How the “Era of Apple” Can Come Roaring Back

Keith Fitz-Gerald Feb 03, 2017
17 

Billionaire investor Peter Thiel recently declared in a New York Times interview that, “the age of Apple is over,” and, in doing so, caught millions of investors by surprise.

Present company excluded.

You and I have been talking about Apple’s decline for months now, and those of you who are also Money Map Report members will recall that, in July, we moved the company to a “hold” for exactly the same reason.

Now let’s talk about what’s next.

I guarantee you that most investors are going to get caught by surprise (again).

Underwhelming No Matter Which Way You Cut It

I keep a paperweight front and center in my office, bearing the inscription…

Illegitimi non carborundum est.

It’s a mock Latin aphorism loosely meaning “don’t let the bastards get you.”

Which is how I think about Apple at the moment.

Millions of investors are considerably more giddy as evident by the 7% pop shares enjoyed Wednesday.

Team Cook posted $3.36/share versus an expected $3.21 per share, beating the collective earnings expectations of all 34 analysts following it by 4.7%.

You’d think Santa Claus showed up based on the way shares took off.

That’s understandable consider the company chalked up all-time record quarterly revenue of $78.4 billion and the $3.36 per share in quarterly earning I just mentioned is also an all-time best.

Never mind a few pesky details like – oh I don’t know – iPhone sales bouncing back after three consecutive quarterly declines, iPad sales dropping 22% because of inventory issues, and the company’s other products falling 8% year over year.

The 7% post-earnings bounce added $47.2 billion in market capitalization while giving millions of investors a serious case of FOMO which, of course, stands for “fear of missing out.”

Honestly, I’ll take the bounce because it’s great for anybody holding on to Apple shares.

But is this enough good news to make Apple a “buy” again?

Nope.

Like many people, I was excited to see CEO Tim Cook pivot towards the ecosphere after Steve Jobs’ untimely death because it suggested to me that he understood the bigger digital integration ahead and the opportunity that went with it. And, I was willing to give him some time to turn the ship, so to speak.

Now he’s had that and I am totally underwhelmed.

The company’s numbers are not nearly as diversified as I would have expected at this stage of the game.

Apple Used to Ooze Innovation. Now It Oozes MBAs

The latest iPhone is barely better than its predecessor, which means the upgrade curve is slowing down both literally and figuratively. The technology lags badly behind where comparable Droid devices were years ago.

The Apple Watch… a flop.

Siri… choked.

Apple cars… no sign of them.

Apple Pay… just a ripple in the hotly contested retail shopping experience.

I’m not just worried about the end of Apple’s era like Thiel is. I’m concerned that we’re living through the end of Apple’s ecosphere.

And we have Alexa to thank for that.

The amazingly intelligent digital personal assistant developed by Amazon’s Lab126 should have been an Apple product. It’s what Siri was supposed to be.

Dedicated Apple fans will no doubt take issue with what I have to say and I respect that, especially if you’re one of them. But to another point Thiel has made repeatedly, and again in the same January New York Times interview, Silicon Valley has done a terrible job of fulfilling old dreams for bigger things. “Cellphones,” he said, “distract us from the fact that subways are 100 years old.”

Admittedly, Apple has been one of the single most innovative and spectacular companies ever created. Revenue has jumped 10x and earnings 30x over just the past 10 years. It’s made savvy investors (including a good number of our subscribers who have followed along as suggested) billions.

But it’s a leap of faith to think that can continue.

To my way of thinking, the real era that’s ended is the one that guarantees double-digit growth based on every new iPhone release. The next jump will be all about digital integration.

Like Alexa.

Barring any sort of Jobs-style drama and a radical change in form factor, the real risk to Apple is that it becomes another company in a long line of ‘me-too” players.

ITunes, iCloud, Photos… these are all increasingly cumbersome to use. Worse, they force the user to adopt the thought processes of Apple’s developers rather than latch on to each device intuitively – which is, of course, what made the iPhone and iPad so great in the first place when you think about it.

