How Much is Too Much?

“I like it, but it’s just too expensive.”  I’ve heard that phrase often this summer, almost exclusively when discussing Apple’s stock price.  When it comes to investing, many of us get too enamored with the number of shares that we own, instead of the total dollar value of our investment.

Think of it like this.  How is a $10,000 investment that gives you 200 shares any different than a $10,000 investment that buys you 20 shares?

In late July Apple encountered a rare miss on earnings due to lagging sales of the iPhone 4s (because everybody and their uncle knew that the iPhone5 was due this fall).  Correspondingly, its stock price dropped from a high of $609 on July 24 to a low of $570 the next day.

Now, hindsight is always 20/20, but stay with me for a moment.  If you’d invested $10,000 in Apple after the share price dropped, you’d have received approximately 17 shares of the company’s stock.

Over the next week, Apple’s share price would pass the $600 mark, and on August 17^th, Apple reached its all-time high.  It would go on to eclipse that new high eight times over the course of the next month, including Monday, September 17^th when the share price passed the $700 mark.

Today those 17 shares would be worth around $12,225 – a 23% gain in a little over a month’s time (and don’t forget Apple also paid its first quarterly dividend on August 9^th).  Now I will ask the question:  was Apple really too expensive?

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Understanding Apple

When Apple started selling the first iPhone in June 2007,  you could buy Apple stock for about $100 per share. Two weeks ago, You’d pay $644 for that same share. During that same time, $100 invested in an S&P 500 mutual fund would be worth about $95.

Yet Apple naysayers abound, calling the stock overpriced; saying the iPhone is threatened by Droids, or the iPad by cheaper competitors. How does Apple answer? With last night’s earnings report, to wit:

Sales up 50%.
Profits nearly doubled.
iPhone sales up 88%.
iPad sales up more than 100%.

Investors have sent Apple stock up $50/share (9%) this morning on that news.

It took me a while to understand Apple and its products, despite buying the first iPhone and nearly every subsequent model, and becoming inseparable from them.  I really looked at iPhones as a great phone that could do some other things – and that’s where I was wrong. The iPhone and iPad are devices that provide such a range of function that it can hardly be imagined that any two people use them the same way. That coupled with high quality and reliability suggest that continued strong sales are likely for Apple.

The next wave: when iPads start to surpass big-box televisions for TV viewing. It may be coming.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Update: Apple as an Income Stock

In my previous post I discussed the potential of Apple becoming an income stock. Today the company announced that it would begin paying a $2.65 quarterly dividend, a current yield of about 1.8%. Along with the dividend Apple plans to buy back $10 billion of its stock. I believe returning capital to the shareholders is the right move for Apple. They will retain more than enough cash to continue research & development as well as any acquisitions the company might seek. The shareholders are the owners of the company and if management is not putting this excess cash to work, it should return it. As I mentioned in my previous post, a dividend will make for an interesting dynamic as the company now fits the bill for funds/investors who seek current income from their investments. Apple is up nearly 50% year-to-date. I will be interested to see the effects of this fundamental change as time goes on.

Sam DiNorma

 (This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

There is a Difference Between Loving a Company and Loving That Company’s Stock

This is a current chart of Apple stock in white on top of a 2007 chart of Google in orange.  I am not making any predictions here, but Todd Harrison at Minyanville says it best  “We’ve seen this parabolic frolic before and it was always different—until it wasn’t.”

 

Doug Hendee, CFP^®

Kodak’s Apple Problem is Apple’s Kodak Problem

• George Eastman was attacking apples before Steve Jobs was born. 
• However, George grew up in apple country (I don’t mean Cupertino) and must have had an appreciation for NY State’s delicious varietals. 
• There’s a very good argument that Kodak was the Apple of its day.

So, why is today’s American technology behemoth trying so hard to beat the tar out of yesterday’s?  The longer answer has to do with competition, technology, and imaging, but in the end only the short answer matters: money.  Both Kodak and Apple think they own the same very lucrative idea and they want the matter settled so that they can continue (or in Kodak’s case, start again at) making money.

