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Middleton: Apple Bonds Nasty After Taste

  • Written by Syndicated Publisher No Comments Comments
    June 18, 2013

    The Financial Times reports Apple bonds lose 9% in six weeks:

    Investors are nursing losses of up to 9 per cent on Apple’s record-breaking $17bn bond offering, less than six weeks after the securities landed in their portfolios.

    The technology giant tapped the white-hot bond market for the largest debt fundraising to date on April 30, but a sharp turn in interest rates has caused a sell-off in corporate bonds and wiped hundreds of millions of dollars off the value of the offering.

    Apple sold $3bn of bonds maturing in 2043, locking in a low interest rate of 3.9 per cent for the next 30 years, but the market price of these bonds had fallen to 90.36 per cent of face value in late trading on Monday, according to Trace data.

    Investors in the offering paid 99.418 per cent of face value for the new bonds, but institutional and retail demand was so high that they traded as high as 101.97 in the secondary market.

     

    The debt sale was one of the most frenzied on Wall Street for many years and there were three times as many orders as there were bonds available. Issues by companies with high credit ratings have been among the hottest fixed-income investments because the interest they provide outstrips the meagre yield available on government securities.

    Hmmm.. So-called “investors” need to look to the future, not the present, when deploying their capital. These so-called “investors” are definitely not subscribers to BoomBustBlog! Last month I posed the query, “Is It Time To Buy Apple As A Valuation Play? The Contrarian That Called The Top In Apple Weighs In“. After all, it had fallen over 40% from its recent all time high, a fall which I clearly told subscribers would come. This question is quite pertinent, both for Apple’s long term viability and its short to medium term investors. Case in point, Apple’s (rather astute) management saw it fit to lock in 3.9% 30 year funding rates. Kudos! A very smart move… For them! The buyers of these bonds (an offering that was 3x oversubscribed, may I add) obviously did not subscribe to BoomBustBlog. Let’s count the reasons why such an offering was both ill timed, and ill priced.

    The Apple Profit Engine Has Stalled & Is Rolling Downhill

    Apple is facing a shart decline in the margins of its top two value drivers. May I also add that these two value drivers are 83% of Apple’s revenues and an even greater portion of its profits. Such a drastic concentration in only two products who have reached their zenith is not a good thing!

    Click the graphic once to view, twice to enlarge to printer quality…

    Reggie Middletonss Ultimate Apple Value Infographic

    Apple’s Competition Is The Greatest It Has EVER Been!

    Apple’s competition is the greatest it has ever been, and features companies who are literally at the top of their game. We are talking a lot of companies, and at the top of a very difficiult game as well. Reference What Sell Side Wall Street Doesn’t Understand About Apple – It’s Not The Leader Of The Post PC World!!!

    Apple is Materially & Quickly Losing Global Market Share! Clear Indicators Of Permanent Downward Moves In Its Peer Group

    Apple is rapidly losing global market share over and the trend is worsening. This has ALWAYS signaled the beginning of the end for its peers. Reference Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 – Follow What I Do, Not What I Say!

    We Clearly & Obviously Ending A 3 Decade Bull Market, Likely At The Tail End Of The Largest Global ZIRP Experiment Ever!

    And this final aspect is the kicker. We are likely culminating the end of a three decade secular bull market in bonds. Why in the world would anyone want to buy debt now, in a good, bad or mediocore company? Reference a chart of ten year rates over time, and you will see that once you get this close to zero (and the applied end to excessive ZIRP), there’s no way to go but up. As excerpted from theMarket Realist site:

    For those who don’t subscribe and/or haven’t already seen it, here is the video that tells (nearly) all about Apple, from beginning (Q3 2010) to end.

     

    Of course, there is a point at which Apple is a good buy. After all, they have a lot going for them. The question du jour is, exactly what is that point? I refer my subscribers to the research documents below for the answers…

    Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

    The update from two months ago is also of value for those who haven’t read it. It turns out that it was quite prescient!

    Images: Flickr (licence/attribution)

    About The Author

    Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts to uncover truths, seldom if, ever published in the mainstream media or Wall Street analysts reports. Since the inception of his BoomBustBlog, he has established an outstanding track record

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