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Get to apple shares they are losing even more steam today on news that another tech giant Google may finally be catching up with its new music service to take on iTunes.
It's the stock still a really good buy right now or should you -- that apple because it's going to go lower and lower let's have a street fight.
Our -- today Larry I'm pretty -- -- multimedia trust associate portfolio manager.
Our -- David trainer new constructs CEO let's battle without gentlemen I we'll begin with you David traitor you calling for a pretty dramatic price target.
That that was a little stunned to see this but 240.
Dollars a share and that would be a 65%.
From the high that apple saw -- more than 700 dollars.
Let's be serious at what would take it that love David.
Think it's reality is the -- competition means reversion to the mean and apple can't sustain these ultra high returns on invested capital they've had for a few years here now and when you look at apple through the lens of a normalize return on capital even much higher than the -- is.
You're getting a stock price rose to forty to fifty -- and I think that's what's reasonable for investors to expect.
Larry you complete opposite opinion your price target -- 650 dollars David's quoting the metric of return on invested capital.
When you look at that what do you have to set.
Well -- list that the masses that is very hard that 240 dollars let's say apple has a billion shares they actually have less than man.
That would put them in a market cap of 240 million dollars they have a 145 billion of net cash.
So the enterprise value the would be 95 billion dollars there's 57 billion currently of -- text cash flow.
At at that point Liz I would tell you Dan -- would not be going to Tokyo to talk to the Sony management.
Digging in and Warren Buffett and bill Blackman and all the boys would be over in Cupertino talking to the apple board.
Second thing is if you if you looked at the stock at that level it would yield more than the utility.
Now the return on operating assets for apple -- 70% it's certainly going to go down.
But the marginal cost of debt marginal cost of capital -- -- around 1%.
So all you have to do is invested over the marginal cost of capital in the -- value for the shareholder.
They only invested warm milk four billion dollars in the first quarter so it's it's basically a cash return story.
They have the ability to borrow and to to buy stock in our calculations take -- to two to one leverage around 290 billion.
The current programs only sixty billion so I thank senator John has -- on.
I hear exactly what you're saying -- numbers -- stack up but what I look at some of this and and believe me I get how valuable apple is as a company I don't think it's that low of 240 share but.
David you make an interesting point and that is where is the revolutionary.
Product that's going to get.
And investor -- it.
That's right I mean look we don't have Steve Jobs anymore and you know you look at apple before Steve Jobs after Steve Jobs and there's a huge difference and I think we're probably gonna go back to the apple without Steve Jobs.
And without a revolutionary product product.
It looked -- the profitability the margins aren't there anymore and end.
You know what -- -- disagree with Larry about is that look they have to do more than -- Above -- you -- -- 1% cost of capital to create die for shareholders the current stock price already implies are gonna earn a 124%.
capital long term so.
Think they may need to do more than 1% to make money but the stock prices imply they're gonna make a whole lot more than that.
And what I'm saying is that a stock -- 240 bucks implies a return -- -- capital of around 50%.
And I just I think that's reasonable and -- look that the mass steps up you wanna see my blog.
I've got in my model and every.
But it does David here's where I think you might be off on the wrong path and that is that every kid in America is waiting for the iPhone 5 -- when it comes whether it's.
A few weeks -- a few months late doesn't matter people are going to want to upgrade they just -- with apple products right Larry.
Well like eight I think get it the real story on the products -- and media Third World there's a 1000000001 Smartphones.
Reasonable forecasters think that that number's going to triple in the next five years.
-- idea the big product is say low cost Smartphone to what takes some of the market right now that's going to Samsung.
The Chinese you look at a stock -- Tencent.
Tencent has 824.
Million I think registered users on its QQ service.
They're growing at 10% a lot of them are gonna -- iphones.
-- the market is just huge and I think we're gonna see this low cost profound but even if we don't Liz.
The all you have to do it -- -- 145 billion dollars sitting on the balance -- and apple.
If that gets used the stock's gonna go up and then.
It it doesn't cost them anything to buy the stock.
The the cost of debt is less than -- what they're paying on the debit.
Thought they got a fingerprint technology company you know that they're going to somehow incorporate that into the iPhone but David that lets talk about.
Should I even talk about apple TV.
I'm so bored waiting for this thing I mean there there is one iteration of it.
Didn't do anything I have that.
I don't get it but but it's been a while it's been forty years as people have been talking about apple TV waiting for it.
Could be a game changer -- they're taking this long because they're going to come out swinging.
-- not I don't see any kind of apple TV thing being revolutionary enough to justify.
Current valuations -- mean that's we're talking about an evolutionary product they're supposed to revolutionary product and by revolutionary means something coming out of a hundred years in the future like.
I have 11 -- Larry yes -- now -- apple TV coming -- I think it's called the tablet Liz and these things obsolete I had to get a new one a couple weeks ago because my first generation now obsolete itself.
When they sell -- they obsolete in three years in the cash flow keeps going there's a lot of recurring revenue people are building games for them.
There's just a lot of ways this company wins financially -- operationally and it's really really cheap vs the market right now so that's a great brand image.
David started our our bowl Larry and ends a thank you so much and and Larry came up with a -- for obsolete it's it obsolete it.
I don't why -- too.
Thank you so much we'll see you got next time Larry have pretty compelling multimedia trust associate portfolio manager and David trainer new constructs CEO closing that.
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