GO
Loading...

Apple is now a no-growth 'value trap': Doug Kass

Tuesday, 17 Sep 2013 | 7:39 AM ET
Douglas Kass at the Reach poker tournament in New York.
Amanda Gordon | Bloomberg | Getty Images
Douglas Kass at the Reach poker tournament in New York.

Are Apple shares cheap? Now that they've fallen over 10 percent on the back of Apple's recent product launch, it seems to be a fair question. But even though Apple now has a lower price-to-earnings ratio than do slow-growth companies like Microsoft, Intel, or IBM, Doug Kass says the stock still doesn't present an attractive value.

"Apple has become a value trap," the founder of Seabreeze Partners Management said. "This is a company with no growth, and profit margins that are way too high vis a vis the competition."

Indeed, at its latest media event, Apple disappointed many investors but not releasing a much cheaper iPhone, as some had been pining for. Instead, Apple released more high-end phones that will keep profit margins high, but threaten to do further damage to the company's already-declining market share.

(Read more: At a crossroads, Apple must make one huge decision)

"We remain disappointed with Apple's decision to remain a premium priced smartphone vendor," Credit Suisse analyst Kulbinder Garcha wrote in a note that downgraded the stock to "neutral" from "outperform" after the event. "On our new estimates, Apple's smartphone share will decline to 15.5 percent/13.1 percent this year and next from 18.1 percent last year."

But Kass says that there's a second issue at work: While Apple's prices have stayed high, the company has not delivered innovation to keep pace.

Going against the Apple trend
Twitter has filed for an IPO. Barbara Marcin, Gabelli Dividend Growth Fund, explains why she is going against the momentum stocks and following Apple. And Mike Khouw, Dash Financial Group, weighs in on the Twitter filing.

"A year ago, Apple was selling a superior product and was charging a premium price," Kass said. "Now, they're selling a less-than-superior product, and still charging a premium price."

It's not just market share, then, that will drop. "The profit margins have no place to go but down," he said.

(Read more: Expect 'wow' product from Apple: Pro)

Kass sees Apple as a classic story of overoptimistic expectations. "The bulls took a lot for granted in terms of extrapolating the company's growth, and now reality is setting in."

All in all, the stock is currently "close to fairly priced," Kass told CNBC.com. In fact, though he had been short Apple, Kass covered that short position into the stock's recent decline.

"For the foreseeable future, it will move 50 points up or 50 points down," he said. So whether you're a bull or a bear on the stock, "that's not an attractive reward for your risk."

—By CNBC's Alex Rosenberg. Follow him on Twitter: @C NBCAlex.

Watch "Futures Now" Tuesdays & Thursdays 1 p.m. ET exclusively on FuturesNow.CNBC.com!

Like us on Facebook! Facebook.com/CNBCFuturesNow.

Follow us on Twitter! @CNBCFuturesNow.

  Price   Change %Change
AAPL
---
MSFT
---
INTC
---
IBM
---

Contact Futures Now

  • Showtimes

    Watch Futures Now Tuesdays & Thursdays 1p ET exclusively on cnbc.com!

Sponsor Links

  • CME Group brings buyers and sellers together through its CME Globex electronic trading platform and trading facilities in New York and Chicago.

  • Take your trading to the next level with a platform that lets you trade stocks, options, futures and forex all in one place with no platform or data with no trade minimums. Open an account with TD Ameritrade and get up to $600 cash.