DEAR MR. BERKO: I bought 50 shares of Apple in August 2012 at $638, which cost me $31,900. Two years later, after a 7-for-1 split, I have 350 shares at $113, worth $39,550. When the company announced its Apple Watch sales last April, the stock was $135. The Apple Watch was a mistake, and now the company wants to produce a driverless car – which may be a bust, too. Has the positive inertia created by Steve Jobs disappeared? Now I wonder whether Apple can return to my purchase price or I should sell it to preserve my $7,650 gain. – TJ, Minneapolis
DEAR TJ: I’m not privy to the sales data on the Apple Watch, but some insiders suggest it is a flop. The company sold over 230,000 Apple Watches, primarily to Apple addicts, the first day they hit the shelves. Today, with 460 Apple Stores from Cucamonga to Kokomo, Apple sells about five watches per store per day, compared with nearly 500 per store on opening day. We don’t hear much about those watches, but don’t dismiss Apple because its watches may have tanked. Be mindful that Google is still a powerhouse in spite of the failure of Google freaks to put their imprimatur on Google Glass and a driverless car for stupids.
Apple (AAPL-$113) is so accepted that many iPhone users have no idea what they paid for their delightful devices. Last week, I asked a young adult what he paid for his new iPhone 6, and he responded, “$100 a month.” I asked him twice, but all he could tell me was $100 a month, including connectivity. This dunderhead has no inkling what his iPhone 6 would cost (without the data plan) if he had to pay cash. This is called “Apple power,” a tribute to AAPL’s enormous success when consumers buy a product without knowing the costs.
Consumers have been Appleized, which is why AAPL’s growth in revenues, earnings and dividends excites investors. AAPL’s iPhone sales grew by more than 30 percent in each of the past three quarters. And the iPhone is the company’s most important product, accounting for 66 percent of revenues and 79 percent of profits. So thanks to easy credit – plus Visa, American Express and MasterCard – AAPL has become nearly immortal. Americans don’t ask how much things cost. Rather, they ask, “Can I afford the monthly payments?” If banks keep credit easy, if you continue to be employed, if your mortgage rate remains at 4.2 percent and if inflation remains low, you can make modestly higher payments and buy the new super-deluxe iPhone 7 with drone-capable accessories next year. So don’t sell your AAPL yet, though you might consider placing an open stop-loss order at $100 to protect some of your gain.
AAPL’s growth rates are not sustainable. They remind me of Carl Sagan’s musings about bacteria, which reproduce by dividing themselves in two. Under favorable conditions, bacteria can double every 15 minutes. Although a bacterium weighs about a trillionth of a gram, its descendants, after a day of wild asexual abandon, can collectively weight as much as a mountain. In 36 hours, they can weigh as much as Earth, and in 48 hours, they can weigh more than the sun. As long as there’s enough food and there are no poisons in the environment, those bacteria can grow exponentially. But Apple isn’t a bacterium, and with iPhone sales accounting for $155 billion of the company’s $224 billion of revenues, AAPL is very nearly a one-product company.
Still, in the past two years, while the smartphone market has begun to slow, AAPL’s iPhone revenue has grown at its fastest pace. CEO Tim Cook and his acolytes have added some unique and sleek bells and whistles on the iPhone 6S to maintain the torrid revenue growth. Smartphone users replace their phones about every two years, and only 30 percent of AAPL customers have upgraded to the iPhone 6 or 6 Plus. So Wall Street expects AAPL to earn $9.83 in 2016, and perhaps there’s room for AAPL to return to your basis. But keep that open order active, and be mindful of the market’s extreme volatility.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.