Next Big Thing, and on the topic of "Hold"
This is my blog, and I ain't gettin paid for it, so I can cram two wholly separate concepts into one entry if I want.
Two entries ago, I posted about AAPL's valuation, which was unusually low at the time and has now sunk to historically quite low levels - P/E 10, closer to 8 net of cash on hand and 7 if you do my quicky trick of subtracting the dividend yield. That's pretty low for a company that has been pushing out 80% y-o-y earnings growth for the past 8 years.
But a lot of respondents pointed out, correctly I believe, that AAPL is not going to sustain current earnings growth on their current products, not even if they introduce iPhone 6 and iPad 4. Those products were revolutionary in their first iteration when they were introduced, but now copycats are flooding the market, competing well on price, and I think most would admit that AAPL's competitors are competing well on features and innovation, too, making them less 'copycats' and more legit competition. It is hard to sustain an 80% y-o-y growth rate when your competitors are making cheaper products that are innovative and maybe even better.
So AAPL needs to put out the Next Big Thing if they are going to take the next step and hit the $1 Trillion market cap jackpot. About one and a half years ago, I made a CAPS blog post outlining this thesis in a bit more detail, and laying out the timeline that I anticipated, and why; and right at this moment AAPL is coming down to the deadline I set, August 2013 (or maybe September, although AAPL lately seems to have abandoned the back-to-school month as the one they use to introduce truly revolutionary new products.)
The current share price is really not about valuation - I happen to agree with my commenters about that. Rather, it is a bet by AAPL shareholders that Apple are simply not going to do it - that Steve Jobs was the magic catalyst and that current management (having let Scott Forstall, Bertie Serlet, and a lot of other key employees go) has lost its way, has not been able to inspire with leadership, and has no path to the Next Big Thing. For once, I have no opinion; I am watching and waiting, and I am not heavily invested in Apple at this time - I sold about 3/4 of my stake at $678, and if you were paying attention to my blog, so did you.
The other thing I want to talk about is Buy, Sell, and Hold.
What the heck is Hold? It is a recommendation to not sell if you have some, and not buy if you don't. In other words, it is a recommendation to not buy and to not sell the stock. This recommendation contradicts itself. If frictional costs (bid-ask spreads, commissions) were a big deal like they used to be, it might make sense, but I feel like the average transactional frictional cost on one of my trades is about 0.1%, and I'm a dumb retail investor - people with more money have even lower costs.
A Hold recommendation is useless to me. It doesn't help me know what to do. It makes me not know what to do. I wish that analysts would be honest and say that their recommendations are Buy, Sell, and I Don't Know, and in the future whenever I see "Hold," "Neutral," or "Equal Weight," I am going to mentally translate that analyst's opinion to "I Don't Know."