Technology stocks look placed to lead the market on both technicals and earnings.
After Friday’s sell off, the sector resumed an uptrend on Tuesday January 19 that stretches back to the late November lows. Strong results from Intel (INTC) on Thursday and IBM (IBM) argue that earnings will support the strong technical upward trend. Both companies announced fourth quarter earnings that beat Wall Street estimates.
There’s one part of the technology sector that’s looking especially strong.
Strong technical momentum is coming from the networking sector. IShares Networking ETF (IGN) has hit a new high after breaking resistance at the end of December. The two top positions in that ETF according to Morningstar.com, Cisco Systems (CSCO) and Qualcomm (QCOM) have both broken through resistance in the last few weeks. The two stocks are both members of the Jubak’s Picks portfolio.
Good points Phillip!
Which brings me back (once more) to my original question to Jim: Why is Apple not in your portfolio picks? It fits all of your criteria. If you think it’s overpriced, at what price would you buy it?
With the previous post by cjaffe, and some of the points from Jim’s profitless recovery post: “Get your portfolio ready for the profitless recovery”; https://jubakpicks.com/2010/01/19/get-your-portfolio-ready-for-the-profitless-global-economic-recovery/
specifically:
1)”In markets and for products where consumers are willing to pay for a brand, the brand provides protection from excess capacity running prices so low that the producer can’t make a profit.”
2) “And I’m talking about companies that can produce a relatively constant stream of new technology products like that are able to constantly push the envelope of what’s possible.”
It sounds like Apple might fit that bill?
I find this discussion as fascinating as the discussion following Jim’s first article concern Apple’s missing the boat.
I am a theoretical physicist and as such computers play a central role in my life. In my lab I have seven computers, four of which run windows (XP) and three running Linux. At home I have five, three laptops and a desktop running Windows. The fifth is a Mac Mini. My approach is to use the computer and operating system most suitable for the task at hand.
For large calculations one simply cannot beat a Linux box, both in terms of capital expenditure for the hardware and the availability of software.
For dealing with students and administrators you had better stick to Windows and (horror of horrors) Microsoft Office.
With Apple’s switching to Intel processors and, more importantly, with the development of Apple’s new operation system (Mac OS X) Apple’s machines have become competitive with Window machines. I first noticed this sea change at a conference in Japan a number of years ago. I was sitting with a group of colleagues (we all were senior researchers and fairly big names in our respective fields) when I notice that close to half of us were carrying Apple laptops and the rest of us were holding tightly to our IBM Thinkpads. The presence of so many Apple laptops was new. This trend has continued. If I was to buy a new laptop today the chances are that I would buy a Mac. The reason? Well, I can obtain the software that I need for either system so that is not an issue. The issue is the upgrading the the system. With the advent of both Windows 7 and Snow Leopard I have experience of upgrading both systems concurrently. On my Mac Mini I started the process and walked away figuring that I would come back in an hour and see what was needed. When I came back the job was done. I was flabbergasted, it had taken less that an hour. I had never had such an easy time of it.
And my Window machines? Well, I and my students are slowly prepping each machine for the process. First we have to expand the amount of RAM that each machine has. Then we have to repartition the hard drives. In this process we have determined that of the eight machines, the hardware on four cannot be upgrade sufficiently to run Windows 7. I hope that we will have the remaining four upgraded by the within a month or two. The difficulty is that if you take a Windows machine down, you may not be able to get it back up for a week or so, and if you are a student with assignments due daily you are very hesitant to let anyone mess with your system.
This shift from Windows to Mac laptops is also being seen in the classroom. Today, a third of my students are carrying Mac laptops where in the past one only saw one occasional.
Personally, while I see Jim’s point in that Apple has not taken advantage of Microsoft’s difficulties, I think that Apple is playing a much deeper game with a longer time frame. In the end I expect Apple to win, but mean time I own stock in both companies and expect both positions to continue to earn me out-of-size profits.
Another networking stock, f5 Networks (FFIV), announced AH and beat estimates. The stock was up for the day and up AH. Disclosure: I own f5.
On a related note…I bought Windows 7 about a month ago. Darned good OS, IMO. Easy to install. Runs like a charm. Think Windows XP with a few more bells and whistles.
If I were in the market for a new PC, Apple wouldn’t even come under consideration for me.
Apple will never beat msft at application software. With $500 you can run about every app imaginable with msft and choose your pc’s from a huge selection of cost and ability. Apple has always insisted that you use only their expensive software which is limited to what they think you need and not what you want. Hence the majority of business and personal computers are not Apple products. Iphones are another matter but the competition is increasing daily, prices coming down and Apple again is not taking care of the future business resulting from present sales. Once you have tunnelvision it is difficult to shed.
If you want an OS (other than Windows) that fits any PC, the alternative is Linux which is officially maintained by Read Hat (RHT). Less than $9 in Nov 08, more than $29 now.
Andy’s analysis is enough, but I think there’s more fuel for the fire. I have a friend who started her own business and decided to go all-Apple. She asked me to help out with the setup of her computers, because I’m a big Linux-geek and do administration for 100+ servers and know enough about OSX and Windows to get out of most scrapes. I agreed, because with the GUI and all, how hard could it be to setup a Mac server?
