Steve Jobs Retirement — Should You Sell Apple Stock?

If you didn't know, Steve Jobs announced his retirement on Wednesday, as his declining health has made it impossible for him to continue as Apple CEO. Here is the hole article:

Apple stock is taking a hit in pre-market trading, indicating traders are wondering the same thing.

Apple is s a company worth owning. It has been in the cutting edge of consumer electronics since the rollout of the iPod and has continued that dominance with the successful launch of the iPhone. It created a new market where none previously existed for tablet computers with the iPad.

The company is wildly profitable — it has profit margins of 24%, and its return on equity is an eye-popping 42%. It’s earnings are growing at over 100% per year. And shockingly, the company is cheap. It trades at a forward P/E ratio of less than 12, has no debt, and 8% of the stock price is cold, hard cash.

Yet despite all this, I couldn’t get comfortable with the company because of the unquantifiable risk that something might happen to Steve Jobs. How would Apple perform without Jobs at the helm? Frankly, I don’t have an answer for that question. And I couldn’t put money at risk with that kind of elephant in the room left unexplained.

History is full of stories of successful companies that have prospered after the departure of an iconic founder. Wal-Mart (NYSE:WMT), for example, has done just fine since the passing of Sam Walton. Going further back in time, John D. Rockefeller’s oil companies survived his death and thrived to the point of trust-busting, living on today as ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP).

The difference, of course, is that innovation is far more important in a modern technology company than in a discount retailer or oil company. Jobs’ successors will no doubt do a fine job of selling iPods, iPhone and iPads. The question is “what next?” Without Jobs to think of the next great idea, is the rest of the Apple management team up to the task? Again, I don’t have a satisfactory answer to this question.

This is not the first time investors have pondered the “Jobs question.” In January, the iconic CEO took a leave of absence from Apple. Shares dropped 8% in late January to $325 as a result. Now the stock is up 15% from that low to about $375.

Will the shares shrug off this news again? Maybe. In the meantime, Apple investors are now left to ponder the following scenarios.

1. Given the stock’s cheap valuation, investors already long ago factored the possibility of Jobs’ retirement into prices. Thus, Apple is fairly priced.
2. Jobs’ recent contributions have been overstated because of his cult of personality in the industry, and his lieutenants will get along just fine without him. In this case, Apple is a screaming buy at these prices.
3. The intangible benefits of Jobs’ leadership — i.e. his vision and creativity — is even more valuable than investors currently appreciate. If this is the case, Apple faces a very uncertain future.

In my personal oppinion, market will shortly react to the resignation with a falling share price, so it is a good buying opportunity.