Yesterday, Judge Allan Gropper ruled that he would not “unfreeze” the lawsuit Apple has brought against Kodak over patent infringement.  Since Apple thinks it owns one of those patents, it would prefer to get a court ruling saying so before the patents get sold as it will be more difficult for Apple to regain the rights to that patent if they get sold to a third party.  Yesterday made that a whole lot harder.

How does this matter to Rochester?  The patent sale is an enormous factor in Kodak’s ability to fund its pension, the Kodak Retirement Income Plan or KRIP.  Let’s look at some numbers:

KRIP is funded at either 86% (PBGC) or 90.5% (Kodak’s 10-K), depending on who you want to believe.  That leaves the dollar amount of the underfunding at either 700 million or 500 million.  Let’s split the difference and call it 600 million.  Estimates of the value of the patent portfolio Kodak wants to sell range from 2.2 billion – 2.6 billion.  Before Kodak can make up the funding gap, it has to pay back the DIP loan it got to get it through the first part of bankruptcy: 950 million.  Still waiting after DIP and the pension are 2.6 billion in bondholder debt and a pile of unpaid vendors and some environmental remediation.  But what will Kodak have left to pay them?

$2,000,000,000 (Patents) – $950,000,000 (DIP) – $600,000,000 (Pension) = $450,000,000. 

That’s 450 million left over to pay back 2.6 billion + of debt and have enough money to keep operating a business!

Now, bankruptcy is going to reduce the bondholder, vendor and environmental debt (and reduce retiree benefits outside of KRIP) to some degree and Kodak has other valuable assets to try to sell (profitable business lines, real estate).  But if you take a moment and think about how much worse a situation Kodak will be in if they don’t sell those patents – that is, if that 2 billion dollars is not available to pay off the DIP, pension and some other debts – you will understand just how critical the patent sale is to Kodak and to Kodak’s retirees.

Yesterday’s decision takes Kodak a step closer to being able to sell those patents.  Hopefully, this is a pattern that continues.

Chris Cromwell

WSJ on the Topic: http://on.wsj.com/yNB8w8

Apple As An Income Stock

Yesterday, Apple held its annual shareholder meeting. One of the hot topics discussed in this meeting was Apple’s massive, almost $100 billion, cash reserve. Chief Executive Officer Tim Cook reiterated that the tech giant is still exploring its options for putting this cash to work and that paying a regular dividend is not out of the question.

Apple hasn’t paid a dividend since 1995 when Steve Jobs returned to the company and transformed it into one of the largest companies in the world. Jobs was adamant about retaining profits rather than returning them to shareholders in the form of a cash dividend. Cook, however, is not opposed to the idea, though no decision has been made as of yet.

The implications of an Apple dividend are substantial. The change would attract private investors who typically accumulate shares in dividend paying companies. An even larger implication is the effect it would have on mutual fund managers. Most mutual fund managers operate under a stringent investment policy. While they may find Apple to be an attractive investment, they may not be allowed to hold it within their fund if, for instance, the fund’s goal is to invest in income generating stocks. The inclusion of a dividend could cause a very large amount of accumulation as certain fund managers might finally be able to put Apple on their allowable list.    

Sam DiNorma

 (This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

What Goes Around

Last October an Ohio company, Collins Ink, made local headlines by halting shipments of its product to Kodak, citing concern about the impact to Collins of a Kodak bankruptcy. After a quick trip to Federal court, Collins and Kodak agreed to resume their relationship and Collins dropped from the headlines.  Fast forward to January 19 and we were reading the Collins name again, this time listed as one of Kodak’s 50 biggest creditors (find them here, page 18) owed just under $2 million. As it now stands, Collins is unlikely to see much of that money – the very outcome Collins said it feared when it attempted to cancel its relationship with Kodak.

