The Best of Kass
Among his posts this past week, Kass wrote about Apple's prospects in 2013, why he is temporarily abandoning his short position in Treasuries (for the time being, at least) and why he sold shares in a China ETF.
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Previewing a Surprise
Originally published on Friday, Jan. 4 at 9:23 a.m. EST.
Surprise No. 10: Despite the advance in the U.S. stock market, high-beta stocks underperform. Though counterintuitive within the framework of a new bull-market leg, the market's lowfliers (low multiple, slower growth) become market highfliers, as their P/E ratios expand.
With the exception of Apple (AAPL) , the highfliers -- Priceline (PCLN) , Baidu (BIDU) , Google (GOOG) , Amazon (AMZN) and the like -- disappoint. Apple's share price rises above $550, however, based on continued above-consensus volume growth in the iPhone and iPad. Profit forecasts for 2012 rise to $45 a share (up 60%). In the second quarter, Apple pays a $20-a-share special cash dividend, introduces a regular $1.25-a-share quarterly dividend and splits its shares 10-1. Apple becomes the AT&T (T) of a previous investing generation, a stock now owned by this generation's widows and orphans.
-- Doug Kass, " 15 Surprises for 2012 "
Last year I wrote that Apple would be a positive surprise in 2012, though I turned negative on the company's fundamentals and share price in late September.
This year's surprise for Apple is distinctly negative -- that is, for the first six months of the year:
Apple's share price and earnings continue to disappoint in the first half of 2013 . A consistently low share price for Apple persists in the first half as earnings estimates are steadily reduced owing to lower production rates. Two important product releases lead to an improving share price for Apple in the second half.
Apple's earnings disappoint under the pressure of a more competitive landscape, lessening demand for iPads and iPhones and emerging margin pressures -- estimates are cut and full-year 2013 results fall short of $40 a share.
Microsoft's (NOK) Surface sales start off poorly but gain traction by the end of 2013. Google Nexus, Kindle, Surface and Samsung all sell at lower price points throughout the year, as price competition becomes rampant in the tablet market.
Apple's consensus 2014 profit estimates move toward an expected decline year over year. The stock spends most of 2013 below $550, but, in the last half of the year, two revolutionary product additions lift the share price to over $650 by year-end.