09 Oct The Lato Letter: Volume 1, Issue 28.
When I appeared on Headline with Howard Green on September 12th and was asked if it was time to take profits in Apple, I jokingly responded that “it is never the time to take profits in Apple”. There will obviously be a time to take profits in Apple and at some point to sell the entire position BUT that time is NOT NOW.
From its intraday high of $705.07 on September 21st, the stock has fallen 9.5% to close yesterday at $638.17. Reasons for the decline range from the disappointment of selling “only” 5.0 million iPhone 5’s the first weekend to the premise that stock prices cannot grow to the trees and Apple is already the most valuable stock in the world. Yes, there was an issue with the new Maps application on the iPhone and also reports of labour unrest in China but to extrapolate that Apple’s best days are behind it from these issues is simply wrong.
Obviously there is no guarantee that the price of $705.07 won’t be the all-time high but there are many reasons to suggest that it will not be. The earnings per share consensus estimate for the year just ended on September 30th is $44.44 putting the stock at 14.3 times 2012 earnings. Using next year’s estimate of $53.54, the stock is trading at 11.9 times earnings or at 9.6 times earnings if you back out the over $125 or cash per share.
Apple continues to be the leader in the smartphone market, continues to dominate the tablet market and continues to gain market share in the personal computer market. Its ecosystem that ties everything together is unmatched in the technology world and will continue to instill product loyalty in its customers.
This week’s issue of Barron’s ran a story entitled “Apple Critics Sharpen Their Pens But Lack Logic”. The article discusses some of the recent negative claims and also points out the continuing positive attributes such as the fact that the new iOs6 operating system is an exquisite piece of software and Apple continues to gain market share in a difficult PC environment. If you have difficulty opening the link, please let me know and I can send you the article in another format.
Apple remains the largest holding in the portfolios as well as a very attractively priced holding whose best days are realistically not behind it. The pessimists are already talking about an earnings disappointment on October 24th when Apple reports their earnings but at this time, I see no reason to move from the thesis that Apple will continue to reward its shareholders handsomely over the foreseeable future.
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