Steve Jobs is sick, again. And his latest "leave of absence" from Apple could drop the stock more than 50%.
During Jobs' last illness, Apple stock plummeted from $176 to $83. Could it do the same again? Or is Apple strong enough to survive without its creator?
Steve Jobs runs the most valuable technology company in the world. Its market cap exceeds its nearest competitor, Microsoft, by more than $70 billion. And its 2011 earnings are setting new records, despite continuing economic trouble in its largest markets.
But Steve Jobs' latest absence has investors wondering whether the company's innovation and market drive can endure without its maker. Luckily, we know how you can play the Apple uncertainty for gains, no matter what happens behind Apple's closed doors.
The Steve Jobs Cult
This isn't the first time that Apple Inc. (NASDAQ: AAPL) CEO Steve Jobs has alarmed his investors. The company has continued to thrive, despite its creator's several leaves of absence during its rise.
But Jobs' most recent step away from his company could be the beginning of the end for his direct management at Apple. And that could be the downfall of the company's future as a market leader.
Currently, Apple's public image is almost solely dependent on its creator.
Steve Jobs has always been the public face of his company. He often personally introduces new products. And many see Jobs' drive toward "cool" innovative products as a major reason for Apple's rapid growth in the last seven years.
The company is tight-lipped about any others, besides Jobs, who are behind its innovative new products and marketing. And its taciturn policy about the booming success of such products as the iPhone and iPad has frustrated investors.
The cult grown up around Jobs' leadership at Apple may lead to rough seas ahead for the company if its policies about sharing credit remain as they are.
Steve Jobs recently announced a new "leave of absence" from day-to-day operations at Apple to focus on his health. This is after stepping out to be treated (successfully) for pancreatic cancer in 2004 and to undergo a liver transplant in 2009.
The Apple CEO told his employees that he hopes to be back as soon as he can. But in the meantime, he requested respect for his and his family's privacy.
Jobs said he would continue to be involved with major strategic decisions, but Chief Operating Officer Timothy Cook will be responsible for the company's daily operations. Cook oversaw Apple in 2004 when Jobs was being treated for pancreatic cancer. He also manned the helm when Jobs took six-month for the liver transplant in 2009.
During the last seven years, since Jobs' first absence, Apple stock has seen very little to deter it from upward motion. In fact, nearly every major dip in price has been based on Jobs, not his company's performance.
In December 2008, rumors about Jobs' health and news of the liver transplant, drove Apple shares down 16% from $98.27 to $82.33 in less than six weeks. However, the stock rallied with the overall market not soon thereafter, soaring to $144.67 five months later.
Since then, AAPL has doubled its stock price. And any investor who bought Apple stock at its January 2009 low would have scored a return of 348.5% in less than two years' time.
A Solid Future – With or Without Jobs
No doubt, Steve Jobs represents the soul of Apple. But even without Jobs, Apple is a strong fundamental company with a stockpile of cash, a rock solid product line and a thriving mainstream brand.
New product sales have left Apple with a cash horde of $50 billion that could swell to $70 billion by the end of the year.
Apple is on track to generate more than $100 billion in revenue in fiscal 2011. Its latest product lines, the iPad, iPhone and a new Mac Air, are all proving popular with consumers. In fact, market analysts credited the iPad with single-handedly driving down sales for all traditional PC brands during the last holiday season.
The company's first quarter for fiscal 2011 set a new record with revenue of $26.7 billion and $6 billion in profits. The second quarter will see the introduction of Apple's iPhone on the Verizon Communications Inc. (NYSE: VZ) network. And later this year, Apple plans to release a second-generation iPad and a fifth-generation iPhone.
All in all, fears for Apple are overblown. The company can survive with only current iPad and iPhone product lines driving growth for years. And Steve Jobs' health concerns, though an emotional hit, will not deter customers from buying Apple products.
Apple Should Feature Supporting Cast
While Jobs' departure is a loss, the company can still count on a strong cast of supporting players that includes industrial designer Jonathan Ive, marketing guru Philip Schiller, and iPhone software specialist Scott Forstall among others.
And perhaps Apple can take its founder's most recent absence as an opportunity to build credibility and bring forth other stars from the company's pantheon of creative, skillful minds.
Apple is (or should be) struggling with the same questions its investors are worried about. How does a business built on cool ideas prove it's still forward-thinking and innovative after the mind that developed, or at least guided, those ideas disappears from public view?
For the next few years, Apple is safe, with or without direct leadership from Steve Jobs. The company can sail through 2011, increasing its sales strictly based on the iPhone introduction to new markets and new service providers and iPad's growing popularity.
But further down the line, any future Jobs-less Apple will need to show off the talents of its behind-the-scenes players to continue with its current innovative, fashionable image, especially if the company wants to remain popular with new customers coming into the market.
Short- and long-term strategies for playing the Apple-Steve Jobs saga are similar, but they are distinguished by where you're investments in AAPL currently stand and how much you're willing to invest in the company's future.
- In the short-term, use any unfavorable health news about Steve Jobs to your advantage as an investor. Plan to open or increase your position in AAPL when bad news brings the stock price down. Be especially aware if the price falls below $300. Then wait for positive results or projections from the company to bring back investor confidence in following months.
- At the same time, be prepared for the worst. If Jobs should retire for good from his technology darling, or if his health deteriorates so far that he can't lead Apple, even as a mere figurehead, expect the stock to fall drastically. This tumble will only be temporary, though. And once a bottom is found, again, use the news as an advantage in positioning your portfolio.
- As for Apple's long-term future in your portfolio, take the time to review the company's plans for both its hard finances and its image in the advent of a final Jobs exit. It could be several months after its creator's exit before Apple is ready to give investors a clear vision of its post-Jobs outlook. So if you're a current investor, be prepared to be patient.
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