Today, my 7700 AAPL shares topped $1m in value ($78.34/share cost basis).
I'm also sitting on 175 debit call spreads with a max value of $10 against a net cost average of around $5, and with the highest short side strike at $130, expiration dates out to next January. Those are all very likely to produce a nice chunk of trading profit this year, to the tune of 175*100*5 = $87,500.
Add to that 10 long August $120 calls and 15 long Oct $120 calls, both of which began life as debit call spreads ($120/130), but I since closed the short sides when the stock dipped below $125 recently. Could put back on the short sides to create very profitable spreads or just let the long calls run. Think I'll let the call run for a bit longer.
I'm also short 20 January $110 Puts ($14k potential profit I'm all but guaranteed to net), 10 January $115 short Puts (another $5500 profit coming this year) and 3 August $125 short Puts that are looking good too (another $2500 profit if those expire worthless).
Life riding the Apple train is good these days.
Congratulations. I wonder how many here have become millionaires over the past several years thanks to Apple?
As well if not better? Nothing has done as well in the very long term. If you're making 1mo-2yr trades it's possible in the short term. And if you're doing better than AAPL on average, you should become a professional trader because none of them do.
It really depends on when you bought what, and held for how long, doesn't it?
With Janet Yellen, and not a few others, making comments about the equity market being overvalued, I imagine Institutional investors are unlikely to be thinking it's a propitious time to be throwing a few more hundred billion into Apple.
Janet Yellen has no more predictive power about the course of the market than you or I do.
If you want to believe otherwise, you're certainly welcome to do so. But you should not then attribute that belief to "institutions".
Fair enough. This point goes straight to the heart of what Icahn is arguing, so I thought it was important to keep it straight.
How should non-operating assets (aka, cash) be valued by investors? My view is that cash is an abstraction to investors. They don't get any direct value from it, unless the company pays it out as dividends or uses it to buy back shares. Otherwise that cash might as well be on Mars.
Icahn is saying the cash can be viewed like a discount to the stock price, which is hardly surprising given his position on buybacks. In theory, if Apple used all of its current cash to buy back shares, the float would be reduced by around 20%. Accordingly EPS would grow by that much, and if PE remained constant, the share price would increase proportionally. Again this argument seems a bit abstract, since we know companies just don't do that sort of thing. Investors also don't generally discount a stock for cash assets any more than they mark it up for debt, since neither has a direct impact on the balance sheet (except for income from investments and debt service).
This isn't the end of his argument, though. He also argues that PE would be increased if the markets begin to value Apple as a growth story, which he feels they should be doing. Combining the two is where he gets to his ultimate valuation. Agree or not, at least he's articulated a detailed argument with assumptions we can examine and debate.
His argument is not too difficult to deconstruct. I'll round off numbers for simplicity.
Apple forward PE (incl. cash) is 13.6x. On a market cap of $750B, that implies next year's earnings of 55B. But cash will account for $1B-$2B at most, so the earnings from operating assets is $53B, say. But the market cap of Apple excluding ~$190B in cash (assuming all of it is used to buy back shares) is $560B. Thus, the PE of earnings from operating assets of 560/53 = 10.6x (close enough to Icahn's number).
Icahn's $240 target, less $24 cash per share assumes that the market cap of operating assets should be $216 per share. That's a market cap of $1.25 trillion (ex-cash). The implied PE of the 'operating assets' in his analysis is therefore (1.25/5.5)*10.6 = 24x (or let's say, slightly more than double the PE now).
My only question is: if the market is currently valuing Apple's 'operating assets' at ~11x with all it knows and forecasts for the company, where the heck does Icahn's forecasted multiple expansion by doubling come from?!
I couldn't agree more that Apple's operating assets are terribly undervalued, but I would hope to see something more substantive than product portfolio diversification and such as an argument. I honestly believe that Icahn knows nothing more about that than the market collectively does. If someone thinks he does, I'd just like to see some evidence or arguments for it, that's all.