Several members of my team who are diehard Apple users tell me they are now going out of their way to find workarounds so they don’t have to get sucked in. That’s a stark change from a few years back when they couldn’t wait to use the latest Apple gizmo.

The situation reminds me very much of Sony Corp. (NYSE:SNE), which damn near killed itself because it wouldn’t let go of proprietary standards that made everything from the Walkman to their VCRs a real pain in the keister.

Seems to me that every time Apple makes a change, their products are becoming more challenging to use.

The bottom line?

Apple’s still a hold in my book.

The company will probably have a good run this year on the looming iPhone 8 introduction when it comes out, which is why I say hang on if you’re already on board. But beyond that, there’s just not a lot that’s going to move the needle.

For that you’ve got to turn to companies acting a whole lot more Apple-like than Apple itself, including Alphabet Inc. (NasdaqGS:GOOG), Microsoft Corp. (NasdaqGS:MSFT) and Facebook Inc. (NasdaqGS:FB). All three are actively pressing ahead instead of worrying about where they’ve been.

Ironically, I think Steve Jobs would agree.

He famously told his audience in 1997 that, “If we want to move forward and see Apple healthy and prospering again, we have to let go of a few things here. We have to let go of this notion that for Apple to win, Microsoft has to lose.”

I think those same comments apply very well today.

CEO Tim Cook is distracted by politics, and his executives strike me as being distracted by infighting.

Further, the company is waging war over security issues and seems keen to engage in litigation at the drop of a pen. If Apple were truly innovating, executives would be falling all over themselves in a race to stay ahead of Samsung, for example, which is where they’d otherwise be.

These things never end well for shareholders.

At any price.

Until next time,

Keith

17 Responses to How the “Era of Apple” Can Come Roaring Back

  1. Mike Curcio says:

    Hi Keith,
    You left out the $246 Billion in cash, repatriation and Trumps potential tax cut. I respectfully disagree and will continue to dollar cost average and buy the dips. Apple had a fortress like balance sheet and a wonderful eco system and install base. Apple also pays a decent and growing dividend. Differences of opinion make a market though.

    • Garbolino says:

      Fully agree ,( corporate tax cut, repatriation tax holiday), eco system.
      Keith forget Apple music streaming, probably a VR product coming soon,launch of own video series.
      Apple watch is not a flop, it is good there is no Apple car but Apple car play.
      I never owned an Apple product but the company is in great shape, even if i prefer Micosoft or other holdings.

    • Geddy Lee says:

      I have used Apple products exclusively since 1984. I have never owned a PC, and I cannot navigate Windows worth a crap when I am forced to use a Windoze machine, such as in a business center in a hotel. I am a true, die-hard Applephile.

      I have become so disgusted and disenchanted with Apple over the past 3 years, that I am literally looking at other options. I know for a fact that Apple’s last 3 operating systems have been so bad, they have literally put many small businesses out of business. Go read posts from Apple users on Apple’s own website. Even David Pogue is getting far, far less enthusiastic about the latest Apple hardware. I just watched a video today of his review of the latest MacBook Pro. It wasn’t very positive.

      Tim Cook has been an unmitigated disaster for Apple, and Steve is rolling in his grave. The fact that Apple’s Board has allowed that rainbow turd moron run their company straight into the ground absolutely mystifies me, and only tells me that they WANT Apple to fail. AAPL is a stock I would not own at any price. It has nowhere to go but down. The only scenario where I might become interested in buying Apple stock would be one where the Board drop-kicks Mr.[…Tim Cook…] out of the door.

      FIVE YEARS AND NOTHING TO SHOW FOR IT, EXCEPT DONATIONS TO HILLARY’S LOSER CAMPAIGN. TIM COOK IS MENTALLY RETARDED AND HIGHLY INCOMPETENT. HIS AGENDA IS NOT THE AGENDA OF APPLE’S SHAREHOLDERS. WE ARE WATCHING THE SLOW SUICIDE OF WHAT WAS ONCE THE GREATEST COMPANY ON EARTH, FOUNDED AND RESCUED BY THE GREATEST CEO IN THE HISTORY OF BUSINESS: STEVE JOBS..

