An Apple Is Not A Lemon
I missed out on the APPLE chase that netted a few of my friends decent returns last year.
Ignoring calls to buy APPLE which was an influx of about half a dozen APPLE trade ideas in my mailbox a week (till Nov where they mysteriously vanished), I feel slightly foolish for entertaining the idea of buying APPLE now.
This is the 5 year chart of APPLE Inc. Its share price is USD430.47 at Friday close.
My rudimentary analysis of equity is pretty laughable.
First I pick a viable company and not just the hole in the wall Zygna (which I bought as a punt last Aug then sold in Sep I think for a small profit). Then I just pull out the market cap and the cash on hand and pretend I am Gordon Gecko .
APPLE Inc Market Cap 404 bio (vs 29 Dec 12 478 bio). Cash & Equivalents 137 bio. That works out to be $146 per share in cash making its share price just about $284.
I will usually scan the P/E and this time its a healthy 9.76 with an estimated 2013 P/E of 9.65. For me, under 10 is always a good number.
Scrolling through the balance sheets and wow. Retained earnings were 9 bio in 2007, they are 101 bio in Sep 2012. Long term investments and receivables up from zero in 2007 to 92 bio in Sep 2012.
Why didn’t I buy APPLE last year ?
I always had a problem with tech companies. Facebook and the gang. I did a small punt in Facebook the same time as I bought Zygna last year, bought at 19-ish and sold at 23. Nothing to scream about as tech companies still scare me. Blame it on 2000 and the tech bubble when I grabbed on to my first decent bonus and ran down to the banking hall looking for unit trusts to buy. The lady offered me Tech or Healthcare and guess which one I took ?
I sold at huge 50% loss just months later and no amount of investing consolations in the ensuing years ever made up for the error in judgement of a young trader.
But I realise that I am not looking at APPLE as a tech company these days. It is a market stalwart and a cash cow.
David Einhorn and the rest of the 226 hedge funds who own APPLE shares are eyeing that increasing pile of cash.
| Apple with its spare cash could buy Twitter, Facebook, AOL & Dropbox & still have more than $50 BILLION left over! |
| Einhorn drops lawsuit versus Apple, ends challenge |
| Apple’s Profits Is Bigger Than Google’s Revenue |
| Apple iPhone generates more profit than Exxon Mobil |
| Breaking news: Apple is no longer bigger than the market caps of Spain + Portugal + Greece |
Little old me is watching APPLE now. I will not be rushing to buy a thousand shares. Maybe just a combination of shares and a ELN for starters. My level will be 400 to 415, its Jan 2012 levels.
Hey, the DOW is back on track, NASDAQ up over 2% year to date, even Zygna is up 42% this year. APPLE is down 20% ?
Wish me luck.
I find it hilarious that everyone is screaming for Apple’s doom. Really? With USD 140-150 bio (they would have more now than what was last reported) in the bank, they can do wonders. What can they do then? Its really up to your imagination. They are making more money than Microsoft, Google, Yahoo combine… hmm… I could go on.
Say they want to allow iPhone to make payments etc in the NFC space. No problem, buy up Citigroup for its global network, sell the parts they don’t want (who wants to be a bank these days??) Or buy Visa, Mastercard, Paypal, maybe even Amex?
In the Tech space, say they want to fight off Intel or choke off its competitors? Buy ARM or AMD. Apple has shown its ability to make powerful and efficient processors. Maybe they could buy Sharp while it is still broke, Sharp’s IGZO screen is class leading. That will put iDevices ahead in power efficiency.
Of course, one could argue that buying out is a waste of money or regulators would prevent these anti-competitive moves.
Let’s not forget that Apple has an untapped market – Phones with bigger screens or cheaper phones. Not everyone wants a giant phone. I do appreciate that I can use an iPhone with one hand.
I could go on and on. My 2 cents worth. This is not a recommendation. Since the problem with Tech companies, they can lose their edge overnight. Look no further at Blackberry.
And really the hype about Google Glass? It does look fancy, and I would try if it comes in contact lens form. Otherwise, no thanks, I do not want to look like the Evil Borg.
Dont say anything. I am on the queue !!
400 is the level mkt is watching cash hoard or not the thing is techicals don’t lie and at this point ( on a six month horizon) it’s still pointing down. If the overall market holds up that’s a good level to get in for a nice boounce back. What could change is what apples decides to Do with the cash pile. If it decides to return the cash to investors market might view it negatively My trade would be buy apple short term for a bounce off low 400s as a technical play but until they come up with what their next play is and there’s been none. I would look to apple going below 400s in the next couple of months given my view that markets will correc downwards
arggghhh… ssssshhh before all the darn pb trade ideas come out !!
Done.
Left oda for ELN (for starters). Bloomberg price about 17% 1m 95% strike. Banker quoted >15%. Take and wait.
As for the 400, its on my watch list.
Not gonna net me the big kahuna, but at least I can say I did Apple !!!
Hello Tradehaven,
I have been interested in an ELN on Apple as well. My track-record of “successfully getting in at the bottom” on stock cycles………… is crap. i.e. my timing is usually “not good”. And while an ELN does not assure I improve on this score, at least it would tend to give me the stocks I actually want a piece of at a lower price (or instead a decent interest payment on my money). Can I just kindly confirm the ELN terms you obtained??……………………
Tenor – 1 month (the bank I used to use for ELN’s had the horrible habit of kicking off the ELN two weeks down the road (i.e. deferring the Issue Date and then saying the Fixing Date is one month later than that) – I’ve stopped using them as a result).