You don't see it, do you? You see that Iger's brought up profits and that's it. You don't see the serious structural issues in the company, the creative rot? Disney is a disaster waiting to happen. You realize it took what was one of the most innovative companies years to develop a wristband system, and that they ended up needing outside help because of political infighting and general lack of ability? You don't see that an increasing amount of films are just remakes or rehashes of older stuff? That Pixar's starting to show issues?
I have heard this Disney garbage bashing before - usually in comes from Hollywood types (you???) who are no longer able to extort MILLIONS IN EXCESS for the perviously overpaid "talent". Now performers actually get paid a fair wage, not excess.
FYI - I have many clients in the entertainment industry - universally Disney employees are 100% pleased/happy with their employment. They love Bob Iger, and the heir apparent they LOVE LOVE LOVE.
For your "concern" about Pixar - they have 1 or 2 movies this year - saw preview for first one - looks like a blockbuster to me. So what you are trying to say is impossible to comprehend.
Marvels - are you sleeping or what? They have a blockbuster out now - and there are 2 summer Marvels from other studios - with all that profit pouring into Disney - again - are you angry that you are no longer able to profit from Disney??? what did you do before that this anger exists?
Marvels, Pixar, then what was that Star Wars.. what's that ? Dozens of Star wars for the next decade? that a prob ?
The parks - Shanghai in April I recollect? All of the new Star Wars rides, then add on that new park going up now in Florida for another Sci fi series that Cameron did...
I bet you were one to say sell Apple a year ago too. Sell Starbucks - people are switching to water .. or people are giving up food and coffee?
My only question is: if the market is currently valuing Apple's 'operating assets' at ~11x with all it knows and forecasts for the company, where the heck does Icahn's forecasted multiple expansion by doubling come from?!
I couldn't agree more that Apple's operating assets are terribly undervalued, but I would hope to see something more substantive than product portfolio diversification and such as an argument. I honestly believe that Icahn knows nothing more about that than the market collectively does. If someone thinks he does, I'd just like to see some evidence or arguments for it, that's all.
Earnings growth, it seems. He is taking the position that Apple's ability to grow earnings is greater than what the markets are currently anticipating and he sets out some reasons why he thinks so. He could be right, I honestly don't know. I do know higher multiples will be the result if he is right, and that he's made a damn good bet so far. Does he have an inside track on information? If so that's potentially an SEC laws violation. I would hope not. For the record he professes none.
I think he's earned a private meeting with Steve Jobs, six feet underground. Karl, stop stealing from Apple employees hard work with your attempts to manipulate the stock values.
Politicians do a good job of making sure the poor stay poor. That's the only way to ensure they get reelected.
not really. the GOP ensures democrats get elected by being a crotchety bunch of wealthy white guys who aren't interested in the rising tide. oh, and not believing in science. and stating that rape can be beautiful if it creates a baby. etc... those are the reasons I as a high-earner independent usually vote demo over GOP.
Not at all. The easiest way to get elected and ensure reelection is to hand out goodies (aka benefits) to constituents.
if only you could prove such delusions. for example, you probably feel it's democrats that are "handing out" to the poor. yet if it were that easy, they'd own the senate and house, but they don't. oops.
When a Company buy back its share, does it automatically means it is being wiped off the market? Or Could the company resell it in the future in higher prices, or save it for cash equivalent purpose or use it for stock compensation?
The problem with Apple is that it is turning into Microsoft of old. Trying to take on too much too fast with crappy results. Lots of problems. And not supporting YouTube on apple tv 2? Inexcusable.
When a Company buy back its share, does it automatically means it is being wiped off the market? Or Could the company resell it in the future in higher prices, or save it for cash equivalent purpose or use it for stock compensation?
The shares are taken off the market, but the company can reissue them. Buying back shares isn't required for companies to issue new share however. They issue new shares regularly in the form of options and grants. If companies don't buy back, shareholder interest will become steadily diluted over time, so they usually do (though not necessarily at the scale of Apple's buyback).
