Home > Finance and Stocks > Bond Guru Jeffrey Gundlach Apple Price Target $425? Gundlach is Apple Guru now?

Bond Guru Jeffrey Gundlach Apple Price Target $425? Gundlach is Apple Guru now?

Apple Nearing End of Correction?

I’m getting the feeling lately that Apple (NASDAQ: AAPL) is now approaching the bottom of its recent correction.  Apple has gone through similar size corrections in the past only to prove time and time again a buying opportunity.  It seems you can’t go more than an hour now on CNBC without hearing some sort of Apple bashing.  Everyone is an expert on Apple these days including bond guru “Jeffrey Gundlach”.  Today on CNBC he slapped a $425 price target on Apple.  Can anyone now be an expert on Apple stock?

Who Do You Get Your Investing Advice From?

Now I’m not sure about you but I usually don’t take my tech stock investing tips from bond guru’s.  I’ve been in the tech industry for over 15 years now and follow the sector closely so maybe I feel better equipped to gauge Apple’s prospects than a bond guru.  Gundlach argues that because Apple shares have gone up rapidly that they must retrace back to their starting point of $425.  Interesting logic right?  I must add that Gundlach is talking his own book. He has disclosed he is short Apple shares.  I’d expect nothing less from a bond guru opining about tech stocks.

No Shortage of Bear Arguments

The endless string of arguments predicting the imminent demise of Apple is clearly laid out by the Apple bears.  Management shakeup is one.  I believe losing Scott Forstall may turn out to be a blessing and I certainly do not worry about the loss of him at Apple.  There are many smart people at Apple and many more hot shots Apple could easily attract to work for it. Forstall was rumored to not play well with others and take credit for the work of other employees.  It made me wonder how much was truly his idea or work and it might make you wonder too.  If Apple lost Tim Cook I would be more concerned and if it lost Jony Ive I’d put the risk for the company at a very high level going forward.  However they retain what I believe to be an “A” team capable of running the company and continuing to evolve and innovate.

Innovation or Evolution? 

Gundlach further argues  that Apple just shrunk their iPad and therefore that was not innovation.  I didn’t realize that every product Apple ever made in the past was revolutionary and not evolutionary (detect my sarcasm).   Apple came out with a hard drive based iPod under Steve Jobs.  Next it was the flash based iPod.  Then there was the iPod nano, Shuffle and iPod Touch.  Were any of these product groups really any more innovative than the original iPad’s evolution to its current full size generation and mini?  The nano was a shrunken version of the touch and the shuffle was the micro-sizing of it.  How about the iPhone?  Under Steve Jobs they had iPhone version 1. Next was the iPhone 3G and then the 3GS!  Did every bear come out and say the 3G and 3GS were just the same iPhone’s in a slightly different form?  Next was iPhone 4 then 4S!  The 4S didn’t even change form factor and it sold like crazy!  These iPods and iPhones were not any more innovative than the iPad iterations and remember these were all under Steve Jobs tenure!

Can Apple Grow by Simply Evolving

Here is the deal.  Apple does not need to innovate brand new never heard of gadgets to prosper.  It does need to innovate if it wants to annihilate the competition versus just growing.  If they can’t create entirely new products well than they will just compete and do it well.  No other company has a “Steve Jobs” so it’s not as if they need to compete against a genius running it.  Few companies in the world posses Apple’s brand loyalty and awareness.  I have yet to see people line up outside any store for an Android phone or tablet, have you?  I think you get the picture.  Apple can just improve what they have. Tweaking the current product lines in larger and smaller form factors. Make them smaller, lighter, sleeker and add incremental improvements.  Small innovations on the existing lines are fine. Nothing revolutionary needed for them to simply grow at a market beating pace for years to come.

Market Beater to Market Crusher

Should Apple have a rabbit in their hat like iTV well then they just add to their already market beating growth rate.  What bond guru Gundlach fails to point out and maybe does not understand is that no other company is doing anything better or different than Apple is.  Apple is not competing against any company that isn’t also doing just what he is suggesting Apple is doing.  Samsung is making smaller and cheaper tablets. Big deal. Amazon is giving away tablets that are not as good as iPad.  What company is outflanking Apple where they have to execute any different from what Steve Jobs did when he evolved the iPod, iPhone and iPad into evolutionary versions and not revolutionary?  Not one company as far as I have seen.

