Apple’s Core

Dear Mr. Berko: I bought 100 shares of Apple at $129 last June, believing it could move up to $200. I’m down by 21 points. What’s your opinion? Do you think I should sell Apple? — SA, Oklahoma City

Dear SA: Apple (AAPL-$108) is the world’s most valuable enterprise, with a $600 billion market cap. AAPL is sitting on more than $215 billion in cash and produced $234 billion in revenues last year. The iPhone, AAPL’s most profitable product, generated about 67 percent of revenues last year. But though 75 million iPhones were sold during AAPL’s most recent quarter, those sales were flat compared with the same period last year. Meanwhile, revenues from iPads, Apple Watches and Macs, which cratered last year, are facing tough competition from less expensive and nimbler competitors. Revenues from AAPL’s ancillary products were up well last year, but not significantly enough to appreciably boost earnings.

AAPL is vitally important to Wall Street; about 62 percent of its 5.5 billion shares are owned by over 2,400 institutions, mutual funds, hedge funds, closed-end funds, exchange-traded funds, corporate raiders (Carl Icahn owns 52 million shares), pension plans, college retirement funds, bank trust accounts and private and foreign investors, and they’re used as collateral for big bank loans. A falling AAPL could create a minor catastrophe! Because Apple is so important, there’s a very tall wall of silence around the Street’s finest to avoid negative comments. Comments failing to laud AAPL are blasphemous, un-American and bad manners. The closest thing to a negative AAPL comment was a remark by UBS analyst Steve Milunovich: “The bottom may not be far away.” And he reduced his 12-month target price to $120 from $130.

What can AAPL do for an encore? Apple’s research and development team and its marketing department have produced ignoble failures, such as iPod Hi-Fi, Newton, Apple Maps, Pippin, G4 Cube, Lisa, Apple Watch, MobileMe, iOS8.0.1, Copland and Apple Mouse, to name a few. And I’m certain as sunshine that Apple’s participation in driverless car technology will fail ignominiously and produce a juicy tax write-off.

Though Tim Cook, the CEO of this impressive gadget maker, can’t conjure another blockbuster product, he can certainly borrow money. Despite Apple’s current $215 billion cash hoard (mostly overseas), Tim decided to borrow $12 billion with maturities going out 30 years and yields slightly higher than Treasury notes. This new debt will fund Apple’s capital return program, including continued stock buybacks and dividend payments to shareholders. It makes good sense because the $181 billion in cash AAPL has parked overseas would be subject to a 35 percent tax if Tim were to bring it home. Tim will continue to play a sit and wait game until AAPL can repatriate that cash to the U.S. at a much lower rate. And a lubricated Congress, with the advice of generously lubricating lobbyists, may vote a one-time repatriation tax that could become law for a week in early 2018. In 2004, there was a temporary amnesty window allowing companies to pay a 5.25 percent tax on repatriated earnings. I’m delighted that Tim failed to negotiate the tax-free return of AAPL’s $181 billion overseas profits as payment for helping the FBI decode the San Bernardino terrorist’s cellphone. Many AAPL employees believe Tim’s refusal was seditious and subversive.

Today AAPL is in a holding pattern without a new or exciting product to market; it’s basically the same old stuff in different wrappings. And though that same old stuff is good stuff, there’s a growing number of competitors selling that stuff at bare-bones prices in order to earn income elsewhere. AAPL’s decision to maintain a premium pricing strategy so its margins remain strong may be ill-advised. This limits sales growth — especially in countries with emerging markets, where demand is strongest.

I doubt Apple’s share price will have any pizazz for a while and suspect that it will trade in a narrow range between $92 and $115 a share. Sell your 100 shares and take a loss, because the growth you seek isn’t there anymore.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at


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