Mac to go below $500?

[lord of the mark]

Originally posted by Giancarlo


You just don't get it do you... what makes it so difficult for you to understand? You don't anything about capitalism as it appears. First off, the market is based on speculation and bears no speculation on how the company is actually doing.

If the discounted value of the companys cash flows is $10, but some idiot will come around and buy it tomorrow from me at $20, then its worth it to me to buy it today, even at $12. Hell, even at $19. But then I can also sell it short tomorrow at $20, even without buying it today. And the market clearing price is still the price the market will bear. And its still worthwhile to investors to spend money to determine whether $20 is the true value (IE risk adjusted discounted cash flows)

I could put this in more elegant mathematical terms, but i got lazy about this kind of thing a long time ago.

Have you studied efficient market theory, Giancarlo?

[Agathon]

LOTM

[Imran Siddiqui]

The one thing I do love about the efficient market theory is that it assumes that most people don't believe it . What I mean is that it assumes most people are going to try to 'beat' the market (selling high, buying low, etc) and by doing so they solidify the price at the value the stock is supposed to be.

Just a small aside... but the basic point is that based on all the public information out there, stocks are priced at their actual value. The market quickly absorbs new information that may have an impact and puts it into the stock price.

If a stock is overvalued, there will be a correction. Frankly, I don't consider Apple to be significantly overvalued. They are making a good deal of money lately and the stock price is reflecting that.

[lord of the mark]

Originally posted by Imran Siddiqui
The one thing I do love about the efficient market theory is that it assumes that most people don't believe it . What I mean is that it assumes most people are going to try to 'beat' the market (selling high, buying low, etc) and by doing so they solidify the price at the value the stock is supposed to be.
.

Presumably there is a cost to doing research to beat the market, and presumably the market is just inefficient enough to provide a return to that research, at the margin. But IIRC there were studies that indicated the market was MORE efficient than this, but that never made much sense to me. Unfortunately thats where my education in the economic and statistical analysis of financial markets ended

[Agathon]

Pretty much.

I think that MacWorld may affect the price. They really need to update their powerbook line, as it is currently a disgrace.

You seem to have changed your tune about Apple to some degree, Imran. I take it that your ipod is responsible.

[Agathon]

It does sometimes help having people who are willing to do the grunt work. I read an article about an analyst who wanted to find out whether an internet grocery service was really as good as it claimed. So he followed them around in a car to see how many deliveries they made per hour. It turned out they were doing about half of what they claimed.

[Giancarlo]

Originally posted by Agathon

The stock is trading at what the stock market will bear, by definition.

You don't understand capitalism, if you don't understand this.

For all we know, Apple may be doomed. But we have no way of knowing that. Most of the people who predict this sort of thing for a living, say otherwise. In fact most are quite upbeat. It's rational to follow their lead unless you have some information they don't. I'm guessing you don't.

The stock isn't trading at what the market will bear because right now it is speculation. I understand capitalism, don't you ever ****ing throw an insult like that again ever.

[Giancarlo]

Originally posted by lord of the mark


If the discounted value of the companys cash flows is $10, but some idiot will come around and buy it tomorrow from me at $20, then its worth it to me to buy it today, even at $12. Hell, even at $19. But then I can also sell it short tomorrow at $20, even without buying it today. And the market clearing price is still the price the market will bear. And its still worthwhile to investors to spend money to determine whether $20 is the true value (IE risk adjusted discounted cash flows)

I could put this in more elegant mathematical terms, but i got lazy about this kind of thing a long time ago.

Have you studied efficient market theory, Giancarlo?

I have studied it plenty. Apple is overvalued and I will not back away from that. Just examine the numbers Asher gave. Don't you ever insult me in a field that is considered home base for me.

[Agathon]

Fez, the stock always trades at the price the market will bear. That is how prices are fixed.

If you want to claim that the stock is overvalued, fine. But you need to come up with some evidence of that. Relying on numbers posted by Asher of all people is not good practice. Why not try looking at what actual experts have to say. I had a look around and I couldn't find anything signifying Apple's immediate or near financial doom, anything I did find was just speculation.

