skip to content


Why I’m no longer an Apple bear

Referenced Symbols

Last year at about this time I was telling everyone to sell Apple. I warned everyone that Apple's seemingly dominant control over the smartphone market would abate. I warned that the company's posturing made it seem as if the company’s executives believed they were sheltered from normal consumer-based market cycles. Almost endlessly throughout the second half of 2012 I warned that Apple shares were going to come under severe pressure.

I went so far as to recommend short sales in Apple last year as well, only to be met with ridicule, and I am sure my words today will be met with a similar response. But now my attitude toward Apple AAPL, +1.98%  has changed.

Although Apple is no longer the growth company that it once was, it is now officially a value play. My comparison is directly to Microsoft MSFT, +2.11%, a stock that has gone nowhere for five years, but a stock that also has a price earnings multiple of 15 times earnings. Currently, Apple's price earnings multiple is less than nine times earnings.

In addition, if we factor out the cash, its price earnings multiple is less than eight times earnings; at these levels, value investors start to get interested, but in order for them to take action, Apple needs to make an important realization.

If the company is indeed going to be attractive to value investors, value-oriented mutual funds and value-oriented money managers, the company is going to need to increase its dividend to at least much closer to that of Microsoft's. Microsoft currently yields 3.2% vs. Apple whose dividend yields 2.5%.

My expectations suggest that Apple will soon increase its dividend, the company will soon start rewarding shareholders by returning capital in that way, and in doing so, it will officially become attractive to value-oriented investors.

The current price-to-earnings multiple is already one that catches the eye of value-oriented investors, but if the company actually starts to accept the transition that it has already gone through, the value-oriented investors that are looking at the stock today will shift from a passive observer to a long-term investor in the stock accordingly.

Using the real-time trading reports offered by Stock Traders Daily, we have also identified proper entry points, target prices, and stop-losses for what appears set up to be a value-oriented trade very soon. We are patiently looking to buy Apple, and we are getting close.

A final thought: Apple could always come out with a new product and reinvigorate a growth phase, but based on what they have in front of them, the company has shifted from a growth company to a value play like Microsoft, and if that is embraced, investors will reward the company again. If they match Microsoft's dividend and stabilize revenue, I see no reason why the P/E multiple for Apple can't match that of Microsoft over time.

Partner Center