Comments
Today, my 7700 AAPL shares topped $1m in value ($78.34/share cost basis).
I'm also sitting on 175 debit call spreads with a max value of $10 against a net cost average of around $5, and with the highest short side strike at $130, expiration dates out to next January. Those are all very likely to produce a nice chunk of trading profit this year, to the tune of 175*100*5 = $87,500.
Add to that 10 long August $120 calls and 15 long Oct $120 calls, both of which began life as debit call spreads ($120/130), but I since closed the short sides when the stock dipped below $125 recently. Could put back on the short sides to create very profitable spreads or just let the long calls run. Think I'll let the call run for a bit longer.
I'm also short 20 January $110 Puts ($14k potential profit I'm all but guaranteed to net), 10 January $115 short Puts (another $5500 profit coming this year) and 3 August $125 short Puts that are looking good too (another $2500 profit if those expire worthless).
Life riding the Apple train is good these days.
Congratulations. I wonder how many here have become millionaires over the past several years thanks to Apple?
As well if not better? Nothing has done as well in the very long term. If you're making 1mo-2yr trades it's possible in the short term. And if you're doing better than AAPL on average, you should become a professional trader because none of them do.
It really depends on when you bought what, and held for how long, doesn't it?
more diversified revenue stream.
Cars, TV's, phones, wearables, software, services.
If every thing goes as Ichan says iPhone revenue will be less than 40% of total company revenue.
"If everything goes as Icahn says"?!
What special predictive power or crystal ball does Carl Icahn have that others don't? More importantly, that the market as a whole doesn't?
With Janet Yellen, and not a few others, making comments about the equity market being overvalued, I imagine Institutional investors are unlikely to be thinking it's a propitious time to be throwing a few more hundred billion into Apple.
Janet Yellen has no more predictive power about the course of the market than you or I do.
If you want to believe otherwise, you're certainly welcome to do so. But you should not then attribute that belief to "institutions".
(Fixed typo).
Fair enough. This point goes straight to the heart of what Icahn is arguing, so I thought it was important to keep it straight.
How should non-operating assets (aka, cash) be valued by investors? My view is that cash is an abstraction to investors. They don't get any direct value from it, unless the company pays it out as dividends or uses it to buy back shares. Otherwise that cash might as well be on Mars.
Icahn is saying the cash can be viewed like a discount to the stock price, which is hardly surprising given his position on buybacks. In theory, if Apple used all of its current cash to buy back shares, the float would be reduced by around 20%. Accordingly EPS would grow by that much, and if PE remained constant, the share price would increase proportionally. Again this argument seems a bit abstract, since we know companies just don't do that sort of thing. Investors also don't generally discount a stock for cash assets any more than they mark it up for debt, since neither has a direct impact on the balance sheet (except for income from investments and debt service).
This isn't the end of his argument, though. He also argues that PE would be increased if the markets begin to value Apple as a growth story, which he feels they should be doing. Combining the two is where he gets to his ultimate valuation. Agree or not, at least he's articulated a detailed argument with assumptions we can examine and debate.
His argument is not too difficult to deconstruct. I'll round off numbers for simplicity.
Apple forward PE (incl. cash) is 13.6x. On a market cap of $750B, that implies next year's earnings of 55B. But cash will account for $1B-$2B at most, so the earnings from operating assets is $53B, say. But the market cap of Apple excluding ~$190B in cash (assuming all of it is used to buy back shares) is $560B. Thus, the PE of earnings from operating assets of 560/53 = 10.6x (close enough to Icahn's number).
Icahn's $240 target, less $24 cash per share assumes that the market cap of operating assets should be $216 per share. That's a market cap of $1.25 trillion (ex-cash). The implied PE of the 'operating assets' in his analysis is therefore (1.25/5.5)*10.6 = 24x (or let's say, slightly more than double the PE now).
My only question is: if the market is currently valuing Apple's 'operating assets' at ~11x with all it knows and forecasts for the company, where the heck does Icahn's forecasted multiple expansion by doubling come from?!