Collins Ink is a small company, $12 million in sales compared with Kodak’s $6 billion. And I can’t help thinking that in their court fight, Kodak got the justice it could afford. But Kodak has bigger legal issues, with bigger adversaries.  A critical case, one in which Kodak has supposedly prevailed, is a patent dispute with Apple and Research in Motion (RIMM). The International Trade Commission (ITC) first ruled for Apple/RIMM, then reversed itself and awarded Kodak $1 billion in damages. But curiously, the ITC has been delaying, and delaying again, a final order in the matter. That delay is an urgent matter for Kodak, which had been hoping for the cash to help it avoid bankruptcy.  With bankruptcy a fact, now the money could help Kodak emerge healthier down the road. But Apple is not giving up the fight, asking the bankruptcy court for permission to sue Kodak for infringement.

In this new reordered scenario, Kodak is the small fry, facing a much larger adversary in court.  One wonders if Apple will get the justice it can afford. We will see what comes around.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Today’s Kodak Hearing

As we blogged about yesterday, Kodak is in bankruptcy court today where a good amount of information about what this bankruptcy will be like ought to be revealed.  The hearing began at 11:00 a.m. and the first news coming out today has been about Apple’s request of the court to go forward with patent infringement lawsuits against Kodak.  That’s an interesting stance – bankruptcy court should not hinder their lawsuit(s) but Apple is asking regardless.  They’re the 800 lb. Gorilla in the room and they’re playing nice.  Why?  What else do they want from the court? 

As I’ve been writing this post, the hearing has finished.  Here are some decisions: DIP financing to be approved, Kodak’s name to come off of Hollywood theater, fees for lenders noted (28 million) but DIP docs may be kept under seal, patent sale will pay back DIP. 

The Kodak theater not being named the Kodak theater anymore ought to make some headlines.  Probably starting to already.  Let’s check… yes.

No commentary, as far as we know, about pensions and retirement benefits from this hearing.  DIP lenders have helped their case by placing themselves high up, but their position before most everything else was expected and is to our understanding customary.  For our community of retirees and employees that means continuing to wait and see.

Stay tuned to this blog; as we get information, we provide it.  Follow George (@gtconboy) or me (@chris_crom) on Twitter and sign up for our blog here.

Chris

Chris Cromwell
Business Development Manager
Brighton Securities

Eating Apples, or Nothing Lasts Forever

There is an interesting article in yesterday’s New York Times discussing fallen giants such as Polaroid, Palm Pilot, Atari, Sony Walkman, Pagers, and potentially BlackBerry.  I read this article and I think of one company, Apple (AAPL).  Then I begin my struggle to understand why Apple can maintain momentum when all of these other once-great names could not.  And it is a struggle. 

Granted, Apple has already succeeded beyond the best any of these other companies ever did.  But can they keep it up?  Can they avoid having done unto them what they’ve done unto so many others?  Motorola was the greatest until BlackBerry.  BlackBerry was the greatest until Apple. 

What can trump Apple?  I have no idea.  But history makes me confident that something will.  I am also confident that this is a lonely perspective to have these days.

Brennan R. Redmond, CFA
Vice President
Brighton Securities

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Goodbye 2011

We’re 10 days past the Winter Solstice and the days are getting longer.  Before we know it, summer will be here – not soon enough for my taste.  As we bid goodbye to 2011 there were several big events this year of note to investors:

 The US Treasury was downgraded to AA from AAA by Standard & Poors.  Moody’s the other major ratings agency, did not follow suit.  It was a big story that, in terms of rates and prices, ended up a non-story. Rather than rising, as some predicted, interest rates actually fell (as others predicted).

 Stock markets went up and down plenty but didn’t end up far from where they started.  As of yesterday’s close, the Dow was +6.1%, S&P 500 +0.4%, and NASDAQ -1.4%.

 Apple’s continued domination of technology made it the world’s most valuable tech firm, briefly surpassing Exxon Mobil as the most valuable of all.  The death of founder Steve Jobs was even bigger news, but thus far the transition to a new CEO has gone well for Apple.

 The Japanese tsunami knocked US stock markets for about 5% back in March but we promptly recovered from both that and the late summer selloff.

 Next week: we’ll start off 2012 with some predictions for the new year.

 

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).