Wednesday, October 20, 2010

GOLD OR APPLE ....IS A BUBBLE?

I love this game...watta joke as investors seek safety in real companies...they pile in to the very best driving their prices to infinity. This article from Alpha is spot on.

The problem though comes in with how much one is willing to pay for those profits today. Let's pretend for a moment that AAPL continues to grow its free cash flow 50% every two years as it has the past two. That would mean year end in 2012, their free cash flow would be $19.5 billion and in 2014, the free cash flow would stand at $29.25 billion.

Here is the kicker, if the stock did not go higher for the next 4 years, yet the company grew 50% in FCF every two years for the next 4, the business would be generating a 10% FCF 4 years from now. 10% is nothing to sneeze at I must admit. But there are plenty of mature businesses one can buy today who sell essential service products that people have to buy that yield 10% from a FCF stand point.

Here is one:

Kimberly-Clark (KMB)

While diapers and toilet paper are not as sexy as the newest iPad, I would have to say that I use the products of one every day, and I don't own the product of the other or its competitors. One is a must have, the other is a luxury. I will let you judge which is which.

Currently the FCF yield on AAPL is a paltry 3.1%. The business is priced for continued hyper growth. Again, if the price got stuck here at a $285 billion market cap, the business would have to grow 50% every two years just to become as attractive as stodgy ole Kimberly-Clark from a free cash flow per dollar invested basis. If AAPL somehow began to stagnate in the face of all the competition from Google (GOOG) and others, then every dollar invested today would only bring 3.1% FCF return at current prices, about 67% worse than KMB on a per invested dollar basis. Would you go and spend $500,000 on a local Subway Franchise if you knew the yearly income you would receive was $15,500? Buying AAPL at this price here is the same thing. Of course, you may be hoping that the sandwich shop you spent $500,000 on will turn into a $50,000 a year income in 4 years, but you would sure be relying on a lot of continued growth over long periods of time. Who wants to park their money for 4 years in hopes of making 10% in FCF yields 4 years from now, when there are other businesses paying that kind of FCF yield today?

http://seekingalpha.com/article/231036-gold-is-not-the-bubble-apple-is?source=dashboard_stocks-sectors

19 comments:

  1. sigh.......how i miss my SGG...watta money maker.

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  2. Timmy scared all the weak hands out yesterday with his Monday speech.

    Those who think Timmy is FOS are buying the dip.

    Nice move on LCC today. Too bad none in my accounts.

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  3. One of the most undervalued stocks out there based on their earnings, float,,,etc is UTA. It's heavily shorted and it's close to bottom, down side is 3.80 to 4 and upside is to 9. Yesterday and today it bounced when it hit 4.89.

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  4. Folks still playing ABK..DCTH moving nicely.

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  5. DO NOT trade UTA rod........hold it

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  6. Hm I'll keep an eye on UTA and if it gives me a big dumb obvious entry point I may nibble a bit.

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  7. For l-t investment accts., kmb should be a good one since it is owned by Jim Sensenbrenner's family (R-WI). Ha!

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  8. Anybody holding GORO? I sold 1/2, thinking of selling the rest.

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  9. kli will do hope u and woodcarver can make ark trip next week really nice turfs and good grub

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  10. Still have a lot of my GORO, might have further to fall short term but I've grown used to that and insist on having a core.

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  11. This "don't ask don't tell" thing is hilarious. Sure the dems want gays to be able to join the military, but only if they get to take credit for it! The excuses for this 180 degree flip will become pretty entertaining I expect.

    Kudos to the courts for taking the football away from these empty suits and their Machiavellian foot-dragging and promise-milking.

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  12. They are total cowards on this issue morla...of course the republicpukes used it to beat the demadumbs after clinton took the first step....the grunts on the ground could care less if you're straight or gay its just political football for the wingnuts.

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  13. The democrats are the guy who's been tinkering with the lawnmower for 6 months assuring that he'll have it up and running anytime. Then, the neighbor comes over, kicks it once, and it starts running. Now the dems are furiously trying to rebreak the mower before the wife comes home on election day.

    Some of the most revealing political behavior I think I've ever seen.

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  14. Interesting comparison of currencies with the dollar as a baseline.

    http://www.economist.com/node/17257797?story_id=17257797&fsrc=rss

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  15. congrats to Mor n sis for holding GORO....great job on your core instincts......also DTO still looks good for a small core trade here...tomorrow should give a clue on oil looks to be rolling over...

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