I have to say that this fanaticism is pretty poor showing. Don't be like Asher, he just has fanatical hatreds for among other things, Apple, philosophy, the Liberal Party and 1980s popular music. No amount of reasoned argument will sway him since reason wasn't involved in the first place.

That's a pretty sad way to live. You used to be (slightly) more reasonable than this.

[lord of the mark]

Originally posted by Giancarlo


The stock isn't trading at what the market will bear because right now it is speculation. I understand capitalism, don't you ever ****ing throw an insult like that again ever.

Gian, i think you dont understand the phrase "the price the market will bear". If the market wont bear a price, the item so priced will not be sold. Economists actually use the term market clearing price - that price at which whats offered for sale equals buyers want to purchase.

In a secondary financial market, like the stock market, a seller will sell at the price that equals or exceeds what he thinks the stock is worth. Buyers buy at prices equal or below what they think it is worth. If the price is NOT market clearing, then sellers will offer MORE shares for sale than buyers want to buy. Sellers will lower their prices, inducing more to buy, and some sellers will stop selling. Eventually a market clearing price will be reached. In a highly liquid market this will happen relatively quickly. This is the price the "market will bear"

In some instances a decline in price will not clear the market, since some will respond to this decline by deciding the stock is worth LESS, and will sell rather than buy. This is called a panic, and happen going up as well (a buyers panic).

These are not that common, and AFAIK has not recently been the case for Apple stock.

None of the above indicates that the price is correct, or is not influenced by irrational factors. None of which bears on the definition of "price the market will bear".

As for speculation, that does NOT necessarily indicate irrational behavior. It indicates rather someone buying not with the intention of holding for the long term, or, in the case of commodities, of using the commodity, but buying solely for resale. In many instance speculators can help to keep the market efficient, by ensuring that long term factors are reflected in the price even when there arent enough long term buyers and sellers to do so, and they keep the market liquid. SPECULATORS are GOOD!!


'Far from being the vultures they are often depicted as being, currency speculators perform a vital market function, in the opinion of many free-market economists.

In the 19th century, gold standards put a check on inflationary government policies and stabilized economic growth. But in the 20th century governments abandoned the gold standard. Now, currency speculators detect when countries print an unsustainable amount of money. They then sell those currencies and buy other, more stable ones. Economists say this gives governments a jarring wake-up call, forcing them to reform inflationary policies.

These days, about $1 trillion is traded each day in the foreign exchange markets.

In fact, capital flows are about 50 times greater than trade flows.
Currency experts note that professional speculators are not always the first to signal danger to a country's economy. They say when the Mexican peso melted down in 1994, it was the Mexican people themselves who turned their backs on their own currency well before traders noticed the country's problems. A National Bureau of Economic Research study documents that Mexican investors were selling off the peso weeks before foreign investors saw trouble.

Experts say that countries with less regulation, more freedom, balanced budgets and stable policies are the darlings of the currency traders, and the ones that prosper.

Source: Perspective, "Speculator or Hero?" Investor's Business Daily, December 3, 1997.'

[lord of the mark]

'CFTC's official document "Economic Purposes of Commodity Futures Trading" makes clear that the only accepted purpose of futures market is to support hedging risks. I quote:
The Role of Speculators

... Speculators are a source of immediate liquidity for the markets, which is a characteristic of a continuously active market. However, the mere presence of speculators is but one component of a healthy market. Another active group of participants are hedgers. ... '

[Giancarlo]

Originally posted by Agathon
Fez, the stock always trades at the price the market will bear. That is how prices are fixed.

If you want to claim that the stock is overvalued, fine. But you need to come up with some evidence of that. Relying on numbers posted by Asher of all people is not good practice. Why not try looking at what actual experts have to say. I had a look around and I couldn't find anything signifying Apple's immediate or near financial doom, anything I did find was just speculation.