    • Keith says:

      Hi Mike.

      Nothing wrong with that. Both are very valid reasons and, most importantly, you have a plan that works with your personal investment objectives and risk tolerance. I simply cannot see Apple pulls ahead but am not ready to pull the plug – hence the hold.

      Thanks for chiming in with a thoughtful response by the way. That’s what makes Total Wealth a great place to be and a valuable resource for all.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

    • Keith says:

      Hi Idrea.

      No doubt…only I used a four letter word as I did my research. Regrettably I might add.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. Joe says:

    I have been a diehard Apple fan ever since I got the first PowerBook laptop a long time ago. Having said that, I share some of your concerns going forward. I got out of my position over a year ago after doubling my money but now AAPL is a trade for me not an investment. I still love the products and will continue buying them but hope they get some of their mojo back soon.

    • Keith says:

      Hello Joe.

      You make a very important point and a solid distinction – trading versus investing. 99% of all investors never do and, sadly, wind up paying a terrible price as a result.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  3. George says:

    I agree that Apple has stalled. I use Apple computers, and have an iPad and an iPhone. I am now avoiding upgrading my hardware, because, for the money, it’s just not worth it, especially for the computers. I don’t want a computer that is a really big iPad, or gigantic iPhone. I have told others that Apple is acting like Windows did in the past. I started on Apple decades ago, moved to Windows, mostly because of work, moved back to Apple, and wondering if going back to Windows is the smarter choice. I need machines that “just work” and “connect”.

    • Keith says:

      Hi George.

      Funny you use that expression…I need machines that “work”…because that’s exactly what I said when we upgraded our equipment recently. I don’t care about bells and whistles and I don’t want complicated. Seems like every time I turn around Apple is making me do something to fit in with their vision whereas Windows seems to accommodate mine. Talk about a reversal!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  4. Carlton Craig says:

    Whew, lots of numbers to look at. Apple is increasing their revenue on service, like apple music, but this is what I hear you saying: you’d like to see more. But the price of the stock is valued as though it will grow quite slowly for several years. I think Apple is going to do better than the P/E the market has currently assigned , and I think it is a safe place to put some of your portfolio during what will probably be a volatile two years! During the next few years, I think Apple will beat the broader S&P, but not the internet tech sector, like you mentioned in your article, Google, MSFT, FB. So hold is fair by me. But I’m not selling! If it dips more than 15%, I’m getting more long call options- made a killing these last 9 months.
    Are there patents that keep Siri from evolving more into what Alexa has become? It seems like Siri, already being established will become more like Alexa without much patent trouble- any thoughts

    • Keith says:

      Hello and thanks for your input Carlton.

      I think you’ve got an intelligent perspective and am thrilled to hear that you have a plan for acting on dips. A bargain is a bargain is a bargain even if broader expectations aren’t – a message that I’ve hammered home in Total Wealth and am pleased to see you internalize!

      Way to go!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂 🙂

  5. DGB says:

    I got out of Apple with a nice gain last year and won’t be buying again unless some serious changes happen (innovations). I don’t care how much cash they have since I don’t know Tim Cook and he won’t be sending me any of it. I agree with Keith, if you’ve still got it hold it for awhile longer with a tight trailing stop. Maybe you will still see some upside. I have an ipad and iphone but will not upgrade to another Apple product. Next stop – Windows.

    • Keith says:

      Well put DGB!

      Hold with a tight trailing stop and catch the run…or at least whatever is left of it.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  6. Nicholas Pellegrino says:

    I am a new investor as of this year. Are you saying to invest in Apple or not? Would you know how much it cost per
    share? What is a recommended amount of shares to purchase as a very small investor? I have not started my
    portfolio as of yet. Looking forward to build a confidence to invest.

  7. David says:

    We got in years ago for 450.00 and now it’s over 100,000.00 what should I do now? The taxes would kill me.

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