Question:
I’ve heard Dr. Gene say that Apple is a keeper, and I agree. However, Apple is the stock I am curious about, concerning how the rest of the story pans out. Dr. Gene said that the growth rate is very high, but it can’t stay that high forever, so how does it pan out over time? What type of company does it become (given good management and no disasters)? Does it morph into an IBM or a GE?
The only other company I can think of, that went crazy like Apple, was AOL. With Dr. G’s experience, he probably remembers others. Also, what do we watch for, to have the foresight to see the next chapter of the story begin? Are there good examples of other companies that were once like Apple is today, and what did they become?
Answer:
We do not believe Apple Inc. (NASDAQ: AAPL) is a reasonable comparison to AOL Inc (NYSE: AOL). When AOL purchased Time-Warner, AOL had just begun to report a profit. Time Warner had two times the cash flow, but AOL was able to take over the business because their stock was so lucrative.
The stock could be compared to Google, Inc. (NASDAQ: GOOG) in that the price has increased tremendously, but it may likely plateau. Apple has been fortunate enough to increase to $600 a share. If it were to split 6-1 and sell for $100 a share, more people would likely buy it. At $600 per share, the price “weeds out” the smaller investors.
The question is Apple worth $600 a share, and at this time, we think it is. The company has a good product cycle, and if they continue to protect product quality, they should have growth longer term. We feel they could be become a mature growth company like IBM. We feel the company has longevity. Apple currently has a small market share in terms of the personal computer business compared to other tech giants, so there is room for growth. Take 2% of the market away from Microsoft will not likely make a difference; however, if you add 2% of the market to Apple, you could see profits through the roof. Even so, we do not believe it will continue to grow at 40% a year.
If you purchased Apple at $80, we suggest taking some profit. If you own Apple, we suggest caution to not let the stock become more than 5% of your portfolio, which can happen quickly. We suggest that no individual hold more than 5% to 10% of one stock in your portfolio.
Question:
Wal-Mart was beat up pretty badly on Monday, although it’s still closer to its high than its low. However, I think the company is solid. Do you think it will go down more with the management issues in Mexico, or should I avoid this stock for now?
Answer:
Wal-Mart Stores, Inc. (NYSE: WMT) is under investigation for breaching the Foreign Corrupt Practices Act with allegations of widespread bribery totaling near $24 million. This was investigated in 2005, and has recently reappeared. While the company did not push it under the rug, they certainly did not push it further. The company admitted to internally investigating noncompliance, and is now in the market’s cross hairs.
We believe the company will eventually pay a fine and the headlines will go away. We do not think this is a game changer for Wal-Mart. However, at the stock’s current price, we do not recommend buying shares of Wal-Mart. We see the company has a lot of competition. Even Costco Corp. (NASDAQ: COST) is beating Wal-Mart’s Sam’s Club division. If you own shares, we recommend holding, but if you do not, we do not recommend buying.
Question:
You briefly mentioned Cisco’s startup company last week, laughing at the spin-in concept. My husband is really interested in the startup (Insieme), as it’s founded by Cisco employees and is designed to be purchased by Cisco. While I don’t believe we can invest in Insieme, do you think Cisco can turn this into a profit? It seems reasonable that a company could start a company with the rights to buy it once it is profitable. How often do companies do this? Could this be a new growth model for companies?
Answer:
Three former engineers for Cisco developed Insieme, which is a separate company from Cisco. There is an agreement to buy Insieme at a set price, if Cisco wants it. In our eyes, this is no different than any other joint venture a company might fund for a business segment a company is interested in developing. We certainly do not see this as a new business model. It is also yet to be seen if the venture will be good for Cisco. We remain very skeptical about Cisco. As a company, we are unimpressed with the CEO’s direction. We suggest not using Insieme as a reason to buy Cisco. We do not recommend buying it otherwise. If you own Cisco, we feel leery about holding the stock.
At Henssler Financial we believe you should Live Ready, which includes researching the best values for your portfolio. If you have questions on your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at experts@henssler.com.
Disclosures:
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
