For those of you who think Apple (AAPL) technical levels suggest the stock is ‘oversold’ and are considering buying it right now because the ticker won’t stay this low for much longer – think again. According to Vanity Fair contributing editor Bethany McLean, Apple isn’t so much a great bargain as it is a classic value trap.
“I think psychology is a really powerful thing, and it’s human nature to believe that because something was once worth $700 a share, there is a reason it should be there again,” McLean said Wednesday on CNBC’s Fast Money.
McLean, whose March 2001 article in Fortune titled, “Is Enron Overpriced?” was the first to openly question how exactly did the golden child of Wall Street make its money, said there was an argument that Apple’s true earnings power over the last couple of years, which made its stock look so cheap, wasn’t as strong as widely believed, and that “Apple’s true level of earnings is something much lower, making it more expensive stock than it might appear by P/E measure.”
Asked by the hosts what is the right price for Apple at this point, given its potential slowdown and loss of market share, McLean said “I have heard people toss levels around $200, the Apple skeptics out there. Now, the huge amount of cash Apple has provides a floor under the stock and tax-adjusted it’s about $111 a share right now. So you would say it’s hard to believe it is going to go to that level until they show signs of starting to burn through cash, if they do,” she said.
“There’s an argument that technology companies, once innovation dries up, they do start to burn through cash hoard [currently over $137 billion], so you’d have to see signs of that before the stock goes below $200.”
Shares of Apple are down $1.00 or 0.22%, at $456.35 in pre-market trading / 5:09 am EST NASDAQ real-time quotes.
Full McLean clip