Monday, June 2, 2014

Apple disappoints on hardware, but beats on software

At today's developer conference, Apple once again disappointed the world by not introducing any new hardware products. But the company did unveil a stunning display of new software features and device integration that will make give new life to existing products, from phones to tablets to laptops and desktops. When OS X 10.10 and iOS 8 are released in a few months, the Apple ecosystem will become an even more compelling platform than it already is, one that could be very tough—if not impossible—for anyone to beat.

Apple did announce a greatly expanded cloud product/service today: iCloud Drive. This is a central storage service that syncs all data and photos across all devices. This sort of functionality had been sorely missing for some time and should be a welcome addition to everyone who uses an Apple device.

Apple's legion of developers were surprised and excited by all the new features discussed today. Swift, a new and more powerful programming language, coupled with Metal, which greatly speeds up graphics processing, plus 4,000 new APIs and the ability to have integrate apps, could all but revolutionize the future of apps for Apple devices in coming years.

Today Apple showed that it remains firmly on the cutting edge of technology and software, and, to judge by the breadth and depth of today's announcements, it should hold a commanding lead against would-be competitors for many years to come.

I've been an Apple user and fan since 1986 and an AAPL investor for over a decade (full disclosure: I am long AAPL as of this writing). I'm very excited by what I saw today. Software advances of the sort unveiled today are arguably worth more than a new hardware product. But in any event, it seems very likely that Apple in the second half of the year will come out with a larger iPhone and at least one new class of device. The future looks very bright.

Apple's current PE ratio is 15. But if you back out the overseas cash and assume they pay taxes to repatriate it, then the PE ratio drops to less than 12. This is not an expensive stock.

Apple's earnings have been in a two-year hiatus, but new products and greatly expanded software capabilities should be enough to drive earnings higher in coming years. With a current earnings yield of 6.6%, the market seems priced to the likelihood of stagnant or declining earnings for the foreseeable future. That's a very pessimistic take on today's announcements.


theyenguy said...

The sell of the Yen, FXY, on the failure of the Abenomics, as well as strong sell of Junk Bonds, JNK, is a wake up call to stirring investors out of their complacency, that the monetary policies of the world central banks no longer underwrite profitable investment.

The short selling opportunity of a lifetime in equities occurred on June 2, 2014, as Aggregate Credit, AGG, traded lower, on the rally in the Interest Rate on the US Ten Year, Note, ^TNX, to 2.53%; one should no longer be long any Credit Investment, nor andy Equity Investment; one be selling stocks short with Apple, AAPL, which has soared 350% in the last five years, at the top of the list; or better yet start to dollar cost average into the physical possession of gold bullion, which closed at strong support at $1,242.

On June 2, 2014, the Inverse Market ETFs, as a group, traded higher; these include XVZ, STPP, EUO, YCS, CMD, DNO, MLPS, SAGG, DTYS, JGBS, GLD, GYEN, GEUR, GGBP, HDGI, YXI, EUM, DOG, SEF, EFZ, DDG, PSQ, REK. These could be used selectively and under wise management to serve as the basis for collateral in a short selling investment strategy.

steve said...

you and rush really love your Apple toys

Benjamin Cohen said...

Kudos to Scott Grannis on his Apple calls over the years.