I have to say that this fanaticism is pretty poor showing. Don't be like Asher, he just has fanatical hatreds for among other things, Apple, philosophy, the Liberal Party and 1980s popular music. No amount of reasoned argument will sway him since reason wasn't involved in the first place.

That's a pretty sad way to live. You used to be (slightly) more reasonable than this.

I could call you something, but I would get banned. It is what I call John Kerry. But whatever.... Asher is more credible then you ever will be. Furthermore, Asher is far more intelligent then you and is far more of a human being then you are. He has a bit of common sense and guess what.. I'll even go as far as saying he is smarter then me. You are the fanatic here and you are being highly hitleristic with your opinions. Apple is backwards and I HOPE THAT IT DOES DIE AND GOES DOWN THE TUBES. Actual experts agree with me. Apple is overvalued. This isn't a ****ing marxist state. Things aren't fixed by the state.

[Giancarlo]

Originally posted by lord of the mark


Gian, i think you dont understand the phrase "the price the market will bear". If the market wont bear a price, the item so priced will not be sold. Economists actually use the term market clearing price - that price at which whats offered for sale equals buyers want to purchase.

Yes I do. What you don't understand are the clear concise facts.

http://tradermike.net/2003/05/apple_is_overvalued.html

Despite Apple’s recent run-up in price in conjunction with the intro of iTunes, concerns over valuations still persist -- Barron's (18.32)

The article cites concerns over the co's recent stock price appreciation in light of the response from its iTunes online music store. Apple's valuations currently suggest its trading at approximately 70 times forward earnings. In addition, interest income is projected to represent all of the current year's profits and a significant piece of next year's as well. Concerns continue to be cited over the lack of growth in its core computer business. The article suggests the co has two choices of either finding a way to profitability with its hardware business or utilize its cash to purchase related services like iTune and iPod.

*****

I'll trash the rest of your message.

Looks like you are dealing with a can of rotten eggs:

http://www.fool.com/news/commentary/2004/commentary04100703.htm

This week we're dueling over the prospects of one of our most popular stocks here at Fool.com: Apple Computer. Loved by many, hated by just as many, Apple separates Fool from Fool frequently in our discussion boards. We take the battle to the front page today with Fool contributor and Mac aficionado Tim Beyers defending the iEmpire while Fool Seth Jayson argues that Apple is rotten to the core. After you've read both sides, vote on which one has won your heart.

Ladies and gentlemen, the Apple (Nasdaq: AAPL) is rotten. OK, let's qualify that. After all, this is to be a discussion -- for the most part -- about Apple the company, not Apple technology. Apple's stock is overripe. Stinking. Mealy, full of worms, and wholly unsuitable for public consumption. Why? Shortsighted enthusiasm.

No doubt about it, Apple the brand is hot. Over the past couple of years, the stock has outperformed the S&P 500 by a huge margin. There's a one-word reason: iPod. The world's best-known digital-music doodad has juiced Apple's sales over the past several quarters and made the company the latest shoeshine-boy stock. What's a shoeshine-boy stock? Something like Krispy Kreme (NYSE: KKD) before it found out that reality bites. It's the popular company, the one that gets free press coverage with every new retail outlet, the stock everyone's telling you to buy. And as Lynch and others have pointed out, when the wingtip-buffing ragamuffins recommend an equity, that's a pretty sure sign that the hot streak will be coming to an end.

But the shoeshine-boy syndrome isn't the only symptom of Apple's upcoming malaise. There are others, clearly visible in the financials. Why no one seems to notice the obvious is another story, and, conveniently enough, that's the one we'll explore first.

Think different, like me!
"Think different?" I've always found this key slogan in Apple's marketing to be troubling, and not just because it shows that CEO Steve Jobs needs to brush up on his fifth-grade grammar. (Hey Stev-o, buy yourself an adverb!) It's creepy and ironic because Mac fans -- especially the ones who write me -- are about as freethinking as the lovely ladies of Stepford. They're like a pack of Moonies telling a congregation of Snakehandlers, "You're brainwashed. Join us to free your mind."

