Ignore Apple’s earnings announcement slated for July 23, after the close. Ignore the fear. Ignore the hysteria from the unspeakably ignorant pundits seeking free coffee in the waiting room at CNBC.
And ignore traders. Please, ignore traders. I am oh so tired of traders. If you are, life – your money management life – should be simple. Buy Apple. Sell some calls and, metaphorically speaking, go home. Do it every week or every month or every quarter. Use Apple as a basis for a 15% or more yield – from selling calls – and watch the stock appreciate, it will. I refuse to say it must despite the temptation.
Using the timeless and ultra sophisticated metrics of the long-term buy and hold investor – how much money does the company have and is it growing – and consider the following:
- Apple sells at a 50% discount to the S&P 500. On the surface the stock sells a bit shy of 10 times next year’s earnings. Take out the cash on its balance sheet – more than $150 a share – and the stock sells for six times earnings, Seems immoral doesn’t it?
- Apple has almost as much cash as S&P 499 – the rest of the S&P 500.
- Apple sales are growing four to five times faster than the average S&P 500 company. It is not Microsoft redux – it faces growing markets with very innovative products, right now it is simply more expensive than many of their competitors, a voluntary choice to maintain margins triple that of many competitors.
- Speaking of margins – Apple’s profit growth is four to five times faster than the average S&P 500 company.
- Apple stock faces only upside catalysts – potential dividend increases, potential stock buy backs, potential market share gains, potential new product announcements.
- That is the financial perspective. How about in the real world?
- According to ChangeWave Research (part of the 451 Group), the iPhone is picking up considerable market share and this is in light of a potential iPhone upgrade – a major upgrade – later this year.
- I am typing this on my new Mac Air. I am kind of cheap. My old laptop surrendered to age the ability to hold a charge. I looked at the alternatives and bought this Air. Took five minutes to buy, five seconds to register. An Apple experience. Customers agree and the iPhone, the iPad and the Mac product line are all at the very top of customer rankings in their respective markets.
- Apple has purposely chosen to give up potential share to maintain margins. Other than memory costs Apple is looking at a favorable production cost curve and this means a lower cost set of products, and a lower price set of products, in the next 3-18 months. The first possibility is a deal with China Mobile, vendor to more than 625 million (million with an m, not thousands with a t) customers.
What to do? If you want to trade it, go watch some idiot on television screaming at you while he or she checks their BlackBerry – they may even recommend BlackBerry (BBRY) for comic relief. If you want to generate 15% or more a year in yield, buy the stock and sell calls. If you are the nervous type, wait until after the company announces earnings after the close on Tuesday July 23. If not, and you want in before earnings, the comapny should meet or beat expectations. And if you are still nervous, sell puts rather than buy the shares. The premiums are wonderful. Take a look in the $385-$400 range and if you have time, sell weeklies every week, not monthlies. If you don’t manage to get 15% a year or more doing this, you can borrow my cockapoo Sumo; he can do better when selling against Apple. (Apple AAPl Earnings )
By Michael Shulman