Why is it that I no longer watch CNBC you ask?
I had watched this financial news channel for at least a decade plus. Not sure if I got smarter or they got worse but too much of CNBC is opinion and agenda versus just facts. I’ll do my own opining to make decisions thank you.
I took a tour of CNBC headquarters in person and it was a HUGE wake up call. On the tour I was told how they have 14 hours of programming each day and they have to fill all that air time. They literally said they are a “giant booking machine” bringing in feeds of booked guests over satellite’s, internet and every other possible way. They book 100′s of guests each day to fill the airwaves.
Their goal is to fill the time. Does not really matter too much what the content is as long as you watch. I no longer watch. Easier to pick the days facts from the newswires.
CNBC also makes every little thing into a giant super important thing. Jobs numbers? We have a timer for that and will remind you ever commercial break! ADP numbers? Sure we have a countdown for that too. Every other minor economic report or news…we’ll remind you too over and over because it is super important. We’ll even show you timers with 100th of a second accuracy because these things are really really important. Not a millisecond to waste!
There are many hazards out there to your investing success. It is my opinion that watching CNBC may be one of the most hazardous things you can do if you want to be successful at investing. It is the nature of the best. If they only had to report the facts each day it would barely fit an hour. So you have to repeat everything ad nauseum, bring on an endless parade of guests to opine and make a mountain out of every mole hill.
Watch at your own peril…and if you must watch then do what Buffett does…at least turn the sound off!
When you invest you have to look out 5, 10 and 20 years to catch some big trends and get in well before the Wall Street crowd figures it all out. Case in point is the upward trend with both all electric plug in vehicles as well as hybrid plug-in’s.
These two types of autos are increasingly becoming more popular. The major auto manufacturers are producing increasingly more popular and affordable models. The end user adoption curve is also beginning to pick up in this space.
A little history. First we had all gas and diesel vehicles. Next were hybrid’s which simply paired gas with electric motors and batteries but had no plug in option. Today the biggest trends are plug-in hybrid’s which allow you to plug in and charge an onboard battery for some base amount of electric only driving range (i.e. 10 to 50 miles). Also pure electric only vehicles are now hitting new price and performance benchmarks with more on the way.
So what I do as a long term investor is look forward many years down the road (but not too many). I see the day coming where a significant portion of the automobiles in service here in the United States are charging (think fueling up) off the electric power grid. Many of these electric or plug-in cars are used for trips well within the electric range of the vehicle thus requiring no gasoline in the case of the hybrid plug-in’s.
So how do we capitalize on this? The answer is UTILITIES! The regional utility companies are all poised to reap the tailwind this will begin to generate as these types of cars enter into service. People will be bypassing gas stations and instead charging up from either home based electric chargers or high voltage-high speed public chargers. All these pull right from the power grid supplied by the utilities serving their respective areas.
So a trend we will see is a drop in gas station fuel stops and instead that power coming right off the electric power grid. Gas and oil companies will see less business at the retail end but increased sales of natural gas into the utilities as that will likely be the fuel of choice for electrical power generation for at least the next few decades. Utilities become the new toll booth replacing fossil fuel gas stations. This will create a new revenue tailwind and increased electricity demand for these lucky beneficiaries.
Some companies poised to reap these rewards in the coming years and decades are Duke Energy and Southern Company. Two very large utility companies with huge footprints. Each offers a substantial dividend with Southern Company paying 4.5% and Duke Energy paying 4.4%. These companies will pay you to wait for this mega-trend that is beginning to emerge.
Utilities also provide some stability to your portfolio while you wait. These companies have solid and predictable revenue streams and are unlikely to blow up your portfolio like some riskier sectors might.
So put a little power in your portfolio. Catch this wave before everyone else does. That is how you make a fortune in investing. Look down the road as the Oracle of New Jersey does and see what is coming before the pack does.
Here is why no special dividend or even a substantial dividend or even a buyback. No executive or board member is aligned with shareholders because they don’t hold any stock!
Tim Cook – 13.8k shares. Really? This is all Cook held onto? He dumped all his options when they vested
Eddy Cue – 285 shares. Dumped all his shares when they vested too. Nice to see these execs holding onto stock, right?
Phil Schiller – 257 shares held. Such conviction in his company? Dumped his 120k shares March 12 for 70 million. But hey he kept about 125 grand worth!
Daniel Riccio – 0 shares (not a typo). Dumped 14 millin worth of stock in ’12. Holds zilch
Peter Oppenheimer – 4793 shares owned. That’s not much. he dumped 150k shares for 90 million in march.
Robert Mansfield – 29548 shares owned. Dumped 50 million plus in stock.
Now I know why us shareholders never got a special dividend. Never got Q1 dividend moved up before the taxes went up. Why would any board member or executive want to give a dividend when they don’t own any shares? Steve Jobs held shares in Apple. Jim Sinegal held all his shares in Costco. Buffett never sold a share of Berkshire. It’s nice to have your interests aligned with management and the board. It’s not so great when your interests are very different.
Don’t believe Apple’s management or board is aligned with you, the shareholder. Just look at how much stock they hold and what they do the moment their options vest. They can’t sell them fast enough. So to them it does not really matter about dividends, tax efficiency, buybacks or the daily, weekly, monthly or annual stock price. Just build enough cash to keep your salary, bonuses, company and options coming.
Until these board members and executives start having more than half their net worth tied up in long apple stock they simply are not part of the team.