Americans have always preferred their rebellion in commercialized and socially acceptable packages -- witness GM's Hummer H2, Harley Davidson motorcycles, or the Mullet -- but wake up, people! Leaving a $300 billion monopoly to support a $15 billion one does not constitute intellectual daring.

In fact, it simply means you've got less consumer freedom, not more. Think I'm making this up? Ha! Count the PC vs. Mac software packages at your neighborhood Best Buy. Try using your iPod with competing software. Try using any non-Apple MP3 player with iTunes. This is more than a question of tech theology: Mac's legendary insularity has always been a huge anchor on growth.

Apple's iTunes and iPod are the biggest things in digital music today, and Jobs and Co. are determined to screw it up. Why? They think different, all right. By refusing to play nicely with outfits such as RealNetworks (Nasdaq: RNWK), Roxio (Nasdaq: ROXI), and Loudeye (Nasdaq: LOUD), Apple's not only passing up lucrative licensing opportunities but also missing the chance to rocket to the front of the digital music world forever.

Taking measured steps toward dominating a market is how Microsoft (Nasdaq: MSFT) came to be 20 times bigger than Apple. As things stand, Apple's congenital narrow-mindedness makes it easy pickings for the dozens of dit-music firms out there who want to take a bite out of Cupertino. Just because none of them have come up with anything as nifty as the iPod doesn't mean they won't. Low-margin iTunes is already under threat.

But surely Apple's management realizes this fatal error, right? Don't count on it.

Hey, Emperor! Nice duds!
The end result of the overdone enthusiasm for Apple is a major lack of accountability. I've worked with Macs for well more than a decade, and though they've gotten more stylish, they haven't necessarily gotten any better, especially compared with the competition.

Consider the photo and design audience. For years Apple has been milking its reputation as the computer of choice for this constituency. There was a time when Macs had a lead that looked insurmountable. That's no longer the case.

Every year I get to play with brand new Mac gear -- direct from Apple -- as the "tech guy" at a well-known photojournalism workshop. This year, as usual, I wasted entire days trying to coax the new Mac OS to make nice with a variety of printers. Plug and play? Try plug and pray. Color fidelity, WYSWYG? Not with top-of-the-line Power Macs and cinema displays, I guess. This year, incredibly, I ended up relying on a no-name Windows laptop purchased at Wal-Mart's Sam's Club to do the heavy lifting.

I'm not surprised, because I've seen this for years. But here's the odd thing: Even though the diehard Mac fans (everyone there) were cursing the quality of the machines and the OS, they remain Mac fans. They've made a lifestyle choice, and they're sticking with it. But their sheepish acceptance of the frustrating state of affairs is another drag on Mac growth. There's no need to improve when all you hear is how great you already are.

Stockholders should realize that when you're fighting for turf on the open market, style goes only so far. To judge by the public's lukewarm response to Mac computers over the past few years, Apple's not so efficient with the proselytizing. For 2002 and 2003, total Macintosh unit sales have been either flat or negative. So far this year, they're doing better, up 10%. Sound good? Dell's (Nasdaq: DELL) unit growth is 50% better, at 15%. And industry observers have recently started to wonder whether the late launch of the new iMac and limited availability of the new PowerMacs will rein in Apple's slimmer scale-up. Outside the iPod, Mac is definitely not a quick grower, so what's up with the stock price?

Two-bit Apple
Apple is one of those companies where investors are enthusiasts, and vice-versa. Sometimes, that's OK. But in this case, the result is a self-deluding, self-amplifying feedback loop. Earlier this year, there was reason to cheer the iPod's contribution to the top line. But these days, it's nearly impossible to hear through noisy enthusiasm.

The cacophonous refrain these days is the claim -- so far unsubstantiated -- that the iPod will increase demand for the company's computers. Over the past few days, the Macintosh media have repeated this contention, pointing to a single analyst's pie-in-the-sky wish for an increase in Macintosh market share. Here's what was actually written: A .5% increase in market share is "not out of the question."

