Berko: It’s no longer the big Apple
By Malcolm Berko Taking Stock December 28, 2012 8:14PM
Updated: January 31, 2013 6:23AM
Dear Mr. Berko: What do you think of Apple Inc.’s stock now that it’s dropped by more than 200 points? Could it go back to $700 or $1,000? And do you think that Congress will reform the tax code to reduce the deficit?
Dear EP: I believe that most of this country’s problems derive from bad politics. As long as voters believe that the government is Santa Claus, they’ll vote themselves largesse from the public treasury, and Congress will not pay off the national debt.
So attempts at tax reform to stem the deficit are like using a hair dryer to melt an iceberg. We need “spending reform,” a concept unknown to Congress and the electorate. Congress frets about spending cuts and tax reform but won’t consider spending reform. Perhaps that’s an oxymoron, like jumbo shrimp or the public trust.
Spending cuts are vastly different from spending reform. Cuts are temporary, whereas reform is permanent. Cuts are political — a bit here and there until revenue catches up. Reform requires an intelligent Congress and an intelligent electorate. And that’s impossible.
In March of last year, Apple (AALP — $515) was the hottest stock on the planet. Every aficionado, analyst, fund manager, banker and broker believed APPL was headed to the moon and beyond. Every Tom, Dick and Harry and every Kate, Ann and Mary believed that AAPL would top $1,000, split 2-for-1 and then return to $1,000 again. Now that AAPL has fallen to the $500 level, it’s a hoot to watch these hyper investor/traders elbow one another out of the way and scramble to close the barn door after the horse is gone.
AAPL has $125 billion in cash, zero debt, a super product, a great name and a fine business model, and at $515, it’s more attractive than it was at $715. So AAPL could run back to the $700 level just because value investors think it should. I believe that AAPL is fairly priced at 11 to 12 times earnings. When Steve Jobs left the galaxy, the bloom left the rose with him. Jobs wasn’t a normal man; he was an oddity and a bit bonkers and bordered on being a controlled psychopath. But Jobs’ tight focus and his idiosyncrasies were the traits that built AAPL.
CEO Tim Cook is an enormously capable fellow, but he lacks Jobs’ monomania and obsession. Cook is just too normal to return AAPL to $1,000 a share. And cracks are beginning to appear. Profit margins and profits are beginning to fall. There’s an evident decline in the already marginal improvement in Apple’s new generation of iPhones and iPads. Smartphone quality has become a problem, and revenue may grow more slowly. The smartphone market, which has had geometric growth, is moving to low-priced phones, which Apple doesn’t offer.
Without Jobs’ incessant prodding and his hands-on subvention, there’s bound to be a product vacuum, so I doubt Apple’s new products will have similar quality or market appeal. Under Jobs, Apple was an orchard. Under Cook, it’s just a beautiful tree.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.