{"id":23447,"date":"2011-08-26T08:30:48","date_gmt":"2011-08-26T12:30:48","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=23447"},"modified":"2011-08-26T08:30:48","modified_gmt":"2011-08-26T12:30:48","slug":"the-steve-jobs-retirement-what-it-means-for-apple","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/08\/26\/the-steve-jobs-retirement-what-it-means-for-apple\/","title":{"rendered":"The Steve Jobs Retirement: What it Means for Apple"},"content":{"rendered":"
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By The Sizemore Letter<\/a><\/strong><\/p>\n

\"\"<\/a>Steve Jobs announced his retirement on Wednesday, as his declining health has made it impossible for him to continue as Apple CEO. We certainly wish the best for Mr. Jobs and his family, and hope that he makes a full recovery. Still, Jobs\u2019 departure raises a very uncomfortable question for Apple (NASDAQ: AAPL). How does a company that owes so much of its success to the vision of one man cope with his absence?<\/p>\n

Apple stock is taking a hit in pre-market trading, indicating traders are wondering the same thing.<\/p>\n

Apple is a company I\u2019ve considered recommending in The Sizemore Investment Letter<\/em><\/a> or buying for clients for years. In every measurable respect, it is a company worth owning. It has been in the cutting edge of consumer electronics since the rollout of the iPod and has continued that dominance with the successful launch of the iPhone. It created a new market where none previously existed for tablet computers with the iPad.<\/p>\n

The company is wildly profitable\u2014it has profit margins of 24% and its return on equity is an eye-popping 42%. It\u2019s earning are growing at over 100% per year. And shockingly, the company is cheap. It trades at a forward P\/E ratio of less than 12, has no debt, and 8% of the stock price is cold, hard cash.<\/p>\n

Yet despite all of this, I couldn\u2019t get comfortable with the company because of the unquantifiable risk that something might happen to Steve Jobs. How would Apple perform without Jobs at the helm? Frankly, I don\u2019t have an answer for that question. And I couldn\u2019t put money at risk with that kind of elephant in the room left unexplained.<\/p>\n

History is full of stories of successful companies that have prospered after the departure of an iconic founder. Wal-Mart (NYSE:WMT), for example, has done just fine since the passing of Sam Walton. Going further back in time, John D. Rockefeller\u2019s oil companies survived his death and thrived to the point of trust-busting, living on today as ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP).<\/p>\n

The difference, of course<\/a>, is that innovation is far more important in a modern technology company than in a discount retailer or oil company. Jobs\u2019 successors will no doubt do a fine job of selling iPods, iPhone, and iPads. The question is \u201cwhat next?\u201d Without Jobs to think of the next great idea, is the rest of the Apple management team up to the task? Again, I don\u2019t have a satisfactory answer to this question.<\/p>\n

This is not the first time investors have pondered the \u201cJobs question.\u201d In January, the iconic CEO took a leave of absence from Apple. Shares dropped -8% in late January to $325 as a result. Now the stock is up 15% from that low to about $375.<\/p>\n

Will the shares shrug off this news again? Maybe. In the meantime, Apple investors are now left to ponder the following scenarios.<\/p>\n

    \n
  1. Given the stock\u2019s cheap valuation, investors already long ago factored the possibility of Jobs\u2019 retirement into prices. Apple is thus fairly priced.<\/li>\n
  2. Jobs\u2019 recent contributions have been overstated due to his cult of personality in the industry, and his lieutenants will get along just fine without him. In this case, Apple is a screaming buy at these prices.<\/li>\n
  3. The intangible benefits of Jobs\u2019 leadership\u2014i.e. his vision and creativity\u2014is even more valuable than investors currently appreciate. If this is the case, Apple faces a very uncertain future.<\/li>\n<\/ol>\n

    Given the unknowns, I would hope for Scenario 2, but prudence would make me fear for Scenario 3. I have to rate Apple a \u201csell\u201d for now. There are enough uncertainties in this market already.<\/p>\n

    In Jobs\u2019 retirement, the company, the industry, and the world at large are losing a truly visionary giant. Our best wishes for his speedy recovery.<\/p>\n

    If you liked this article by Sizemore Insights<\/em>, you\u2019d probably enjoy The Sizemore Investment Letter<\/em>, our premium members-only newsletter. Click here<\/a><\/strong> for more information.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

    Steve Jobs announced his retirement on Wednesday, as his declining health has made it impossible for him to continue as Apple CEO. We certainly wish the best for Mr. Jobs and his family, and hope that he makes a full recovery.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-23447","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/23447","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=23447"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/23447\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=23447"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=23447"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=23447"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}