Strike Level – 95% ?? Of today’s closing???
No call barrier? And the ELN can not be called earlier than the one month tenor is up ?
Fixed Coupon : >15% p.a. (USD) ??? (Darn good if you got this BTW Tradehaven).
Can you say who the Issuer is (will understand if you decline).
The bank I’m now using usually wants a minimum of US$ 200,000. I understand that they are now showing “flexibility” on that (in truth I believe they actually club together clients to get a bigger ELN size).
FYI I’m also looking at Reverse ELN’s on my oil & gas service company stocks at the moment (yes …… my track record of picking the peaks ………… is also crap).
Cheers,
JC
Hi JC,
Barrier knock outs more expensive. So you will be looking at 11% p.a. for a 1mth auto knock out at 105% which means the deal will be off and you get your 11% instantly.
Since you are such a familiar respondent, I priced up a 1m (T+2, 30 days) 95% vanilla strike for you just (using yest’s closing price) and you are looking at cost price of just under 18% today. Means your banker should quote you about 15.50-16% if they are nice.
I bank with a swiss bank and they are pretty good.
Usually leave an oda to execute at no worse than say, yest’s close etc parameters, just to be absolutely sure.
It is an interesting new preoccupation with me these days to look a little more closely at these slightly less exciting returning products which I have neglected in the past. Yet it has come to my attention that I need to actively manage my underlying collateral which is mostly in cash vs my other punts, just to enhance returns.
Wishing you luck too !
Many thanks Tradehaven – really appreciated. Thought you might be interested in the attached:
http://www.slcg.com/pdf/tearsheets/38143UXM8.pdf
These GS notes are now 19 months old …………. but because of Apples “rise and fall” have a pertinency to today’s share price. Bit of fun/curiosity.
JC
Hi JC,
Can’t seem to load it but I assume it must be a structured note.
Looks like I am going to end up with 15% p.a. for the month and no APPLE to show for it.
Hahaha. No loss.
Always another trade out there.
Rgds
It’s really interesting to see how ELN are priced and executed. My past history with them has been nothing but pathetic. Stock went up 30% and yet my return is less than 10%, something seems to be wrong.
On the other hand, I can understand all the hype about Apple stock falling faster than the roller coaster. Being in the technology sector, I knew it too well…. All the names that are mentioned here are my customers from chip providers to foundry to fabless houses etc. Honestly, I’m really scared to take the plunge on Apple. In the technology sector, you can be gone without even people realizing it like Kodak film camera, Sony Walkman, the list goes on.
Good luck.
ELNs are simple vanilla European options.
If you have a trading account with say, IB or something, it is easy to get it done on line.
We are all victims to our profession as a occupational hazard which could be detrimental in the long run when you are microscopic.
I like the idea of an ELN when I am not sure and can live without the hassle and stress.
There is no free lunch.
An ELN is selling a put option and collecting the premium upfront.
Same for accumulators and the likes.
If you really bullish, then buy the stock. Because dividends are say, 2-4% max, vs 10% return. Not bad what ?
Think over it. Double barriers and wedding cake structures are more expensive in the long run because they take a cut from each leg, and its easier to structure it yourself in your own trading account.
Sorry that you could not open my pdf attachment Tradehaven. Probably due to my IT ineptitude. It was regarding a Goldman Sachs Leveraged Equity-Linked Note linked to Apple, that they issued in August 2011. The reason it attracted my interest is twofold:
i) Although issued eighteen months ago and maturing in 5 years time, the “interesting price range” is not far where Apple is now – because of its rise and fall over the last 18 months.
ii) The leverage feature.
If every ELN I went into had earned 15% p.a. ………… I would have retired somewhat earlier. I believe you were smart to keep the tenor shortish. Thats what I intend doing, although after yesterday’s approx. 2.5% hike in Apple’s share price, I’m holding off for a while.
Cheers, JC
97% strike 15% interest. Is this a fair deal? I doubt so but I may be wrong cos I’m a newbie when it come to ELN
Hi Barnes,
Wow, many comments.
This one I can answer best.
AAPL assuming you mean 1 month ? 97% strike. The cost price looks more like 24% than 15% to me.
Unless they priced you an option with an auto knock out ? Meaning if it hits 103%, you get your interest straight away and do not have to wait till maturity ?
IMHO ………… for a plain vanilla ELN on Apple in today’s market, a 97% strike is too high for 15% p.a. on a one month tenor deal (i.e. the bank is being a tad greedy). If there are call barriers and the like then it may be ok.
JC
Hello Tradehaven – thought you might find the attached Fortune piece interesting. Looks like the blind-leading-the-blind to me. Also demonstrates the perils of “more complicated instruments” being in the hands of those who do not fully understand the implications of them.
http://tech.fortune.cnn.com/2013/03/04/apple-zaky-bullish-cross
Of course this does not apply to your ELN!!
Take care,
JC
Hi JC,
Great article. It shows that you are one of the aware.
I do not know whether to laugh or cry but cry is a good option. Because, these days, more and more folks are putting their money into the hands of people no better than themselves.
Even the mighty JPM (too big to fail) had a spreadsheet scandal publicised recently.
Maybe everyone is just pretending that they know what they are doing. I have met rocket scientists programming complex curve interpolation calculations who do not know what the curve is being used for.
That is the complexity of the world we have created.
Heavy thoughts for a weekend.
Great article on Apple!
Just realized that my ELN has no auto knockout and is T + 14. Doesn’t sounds logic to me at all.
T+14 start ? sounds strange. Auto knockout cost money. No need for it unless you are very bullish.