I couldn't agree more that Apple's operating assets are terribly undervalued, but I would hope to see something more substantive than product portfolio diversification and such as an argument. I honestly believe that Icahn knows nothing more about that than the market collectively does. If someone thinks he does, I'd just like to see some evidence or arguments for it, that's all.
(Fixed some typos).
Disney?
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You don't see it, do you? You see that Iger's brought up profits and that's it. You don't see the serious structural issues in the company, the creative rot? Disney is a disaster waiting to happen. You realize it took what was one of the most innovative companies years to develop a wristband system, and that they ended up needing outside help because of political infighting and general lack of ability? You don't see that an increasing amount of films are just remakes or rehashes of older stuff? That Pixar's starting to show issues?
I have heard this Disney garbage bashing before - usually in comes from Hollywood types (you???) who are no longer able to extort MILLIONS IN EXCESS for the perviously overpaid "talent". Now performers actually get paid a fair wage, not excess.
FYI - I have many clients in the entertainment industry - universally Disney employees are 100% pleased/happy with their employment. They love Bob Iger, and the heir apparent they LOVE LOVE LOVE.
For your "concern" about Pixar - they have 1 or 2 movies this year - saw preview for first one - looks like a blockbuster to me. So what you are trying to say is impossible to comprehend.
Marvels - are you sleeping or what? They have a blockbuster out now - and there are 2 summer Marvels from other studios - with all that profit pouring into Disney - again - are you angry that you are no longer able to profit from Disney??? what did you do before that this anger exists?
Marvels, Pixar, then what was that Star Wars.. what's that ? Dozens of Star wars for the next decade? that a prob ?
The parks - Shanghai in April I recollect? All of the new Star Wars rides, then add on that new park going up now in Florida for another Sci fi series that Cameron did...
I bet you were one to say sell Apple a year ago too. Sell Starbucks - people are switching to water .. or people are giving up food and coffee?
My only question is: if the market is currently valuing Apple's 'operating assets' at ~11x with all it knows and forecasts for the company, where the heck does Icahn's forecasted multiple expansion by doubling come from?!
I couldn't agree more that Apple's operating assets are terribly undervalued, but I would hope to see something more substantive than product portfolio diversification and such as an argument. I honestly believe that Icahn knows nothing more about that than the market collectively does. If someone thinks he does, I'd just like to see some evidence or arguments for it, that's all.
Earnings growth, it seems. He is taking the position that Apple's ability to grow earnings is greater than what the markets are currently anticipating and he sets out some reasons why he thinks so. He could be right, I honestly don't know. I do know higher multiples will be the result if he is right, and that he's made a damn good bet so far. Does he have an inside track on information? If so that's potentially an SEC laws violation. I would hope not. For the record he professes none.
Karl, stop stealing from Apple employees hard work with your attempts to manipulate the stock values.
not really. the GOP ensures democrats get elected by being a crotchety bunch of wealthy white guys who aren't interested in the rising tide. oh, and not believing in science. and stating that rape can be beautiful if it creates a baby. etc... those are the reasons I as a high-earner independent usually vote demo over GOP.
if only you could prove such delusions. for example, you probably feel it's democrats that are "handing out" to the poor. yet if it were that easy, they'd own the senate and house, but they don't. oops.
PE is a meaningless measure. You can't use it to predict anything.
Apple is now priced at what people will pay for it. Perfect example of supply and demand and cost.
http://www.idigitaltimes.com/ios-83-problems-fix-issues-wi-fi-disconnecting-icloud-storage-photos-out-order-433712
When a Company buy back its share, does it automatically means it is being wiped off the market? Or Could the company resell it in the future in higher prices, or save it for cash equivalent purpose or use it for stock compensation?
The shares are taken off the market, but the company can reissue them. Buying back shares isn't required for companies to issue new share however. They issue new shares regularly in the form of options and grants. If companies don't buy back, shareholder interest will become steadily diluted over time, so they usually do (though not necessarily at the scale of Apple's buyback).