(B)(N) If the Apple falls, does the Earth rise up to meet it?

iPhone5s
Courtesy: Apple Incorporated

Drama. The earth is rising up to meet the Apple, again. Otherwise sober analysts are counselling the stock as “the industrial wonder stock of America” for widows & orphans just as GM and AT&T were in the day, and finding creative ways in which we might buy it at the current $560 per share on a limited budget (The Street , December 13, 2013, Blankenhorn: Apple Bears Fruit: Widows, Orphans Take Note and Weinstein: Buying Apple One Slice at a Time).

Unfortunately, the future is cloudy and today we see only a stock with a [P/E] multiple of 14× and dividend yield of 2.2% that will pay $11 billion to its shareholders this year for a payout rate of 30% on earnings.

And we note that the downside in the stock price due to the demonstrated volatility is as much as minus ($50) per share in the next quarter so that it could be trading between the current $560 and $500 to $600 without surprise.

All Our Apples In One Basket?

But can we afford surprise when the future is cloudy and we might not be able to call home for more advice or money?

We could buy 400 shares of AAPL for $224,000 today (or in “slices” of ten or forty shares, ibid The Street) and have all our apples in one basket, so to speak, or just a piece of the pie if things are really tight.

Or we could buy 100 shares in each of the thirty companies of the Dow Jones Industrials for $240,000 (give or take a few thousand) and get a better dividend yield (2.7%) and payout rate (40%) plus the stocks are up +23% since last year in contrast to AAPL which has been challenged to produce +2%.

Exhibit 1: Dow Jones Industrials – Fundamentals – December 2013

Dow Jones Industrials – Fundamentals – December 2013

That would be a “no brainer” for most of us but the “rocket scientists” are having a problem with it. If we examine our “recipe for success”, the Risk Price Chart (please see Exhibit 2 below), then indeed AAPL is trading at or above the “price of risk” which is Risk Price (SF) $440 and rising.

Exhibit 2: (B)(N) AAPL Apple Incorporated – Risk Price Chart – December 2013

(B)(N) AAPL Apple Incorporated & Pie – December 2013

That’s encouraging but also true for all but three (Caterpillar, Cisco and Intel) of the thirty companies in the Dow and if we had budgeted our purchases to be just the same amount of money in each, that portfolio returned +27% this year and the leveraged portfolio using just the margin account is up +36%.

Oops! But we need to be in it to win.

Now that’s liquidity -we can take home 20% or so this year and be just as good for next year – and no matter what the market does next year, there’s always a bull market somewhere but we need to be in it to win.

Please click on the links Dow Jones Industrial Companies – Portfolio & Cash Flow Summary and Prices & Portfolio for the details.

And for more information and additional references to the theory, please see our recent Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
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For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.