AAPL INC - AAPL - DAILY - Time to Sell - Love the Company but

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I dislike the value in AAPL             shares here. If you buy the whole company, you will fork over $653 billion and at the end of a great year like 2014 you will have earned (on a free-cash flow basis) $39 billion, a decent 6% return given the brand name and the technology but not enough return to be attractive for new investment. Granted, earnings will be reported in 18 days that may provide additional insights into margins, sales, and forecasts for the upcoming quarter. Since the iPhone 6 is still in the initial quarter of release, the quarterly numbers will be a surprise.

From a technical perspective, investors are taking profits and the trend is down from the highest close in November and the recent rebound brought AAPL             shares back up to the high end of the standard deviation around the current down-trend. I view $100-$96 as "key support" from the past two earnings reporting time-windows. I would cover all shorts before the next earnings report as I don't wish to have that risk.

Tim 11:06AM EST 111.10 last AAPL             Jan 9, 2015

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Tim, you may be correct about the short term direction of AAPL on a technical basis, however your valuation logic appears flawed.

You are taking a buyout view of AAPL with a market cap of $653B but that is overstated by some $126B. You should be using the enterprise value (Market Cap plus debt of $28.9B minus cash and investments of $155.2B, you have to include the $130.1B in international cash classified as LT Investments on the Balance Sheet). That would provide you with a proper buyout estimate of $526.7B.

This number should be divided by FCF to see owners yield. You show a Free Cash Flow of $39B while other sites like Charts and WSJ show trailing twelve months FCF of $49-50B. Using your $39b would provide a yield of 7.4%, while $50B is 9.4%. These are well beyond risk free rate returns and the market in general!

Finally, you are basing your analysis of value on historic performance. In a few days we will see the latest quarter performance which many are predicting is likely to be a blockbuster report that will likely boost the FCF and cash positions.

Like it or not, Apple is extremely undervalued especially compared to many of it's peers!
+1 Reply
which is why i totally ignored Fundamental Analysis, too complicated for me :-)
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timwest jangseohee
I really appreciate that comment jangseohee! Quite often I find my fundamental ideas technically. In the sense that I see a great chart with rising volume and making higher consolidations, then I decide to look into the company and see what they do and try to understand what it might be worth (so I can sleep at night knowing what they do AND because I was always told that you should be able to explain what you are doing to your Grandmother or to someone who doesn't know anything about what you are saying).
jangseohee timwest
Hi Tim,

I think only a few "Real Investors" such as Warren Buffett and his grandmaster Benjamin have the "uncanny" ability to decipher and thoroughly understand how to read annual report and detect flaws

my actual poor dad also analysis annual report and evaluate whether the stock he "invested" in has business continuity or not.. but unsuccessful as a result he always buy at the top and sell at the bottom, i got dragged into it in 2011 losing my 50K. from Jan 2013 onwards i decided that annual report is a piece of #$%@#, and i go for TA which my poor dad think it doesnt work :-)

though i respect him alot as my father but in this matter, i ask him only one question and he was shut

Dad, "no matter how good and sound fundamentally a company is... when the grizzly BEAR launches an attack, solid companies too get sold down" right... he is convinced :-)

Of course know i can explain better than him. PE and other ratios just gotten to high and the amount of year to recover our investment is not worth anymore if i am right
Thanks Ishiva - Well said about the proper numbers. I used the same logic when I said AAPL was a great buy at the $400/share level (pre-split) when they had $100 billion in overseas holdings. However, the international cash and investments aren't worth the full $155B as listed on the balance sheet since it would be sharply reduced if repatriated. The market rightly only gives a fraction of that value. If we add in the variable of the whimsical nature of technology and the difficulty there is staying at the top of the food chain and you come to a fractional value of the current free-cash-flow return that AAPL is earning currently. In 10-years, you really cannot say with a high degree of confidence that AAPL will be in the leadership position it is now. Perhaps people are overconfident in the long run. Perhaps it is best to track the level of confidence and then decide how best to hedge that confidence. I agree if the FCF numbers that I am relying on, that are provided by the data source by TradingView, are inaccurate, then I can temper some of my negative valuation perspective. The beauty of TradingView is that we can share our opinions and help each other make sound reasoning and judgements. Thanks for your kind and considerate reply Ishiva.

As for the upcoming quarterly results, I believe I did say to step aside and wait for those numbers to be reported.

As for "liking it or not" - I like Apple products, but I'm not married to them. I view AAPL as the old Microsoft who has now been overtaken by GOOG because MSFT was slow to change their ways. There is an AAPL competitor out there that will surprise us all with their swiftness, keenness and ability to add value to the consumer.

Perhaps another way to look at AAPL is to sell calls at the money for as long as possible to earn a juicy return assuming AAPL can just hold onto its current valuation.
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The Nov 28 high was with an overbought RSI @77. The Dec29 high was with RSI @51. I don't see this as a true downtrend. The stock was following the S&P 500. The S&P still has some life left in it, I see this going bullish for the short term.
Hi Tim, it could be a bull flag as well!
Why short AAPL rather than YHOO?
Anyway for shorting AAPL, you are a day too early, says the MACD
YHOO is a good choice too, as is BABA amongst many others - PCLN - etc.
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