Not out of the question?

Listen, a visit to my back yard from people-probing Martians is also not out of the question, but that doesn't mean you should bet your investing dollars on the likelihood. How about looking at the numbers instead? Yes, let's.

To start with the obvious, Apple's price to earnings ratio (P/E), we find a 73. Yikes! The forward P/E, based on estimates, clocks in at 43. Though it is a mistake to judge a company only by its P/E ratio, the fact that Apple's is more than twice its competitors' demands some explaining.

Hey, Apple is growing, right? So, when we account for Apple's likely rate of expansion, is the stock's price more solid ground? Hardly. When you compare the P/E to expected growth, through the PEG ratio, Apple's stock looks even crazier. Apple's PEG is an insane 3.36.

Yes, the PEG is a bit old-school, but it's still a good rule of thumb. When paying up for growth, you should start getting skeptical when the P/E exceeds the rate of growth. When they're in balance, the PEG sits around 1. You could argue that Apple's explosive earnings increase over the past year has put this metric out of whack, but even if you don't believe in absolutes, taking a look at Apple's peers provides a good dose of reality. Dell's PEG is 1.37. Hewlett-Packard's, 1.45. Even Google's 2.38 is an order of magnitude lower.

OK, we're still talking about valuation shorthand here. Certainly there must be some other reason that people are paying such a premium for Apple. Could it be superior margins? Nope, Apple's operating margins of 3% are pathetic by industry standards. Those are the kind of margins you see in cut-rate retail businesses -- 2% lower than Wal-Mart's! What that means is that Apple is going to have a tough time continuing to club earnings out of the park, even if it can scare up big sales gains. To see what a profitable tech firm should be achieving, look at Dell's 8.5% operating margins, or Microsoft's 24%.

C'mon, there must be something! How about major products in development? Nothing so far. In fact, one of the few analysts brave enough to put a "hold" on Apple recently was practically begging the firm to come up with anything new. A flash-RAM iPod, a set-top box, a media PC, anything. When the analysts start pleading for a reason to stay bullish on the Street's favorite pet rock, it's time for savvy shareholders to look for the exits.

The final word
Friends -- and by friends, I mean those of you out there furiously typing angry defenses of Apple -- open your eyes. Enthusiasm for a computer, pocket stereo, or cleverly marketed lifestyle choice is no reason for an investment. Apple's done well over the past two years, but the stock is now priced beyond perfection. For your $40 a stub, you should be getting an unstoppable business with huge growth potential. Instead, you're getting a slowing, sub-par nerd-niche operator with a shiny surface. To add insult to injury, 47% of the stockholders earnings so far this year are wiped when you consider the impact of stock options. Where's the payback for shareholders?

They wax and polish the mealy apples at the supermarket in order to fool you into buying them. Don't fall for the same trick when you're buying stocks

****

Apple is headed the way Krispy Kreme is... and guess what? THERE IS NO DAMN CREAM FILLING IN THIS ONE!

[Agathon]

This thread has been Godwinized.

[Giancarlo]

THE EXPERTS AGREE WITH GUESS WHO? ME!

http://www.redherring.com/Article.aspx?a=10930&hed=Apple%E2%80%99s+iPod+honeymoon+continues

Morningstar’s Mr. Bare cautioned investors not to get carried away by the iPod hype.

“Apple does need to maintain the computer business, they have so much invested in it,” he said.

There is the danger that the iPod’s slim profit margins could drive down the company’s average gross margin. “That trims down the future cash flow stream…that’s what can weigh on valuation,” said Mr. Bare. Apple’s distribution system, which includes 93 stores, with another 7 to be open by the end of the year, also makes some analysts anxious.

“Some people don’t separate the two [product and valuation]. I think their products are great, and they do some very smart things. They will be around for a while, but I still think [Apple’s stock price] is pretty overvalued,” said Mr. Bare.