Billionaire Mario Gabelli’s Apple Warning
Here at Insider Monkey, we try to give you all investors' opinions on Apple Inc. (NADSAQ:AAPL). The entire financial world probably knows that Carl Icahn is bullish on Cupertino, and regular readers likely understand why mutual fund guru Donald Yacktman has his concerns about the company (read them here).
Yacktman's thesis is founded upon the belief that Apple has a lack of margin protection due to two factors: (1) declining innovation, and (2) increased competition, especially in the smartphone space. These are points regular investors probably know already, but it's worth pointing out that Apple's gross margins have fallen by more than 5 percentage points from the same time last year. Wall Street expects a moderate 1-2 percentage point recovery by the end of 2014, but it's not looking like we'll reach peak levels unless a game-changing product is launched (think iTV or iWatch).
With that being said, billionaire Mario Gabelli, the manager of Gamco, was on CNBC an hour ago discussing why he likes other stocks besides Apple. It's worth noting that Gabelli only holds a sliver of his equity portfolio in tech stocks, but his pedigree as a value investor cannot be ignored.
This guy was named Morningstar’s Fund Manager of the Year in 1997 and The Institutional Investor’s Money Manager of the Year in 2010, and Gamco's total assets under management is north of $40 billion.
On CNBC, Gabelli had this to say about Apple:
"My problem is, I go back 100 years and there was a company called Grape Nuts [...] then in the fifties you remember Polaroid, you remember Xerox, and...you still had Grape Nuts and Cheerios. Fast forward in 1980 and you had the Walkman, and you had Cheerios. Fast forward into 1995 and you [...] still had cereal. So it's the predictability of cash flow, it's the pricing power, and so I have a bias toward that predictability over the next five or ten years."
In addition, Gabelli implies that he's more uncertain about Apple's ability to maintain its business strength and particularly its cash flows in comparison to non technology companies.
Gabelli also interestingly gave a nod to David Einhorn's "iPref" idea, saying that "unless they [Apple] do deals, they're accumulating too much cash."
Don't write off the mutual fund manager as someone who simply ignores technology stocks. Gabelli says that he watches all technology trends to forecast how they'll affect his holdings in other industries, pointing out that he and Gamco "like to buy the ignored and the unloved."