Business - A bite of Apple

Dear Mr. Berko:

In October 2009, you roundly criticized Apple's iPod as useless and suggested that the stock should not be bought. I sent you a long letter telling you why you were wrong, but you did not answer me. The stock is now $224, so let's see if you have the guts to publicly admit your stupidity. I think Apple is one of the finest stocks one can buy and that in the next few years, it will trade over $450 a share, and I will not ever read your stupid column again.

H.E., Fort Walton Beach, Fla.

Dear H.E.:

I'm not goof proof, but if I had "goof insurance," that "call option" would have paid off because I goofed big time on the iPod and pooh-poohed Apple at $184 in October 2009. I'm a neo-Luddite, and my DNA lacks appreciation for digital gimcrack, gizmos and contrivances like Twitter, YouTube, BoobTube Facebook, iPod, iPhones, iPads and sundry honey traps that control the cognitive functions of folks under 50.

I'm astonished that so many Americans are psychologically and emotionally addicted to Facebook, cell phones, texting, Xboxes and iPods. It seems that pre-teens, teens and those on the upslope of 40 develop trance-like characteristics when they disconnect from their wireless gadgets for six minutes, and exhibit serious withdrawal symptoms when their disconnect exceeds 12 minutes. This is their umbilical cord to the world and the 24/7 connectivity is a soothing anodyne to millions of addicted wimps who probably don't like their own company. When the under-50 crowd has "alone time" and looks inward, they don't like what they see. Being alone with their thoughts makes them miserable, and because "misery loves company," they text, listen to music, talk on their cell phone or run to Facebook. And when I see people using a cell phone or an iPod, texting while riding a bike or an exercise machine, waiting in line at Kroger or watching TV, I know those folks are uncomfortable in their own skin. Whatever happened to "Come on over and let's chew the fat?" Or reading a book, or hobbies like sculpting, woodwork and gardening?

Well, I didn't like Apple (AAPL) last October at $185, and at the risk of being wrong twice, I don't like AAPL today at $224. And my four grandkids, each of who bought 16 shares of AAPL at $85 in January 2009, think I'm an ogre. Well, this ogre expects AAPL to earn $11.50 a share in 2010, which is a rather rich 20 times earnings. The Street's consensus indicates earnings of $12.45 for 2011 and a target price of $300. Forty-two analysts follow AAPL -- 36 of them have a "buy" rating, four rate it a "hold" and two have a "sell" signal. So hold AAPL, providing you're a long-term investor.

Much of AAPL's products are basically entertainment and feel-good appliances that cost between a knight's bounty and duke's ransom. Now, consider that the consumers are in hock up to their hairline, that wages are declining and that the costs of groceries, fuel, utilities, property, and health insurance are rising. Well, who is left to fork out $500 or $600 for an updated version of a year-old product that still works like a fine Swiss watch? AAPL's innovation is like adding 10 horsepower to a 400-horsepower engine, a fourth speed to a three-speed fan or moving the "delete" button to the lower left on the keyboard.

This $46 billion revenue company has zero debt, net profit margins of 16.5 percent and doesn't pay a dividend ... yet. However, AAPL trades at a P/E of 20, which is rather high compared to Hewlett Packard's P/E of 15, Dell's P/E of 16, and 13 for IBM.

Anyhow, I don't think that AAPL has the significant upside that you do, at least not this year and certainly not until our unemployment numbers and home prices begin to improve. I'm not sanguine about AAPL for 2010. The shares have zoomed from $80 to $225 in the last 12 months, and I doubt there's another 10 points in the shares above its recent high. However, I believe AAPL is a good long-term hold because when the economy gets cracking again, the shares have the ability to double in the coming five years. By the way, my grandmother doesn't read this column either -- so you're in good company.

----------

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.

© 2010 Creators Syndicate Inc.

Published: Wed, Mar 17, 2010

Comments

  1. No comments
Sign in to post a comment »