by Steve McDonald, Bond Strategist, The Oxford Club
Friday, January 4, 2013
In focus this week; AAPL is dirt cheap, making money on the end of cash and a sitfa in honor of our entitlement system.
No matter how you look at it AAPL is cheap! So says Barron’s. (And so do we.)
The shares are down 30% from their all-time high based on a lowered estimate from last quarter, but most of the selling has been the result of institutions bringing their holdings back to reality.
The over buying of AAPL in 2012 by funds and hedge funds had been huge! As of last September Gladius Capital Management had 94% of its capital in Apple.
According to the Barron’s article, even large firms like Susquehanna International Group had 21% of its capital in Apple… 21%!
Davis Einhorn, of hedge fund fame, describes AAPL as the best big growth company we have and it is trading below the S&P multiples.
The stock is also trading as if earning growth is coming in at 2% and 3% not the predicted 22%.
Apple sold five million 5s phones in the first weekend and two million in China without an agreement with their largest carrier, China Mobile (NYSE: CHL).
Add to all of this the rumors that revenues for the long awaited Apple TV could double what we have seen from tablets and phone sales, and we have real gem.
If you have read any of my other articles about AAPL, you already know – you buy this one on the rumors.
The End of Cash
The end of cash is making some very wealthy.
Only 29% of all retail purchases are made using cash. That’s down from 36% 10 years ago.
Cash sales are expected to drop to 26% of all transactions by 2020 and these will be by people who do not have bank accounts and can’t get a credit or debit card.
Large upscale retail operations are even abandoning cash registers for portable handheld devices.
The obvious big winners of this huge shift have been, and according to all the numbers, will continue to be Visa (NYSE: V) and MasterCard (NYSE: MA). Their numbers are nothing short of stunning and they have virtually no credit risk. Both act solely as processors for transactions and bear no responsibility for the cash involved.
According to Barron’s, even at their current high multiples there is room for both of these to continue to grow. Visa’s earnings are expected to increase by 14.5% in 2012 and MC is looking for16% growth.
But according to Barron’s the big winner of this race will be VeriFone Systems (NYSE: PAY).
Retailers in the U.S. are being forced to improve security on all credit transactions. As it does, the current retail sales processing rage, the Square, which according to Barron’s has been the cause of most of the almost 50% sell off in VeriFone, will not be able to compete. It just is not sophisticated enough to handle the new security requirements.
A very large part of the business has to come back to VeriFone.
According to Barron’s PAY already has 70% of the top 1,000 retailers in the U.S. and the new security requirements will push that number higher.
Earnings are expected to grow 19% in 2013 and that puts the stock at $39 from its current $29.
PAY – it’s a twitchy one, but one worth watching.
The Slap-in-the-Face Award: Entitlement Edition
This one goes out to all those folks who want entitlement reform, but not if affects their benefits
$250,000 dollars is how much the average Medicare recipient receives in his or her lifetime in benefits in excess of what they have contributed to the system.
Do the math! Is there any question why we have huge deficits?
Add in the numbers from the deficit in social security benefits, which also far exceed what recipients pay in, and you should have no problem understanding what needs to be done to fix our fiscal problems.
It’s very simple. Social Security and Medicare were never designed to handle the number of retired persons we have and will have, or the life expectancy we now enjoy.
But the cry still echoes through every congressional office, fix it, don’t touch my benefits!
I’m not sure who deserves this weeks’ smacker more; Congress for not doing anything or the American people for refusing to face the facts.
The bottom line; if we don’t put all the numbers on the table for everyone to see, we will all end up getting smacked around by this one.
Apple (Nasdaq: AAPL) is Cheap!,