about. First off, iPhones are not “toys” anymore. People are dependent on them. They have wrapped their lives into the phone. Good or bad that’s just the way it is. As well as they are too locked in to switch to another platform.

    “Apple relies on a consumer that has easy access to high levels of disposable income”. Are you kidding me? Many of Apple’s customers pay using installments.

    Amazon makes hardly any profits compared to Apple and should’t be anywhere near the price it is trading at. Just goes to show you how messed up the market is.

    Chinese buy phones based on status. So while Huawei and Xiaomi sell more phones then Apple in China Apple is the one making the big profits on those status buyers and around the world. They don’t need to sell to every customer there or anywhere.

    Apple is going to make a big play in AR. The possibilities are endless what that tech will address.

    Not to mention their services business, soon to be giving away whatever video content they will offer for free (further to lock them in to Apple), all the R&D that nobody knows about, the app store, etc…..

    When it comes down to it, between your advice and Buffett…I’ll stick to Buffett’s plan. Hold for the long term.

    • Bongo McBongo

      October 12, 2018 at 3:22 pm

      As we can see, there (thankfully) exists the ability to provide rational counterpoint(s) to FUD articles like this. @rigel7:disqus

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Billion Dollar Companies

Billionaire Eddie Lampert’s Bizarre Ideas Behind Sears’ Grand Closing



Eddie Lampert

Eddie Lampert was in a position to revolutionize the US retail sector. A little over a decade ago, he was worth a touch more than Amazon’s Jeff Bezos, at nearly $4 billion. Now he’s still at the helm of Sears, which filed for bankruptcy protection on Monday of this week.

Some market commentators have speculated that an eroding middle class is to blame for Sears’ troubles, but Eddie Lampert is a far more probable culprit.

The modern Sears was created in 2005 when Eddie Lampert merged it with another American retail icon, Kmart. His move to sell off a bunch of real estate assets that Kmart controlled helped Mr. Lampert to gain billionaire status a few times over–and attracted a lot of attention from major players on Wall St.

In the wake of his inspired Kmart deal, Eddie Lampert was actually able to take over Sears. Kmart’s shares were riding high in 2005, and Eddie made his move.

It would be the beginning of a long slow grind downward, which Eddie Lampert’s ideas were almost wholly responsible for. The big problem is that he had no clue how to actually run a retail business, or sink money into staying competitive.

Dear Eddie Lampert, There’s a New Technology Called “the Internet”

At their cores, the business model that a company like Amazon and a company like Sears use aren’t wildly different. Both companies sell a whole bunch of consumer stuff to the public. The big divergence between how the two companies operate is how people buy from the retailer.

Amazon allows shoppers to use a website to make their purchases, while Sears used big stores that were expensive to operate, and required much higher levels of staffing. It should be clear by now that Mr. Lampert’s decision to shun spending on developing a web presence was probably one of the worst ideas in US retail, ever.

Instead of using Sears’ deep pockets and extensive network of stores to create a hybrid business model that embraced online shopping, Eddie Lampert decided to cut spending on keeping up the appearance of Sears’ stores. He also subdivided Sears Holdings into 30 different “silos,” and then made the leaders compete for dwindling resources within the company.

The ideas that Eddie brought to the table were certainly innovative, much in the same way that a massage given with chainsaws would be. The end result is also the same. Now the corporate entity that Eddie Lampert has been slowly bleeding for more than a decade is a total wreck.

People Don’t Want to Shop in Ruins

While Eddie was turning his back on online retail, his strategy to cut costs via removing remodeling budgets from Sears’ annual spending ensured that his company couldn’t compete with other big-box retailers like Walmart and Target. The idea that one can just abandon a store’s aesthetic upkeep, and leave its employees to attract clients based on their efforts is totally absurd.

Sears bankruptcy

Image from Shutterstock

Apparently, Eddie Lampert was known for running Sears from one of his two multi-million dollar mansions, which would explain why he was almost totally disconnected from what Sears’ locations were turning into. Not that Target or Walmart are exactly a treat for the senses, but they aren’t slowing degrading from a decade ago either.

Perhaps the most difficult thing to understand in all of this is how Eddie Lampert is still in charge of anything. He clearly has no idea how to keep a business competitive. In fact, he doesn’t seem to understand that retail stores need to be kept up to attract customers. Now Sears is a mockery, and if they emerge from bankruptcy one wonders what kind of market they could hope to serve.

As for Eddie Lampert, he still has some nice houses and a massive yacht that’s named after an Ayn Rand novel. The bumbling (barely) billionaire is still trying to make deals to sell off Sears’ assets, some of which were blocked due to the fact that he was behind the company trying to buy the assets from Sears.

With so much money gone, and so many terrible ideas, Mr. Lampert may be getting out of his mansions a bit more, and spending his days in litigation. It should be a nice change for him.

Featured image from Reuters.

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