Is Apple’s Fall Over?

 

If you would prefer the video format, you can find it here. 

The Market Situation Report (Text)


America’s most loved stock is Apple. 

One of the most “mean reverting” numbers in the world is profit margin.

If a company comes out – quarter, after quarter, after quarter – with big, fat, juicy profit margins, other companies are going to figure out how to get a piece of that action.  

It may take those other companies a while, but one thing that has held true over the last couple of centuries: If there is profit to be made by one company, other companies will follow.

Other companies will start asking themselves, “How can we get into the business with those same juicy profit margins?”

That is why Apple will never see the same fat, juicy profit margins it saw in 2012. Other companies have not only figured out how to make a good enough product to compete with them, but also at a lower price.

So, let’s talk about Apple.

About five months ago, I said that Apple was a buy at $425 a share.  At the time, Apple was trading north of $660 a share.

I wasn’t predicting.  I just mentioned that if Apple fell to $425, it would go on my short-list for my Obvious Trend Strategy.

Let’s look at what Apple has done over the last six months in comparison to a handful of its competitors; competitors that have been getting squashed by Apple over the previous eight years. 

The first company we’ll look at is the smart phone maker, RIMM (the maker of the Blackberry).

Below is a price chart of RIMM…

Image1.jpg


The chart shows that RIMM is up 156% over the past six months. During the same time period, Apple is down 25%.

Even if it takes companies a while (and even if they keep tripping over themselves and making things customers don’t want), eventually, companies will figure out how to make what people want.  The same thing is true with those juicy profit margins. 

The idea of companies dying, and the demise of companies, is way, way over-publicized.  RIMM is not dead, and it looks like they have finally made a product that people will buy.

Next, let’s look at another Apple competitor; Nokia.

Remember Nokia; the company that used to make phones?  Well, since July (about six months), they are up about 142%.  Over the same time period, Apple is down 25%.

Image2.jpg


Companies are starting to figure out (finally) how to make products that people want in the smart phone business.  That is going to take away some of Apple’s smart phone margins; which has, up until last year, been almost the only game in town. 

Next, we have HP.

Hewlett Packard has been one of the worst run companies over the last few years.  I think they may be starting to get their act together.  See the price chart below.

Image3.jpg


Over the last two months, HP is up 22%.  During that same time period, Apple is down 25%.  Even a poorly run company like HP can figure out how to sell computers a little bit better.

They will do their best to eat (and bite at the heels of) Apple.  There are a lot of intelligent people out there who want to figure out how to take that nice, juicy profit margin away from Apple, and it is happening.  It has started.

Next, let’s look at another almost-left-for-dead company, Dell.

Dell is up 40% over the last three months, while Apple is down 27%.  Who knows, Dell may actually figure out how to make products that people like, and take some of that profit margin away from Apple.

Image4.jpg


Lastly, let’s look at Samsung.

Since August, Samsung is up about 17%.  During the same time period, Apple is down about 22%. 

Now, Samsung makes everything from washers and dryers, to cameras, TVs, and smart phones.  Much of this move-up for Samsung is related to their Galaxy phones.

What I want you to note about Samsung is that they are a $200 billion dollar company.  For that company to go up 17% is not a trivial thing.

See the Samsung vs. Apple chart below.

Image5.jpg


Apple will never have the profit margin it had just six months ago.  That is gone forever.

Other companies are finally figuring it out, and the profit margin on Apple products will fall.

All of the charts above do not mean Apple is dead – far from it. Apple is not going the way of Sony; at least, not yet.

So, let’s look at an Apple chart (10 years of data) below.

On the lower left part of the chart, Apple’s 2003 low is about $7.  On the upper right part of the chart, Apple is about $450.  So, let’s keep things in perspective.

Notice the pink trend line in the price chart below. Apple is simply hitting its 10-year price trend.

 

Image6.jpg
Look at the next chart of Apple.  This one is zoomed to the last 15 months.  Notice how the price is very close to two supports: The trending support, and the price breakout support from 2011.

Image7.jpg


The horizontal line is at $425.  The reason I have Apple at the buy mark of $425 is that there was major resistance for Apple in 2011 at the $425 price.  When the price finally broke through, Apple just took off from $425, up to $700. 

Notice how the upward trending line is also at $425.  So, 5% plus or minus of $425, is a fair buy-in for Apple stock.

The take-aways:

1) 99% of investments revert back to their long-term mean/trend.
2) Profit margins are the most “mean reverting” numbers in the investment world.
3) Apple is a buy at +/- 5% of $425.

——————-

My monthly Strategy Gathering is coming up on February 12th.  It’s going to be online and streamed live, as always.  I’m going to review stocks, bonds, currencies, commodities, and real estate.

Of course, we will have speed investing; where I will deconstruct any ticker symbol you want in 30 seconds or less.  You will be able to personally ask questions about any stocks or strategy. Remember, interaction and connection is the key to you growing and protecting your money.

Together, we are growing and protecting your wealth,

rc_signature.jpg
RC Peck, CFP 

Is your peer group holding you back?  Your peer group defines the upper limits of your wealth.  If you want to be wealthier, then perhaps it is time to upgrade your investment peer group.  Upgrade right now.

  
Fearless Wealth | Investment Independence
Helping Individuals Reach Financial Independence Sooner, Faster, Safer.


0 Comments