Actually I have no idea what undervalued and overvalued mean when it comes to picking stocks.
I do own Apple and it keeps growing enough to be the biggest position in my portfolio of stocks (and Rachel’s).
Of course, Apple may peak tomorrow and drop 40 percent. I just doubt it and will deal with that if and when it starts to happen.
To anyone that asks me what it takes to be successful investing I continue to say the following:
Basic math (relative strength), the desire to spend thousands of hours reading and playing with ‘toys’, playing games (my biggest weakness/hole), basic trend following skills, behavioral science skills, some basic social skills and hustle. I think you can develop an eye…at least for public markets.
As for valuation analysis…
The internet messed with Graham and Dodd. Sorry gents.
The social web generation added more layers of difficulty to measuring growth and assets ie – attention and global scale.
The Crypto revolution will make the internet revolution look quaint.
The voice, drone and wearable revolution will take it to another level on top of all that.
If you still believe in Graham and Dodd, buy Berkshire stock. Pay the premium and average in over time.
Back to Apple…
It remains too big to analyze.
There are a few factors that will drive Apple well past $1 trillion in valuation, maybe, finally, this year.
It’s not their cash, though eventually they will get to bring that home at a good tax rate. They can also play king in acquisitions – say acquiring Netflix to defend against Amazon.
It’s not the iPad, though it’s growing like gangbusters in China and eventually all emerging markets.
It’s not revenue growth because they only grew 6 percent and the stock is rallying again – tonight at more all-time highs.
It’s not macro issues, though we are in a multiple expansion environment (low rates, tax promises, mostly peace)
It could be Tim Cook and Johnny Ive but betting on when they leave seems like a waste of energy.
Apple is undervalued because of
1. The opportunity/growth in subscriptions –
Few think of apple as a subscription business. It has become one. Their are 185 millions subscribers to Apple products. The last quarter subscriptions across their platforms increased by 20 million. Growth is accelerating.
2. Wearables – The earPod is a hit and Apple still has not gotten to full production.
The watch sales are now growing fast. Though the numbers can’t on their own move Apple’s stock, Apple owns ‘fashology’.
3. The Apple stores – you may argue with me but I have been dead right on this for 11 years.
4. The frontier – ARKit seems to be hot with the geeks.
If China is your reason for not buying Apple, hedge it with some Tencent stock, which I have done the last year. That has been a win/win in the meantime.
If Amazon is your reason for not buying Apple stock, own some Amazon.
Hope this helps.
Also published on Medium.