Boy, was I wrong! First, GUI doesn’t mean “easy”, because you have to learn the whole GUI to be able to find all the knobs you need. And then we found out that not every knob was accessible from the GUI. And then we found out that some of the software, despite being “open source”, was Apple-modified (to work with the GUI) but was based on older buggy versions… so you had to wait for Apple to fix any particular problem you ran into.
In short, running an Apple shop is like running a Windows shop. Not only is it about the hardware — but there’s a whole lot of specialized knowledge that the admins have to have… and that you can’t get just from the “trainings” that each company offers. From an admin point of view, I often feel out of my depth — there is no way a “regular person” could manage their own servers (which is what we naively thought when we were first setting her up). IMHO, it would be a massive effort for Apple to get their server offering “seemless, reliable, and user-friendly” in the same way that the workstations are.
Jim, could stocks in the soft-PC aka Virtualization play a role in the kind of environment outlined above? They save money: less hard PC, energy, deployment costs, and management.
Good point, I didn’t even touch on the topic of in-house proprietary software. Switching to Macs would mean either spending the time to port them or, in the worst case, rewrite them from scratch (I’ve heard of a number of places that rely on legacy applications for which the source code has been lost or is so obsolete that a total rewrite would be required). And even the applications that are not proprietary are not always available for the Mac OS–the big ones are, like MS Office, but the more specialized ones are often Windows-only.
Good analysis Andy. It does make me wonder what would happen if Apple decided to pursue the corporate market? It would certainly be a costly battle.
Another point that failed to get mentioned is about why Microsoft has such a stronghold on the PCs even today – Applications!
Even if corporations want to switch to Macs, they cannot throw away the hundreds and thousands of apps they depend on (especially homegrown apps). Most of these wont work on Macs (except theoritically, for the web based ones which can be accessed by a browser on Mac)
Quite ironically, Apple is following the same rule book to trounce Microsoft with their app platform on iPhone.
Wow, andy. Thanks for the interesting & cogent explanation. I’d also like to add that most people using computers at work also own & use pc’s rather than macs at home. (except for those who work in graphic design. they prefer macs, I’m told.)
You know, I had an interesting conversation with someone that touched on that post the other day, the one about Apple wasting the opportunity afforded them by Microsoft’s terrible Vista OS. As I recall, the post was full of people agreeing and disagreeing, but mostly talking about their personal experiences with Apple products. Jim then commented that what the thread was missing was the perspective of the corporate customer, the kind who is responsible for managing hundreds of workstations. As it so happens, the other day I was talking with a friend of a friend who is an Apple sales rep that handles corporate and educational accounts. When I asked him why Apple hadn’t been able to capitalize on Microsoft’s weakness, his response was so logical and simple that I didn’t know how I could have missed it to begin with.
When it comes to the PC sector, he said, Apple and Microsoft really don’t sell the same thing. Microsoft sells operating systems and Apple sells computers with operating systems on them. With that in mind, consider another couple of factors about how corporations manange their workstations. First, they typically need everyone at the company to be using the same OS and the same software, because this makes it easier to work together, makes it easier for the IT people to manage, and sometimes also costs less because they can get a better rate on the software the more units they buy. Second, most companies have a staggered system for upgrading their employees’ PCs in order to spread out the cost, so a small percentage of employees get their computers upgraded each month or two, rather than everybody in the company getting a new PC at once.
So now you see the position Apple was really in here. Their almost insurmountable task was to convince these customers to switch all their PCs over to Macs at the same time. That means the new ones they just bought, the old ones, and everything in between, all at once. And then probably re-buy whatever software they needed too, and THEN endure a major disruption while they trained everyone to use the new stuff. It would be one thing if all they had to do was get these corporate customers to install a new operating system that costs 200 or 300 bucks a pop, but we’re talking entirely new machines here. The cost would have been in the thousands per workstation.
So given all that, you can see why most IT departments would choose to just tough it out with the slightly elderly but perfectly functional XP operating system rather than go broke switching to Macs, and you can also see why Apple chose not to aggressively pursue those customers, since even at a steep below-cost price point it would have been a tough sell. Now you might say, why didn’t Apple try to develop their own standalone operating system that worked on any PC, like Windows does? The answer is that a large part of the Mac OS’s superior reliability, seamlessness, and user-friendliness comes about precisely BECAUSE Apple controls the hardware that the Mac OS runs on. The fact that Windows is notorious for its instability is not just because the engineers at Microsoft are inferior (although they may be that), it’s because they have a tough gig: make one shoe that fits any foot. So, mainly Apple sticks to the areas where it can beat Microsoft and, for the time being at least, simply concedes the existing corporate customers as a lost cause.
Disclosure: I own shares of Apple.
Ok, I re-read several posts where Jim mentions Apple. I did read them the first time, but they didn’t strike me as THAT critical. If anything, they were more complimentary of QCOM than critical of Apple.
I’m still going to stand by my question: Why is Jim down on Apple?
Thanks josola! I’ll revisit that post. I must have missed it.
A few weeks ago Mr. Jubak wrote an extensive post regarding Apple in which he expressed his opinion and explained how Apple might have wasted a great opportunity.
Following QCOM may give a you a leg into Apple given its growth in 4G/3G markets.
Jim,
I am curious why Apple isn’t included in your portfolios. You seem to have all the big name tech stocks EXCEPT Apple. Is there a reason why you’re down on Apple?