I’m going to hold on and hope for a pop on earnings so I can trim out of this position. I learned from the best investors in the world that if management is not riding the same bus you are that you need to get out of the bus fast.
Apple’s board and executives interests are NOT aligned with shareholders interests. Go look at the insider transactions and holdings. Executives have blown out of their vested options as soon as they could. 10′s and 100′s of millions worth. The top execs hold between zero, a few have several hundred and very few just a couple thousand shares. Cook leads the pack with a paltry 13k shares. Mansfield only 12k. Forstall gone but only 3k. Oppenheimer just 5k. Phil Schiller a mere 257. Eddy Cue holds 285. Most of these major executives and board members have fewer shares than I do! Why would any of them want a bigger dividend? They don’t own any shares to make money off of that.
Here is a link to the Inside Holders: http://finance.yahoo.com/q/ir?s=AAPL+Insider+Roster
Until they start owning shares and not just options that they sell the moment they are vested they are not aligned with shareholders interests, period. This was also clear when they did not do a special dividend or even move up the Q1 dividend before 2012 taxes were going to be increased. Why should they? They don’t own any shares.
Their goal is to keep the money for salary and bonus (cash). Use buybacks to offset the billions in option dilution for their grants to hide that compensation as best as they can.
Until apple executives own 10′s of thousands or 100′s of thousands of shares their interests are simply not aligned and their actions have proven that. The token $10.60 dividend was really an insult. Company making 50/share in EPS and has 130B net cash. C’mon. Steve Jobs was paid $1 per year. All his comp came from the stock he accumulated and did not sell. Greats like Jim Sinegal of Costco and Warren Buffett the same.
If you want your interests to be reflected than look for a management team that belly’s up to the bar with you and owns some significant shares. I would like to see Apple executives and board get some real skin in the game. Why don’t they have at least 1/3 of their net worth long in Apple stock?
Mr. Tim Cook,
Hi. First let me briefly state I am a long time Apple user since the Mac Plus era. I own iPhones, iPads, iPods and iMac’s. Everyone in my family owns them. I also am a long time shareholder of Apple stock with a substantial stake.
It disturbs me as a huge fan of Apple and a shareholder to see the media and the market take down both the stock and the company along with it. I believe there are specific reasons for this and things Apple can AND should take action against to defend both. When a stock gets broken (and Apple, the stock, is broken now) psychology changes. People look for reasons why the stock is in free fall and they find reasons whether real or not. People must define why things happen even when they are random or unrelated to the underlying company. I believe this is the case. One has to be careful that the stock does not begin to tarnish the brand as people seek out negatives.
So one question as an investor/shareholder I ask as I am sure others do is “If Apple does not believe in their stock at these absurd low valuation levels why should I?” The 10B buyback merely offsets option dilution. At this valuation Apple could bring confidence with a 50B buyback over say 3 years. Even if you had to borrow at low rates and deduct the interest on the loan to do this it would be confidence inspiring and immediately accretive to earnings. You would still have 80B in cash and it would grow 50B plus annually for at least two years. In the meantime after investment gains Apple’s cash erodes about 3% annually to inflation which is almost $4 billion per year.
Additionally a dividend could be paid ahead of the fiscal cliff with no net change to Apple’s balance sheet at the end of 2013. The sensitivity to the coming tax changes would signal Apple’s management cares about shareholders. Right now I’m not sure that belief is held anymore. You could also issue a special dividend or increase the annual dividend as a show of the boards confidence in the future. Options are plentiful. No action is not the best option here.
Remember a stock is nothing more than a piece of paper if dollars do not come back to shareholders. It is similar to gold. Gold pays nothing. Apple right now pays 2% but it would take 50 years at that rate to get your investment back. Not significant enough to support the stock or attract shareholders. A stock without a significant dividend becomes just something that you hope somebody will pay you more for down the road.
It pains me as an Apple fan and shareholder to watch a great company and stock both suffer at the hand of the media and market while Apple sits by and does nothing to defend either. Apple has blown away earnings on top and bottom line before only to see shares fall on that press release. At some point psychology can get so bad that people will always hold the stock down at absurd low multiples just waiting for failure whether it takes a few years or a decade. Sentiment now thinks Apple is becoming the next Sony. Even if you crush earnings the next few quarters this sentiment may not change. People will always think Apple is just a few quarters away from its eventual decline. A non virtuous circle
The weapons Apple has to show confidence are many. Significant buyback of shares would be the biggest vote and most effective tax wise. Second is a dividend increase and special dividend with possible pull forward ahead of the cliff. Last is a stock split. While I know you think this makes no difference I disagree. There is a psychology and obsession with high share prices. High prices mesmerize people. I was a psychology major and see it firsthand on tv and in person. Real world prices matter and even though it’s just slicing the pie up people cannot make the disconnect. Even the MBA’s and professionals know technically there is no difference they too fall prey to this. It is human behavior. A 10 or 15 for 1 split would alleviate this and show the company is confident in the future. I argue if it makes no difference then just do it. At worst you get an advantage you did not think existed. It will get everyone off the high share price obsession which is very real. 99% of investors don’t know how a $500 or $700 stock can be “cheap” yet Apple is.
I close with thanking you for time and consideration. Also would like to say I think you and the entire team are doing a fantastic job. I follow Apple closely on a daily basis as it is my largest investment and in my view nothing is broken with Apple products. However with the financial management and stock management there are some things you may wish to consider and plead that you do.
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.