That is a lot of Cash

Apple sits on the largest cash war chest of any company in the world.  Think about that for a second.  If Gundlach the bond guru’s target is achieved that would mean Apple would be trading for $300 if you back out the net cash on the balance sheet.  With $50 plus in earnings this year that is a PE of 6.  Right now Microsoft (NASDAQ: MSFT) trades for about 16 times earnings.  Adobe trades for 21 times earnings.  The Apple sell off has become chart driven and fear driven.  Perhaps  there are also traders taking gains before a potential cap gains tax rate increase next year.  Whatever the reason I am confident the bond guru’s target is not going to happen.

You Have to Execute

As someone who does follow Apple and technology closely I would place the only risk for Apple in the near and medium term on execution.  You now see supply constraints for iMac, iPad Mini, iPhone 5.  Apple needs to get these products into the hands of consumers who want them.  If they can’t produce them they cannot sell them.  It seems production problems are a major issue right now.  Foxconn’s CEO stated today that they can’t produce the iPhone 5 to meet demand.  I fear Tim Cook has spread himself too thin taking on his former COO supply chain and operations role along with Steve Jobs CEO role.  That is a lot for one man to handle.  The Q4 risk will be on the supply and not demand side.  How well Cook solves this will make or break this quarter.  If they don’t blow the number out we’ll see a lot of push through into Q1 next year.  However there will be opportunity costs in lost sales as they miss the holiday gift season and corporate end of year buying.

Stock Prices in AppleGeddon

Even if they only make their number or beat/miss by a bit I believe much worse is now priced into the stock.  Trading at about 7 times next years free cash flow on an ex-cash basis the stock is priced for some serious declines in revenue and earnings for the foreseeable future.  I think Apple’s loyal and growing fanbase will prevent this from happening as long as Apple can ship product.  Other catalysts still include China Mobile and the 700 million subscribers.  Nobody talks about that anymore.   It will happen at some point.  Emerging markets are also going to come online such as India.

Apple Store Jam Packed

An anecdotal note for you as well.  I was visiting my local Apple store in New Jersey this past Sunday.  It was packed with a line out the door waiting to purchase iPad’s and iPhones.  Keep in mind this was several days after the iPad mini launched.  I’d estimate at least 70 plus people (not including Apple employees) in the store and in contrast the much larger Microsoft store had 12 people in it.  It was the most packed I have seen Apple’s store since last year about a week before Christmas.  It seems Main Street never got Wall Street (or bond guru Gundlach’s) memo that Apple is over and left for dead.  People were buying the mini, iPad’s, iPhone’s and everything else in the store.  Lots of energy and excitement there.  Not much at Microsoft store though which again has a stock trading for a much higher PE now than Apple.

Be Greedy. The Glass IS Half Full

There are many great things happening at Apple right now and over the next few years.  It seems right now the pundits only want to see the glass half empty.  This happens a lot as “Mr. Market” often mis-prices stocks both on the upside and downside.  I think with Apple’s shares on sale for 20% off it will prove beneficial to “be greedy when others are fearful” as Warren Buffett often advises.

Advertisements
  1. jimmy
    November 9, 2012 at 11:21 AM

    I’ve been managing stock portfolios for 25 years and I’ve only found a couple of people who were consistent in their hypothesis.

  2. jimmy
    November 9, 2012 at 11:40 AM

    What is your take on service providers for Iphones ? Do they benefit in Apple’s success ?
    Would it be advantageous to own T or VZ stock ?

    • beatstockmarket
      November 9, 2012 at 12:57 PM

      Yes service providers do benefit from Apple success and have immensely. The entire smartphone market was created by Apple. With that the telecom’s have been able to drive higher revenue via data usage. Also stickiness of mobile is now much higher. Imagine going back to a dumb phone. We now rely on the many features and value of smartphones.

      ATT and Verizon are both stocks to own for the decade. They won’t be “growth” stocks but will perform well and pay a healthy and growing dividend. Preservation of capital with income and some growth in telecoms is the goal. I own both T and VZ

  3. beatstockmarket
    January 25, 2013 at 3:49 PM

    Have to give Kudos to Gundlach. He was right on this and I was dead wrong. My mistake was predicting a price on the short term. Impossible to do over any 1 to 5 year period. In the short term market is a voting machine. You cannot fight irrationality as Mr. Market can stay irrational longer than you can stay solvent. Gundlach was right here but I think that was more being lucky than being good.

    If he really had confidence in his own prediction he would have gone all in with billions in put contracts. I doubt even he had such strong belief this would happen. More like hope. When stocks move over short term the way we expected or hoped we think we are smart. 95% of the time it is luck if the time frame being measured is less than 3 to 5 years.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: