When researching growth-oriented companies I look for catalysts. There’s no point in buying or selling a stock that’s just going to trade sideways or follow the broader market in lockstep

— Elliott Gue, Stocks on the Run

Corporations always seem to release bad news when the markets are closed. They think that investors will be less likely to dump the company’s stock immediately if they have some time to think about it after the initial shock wears off. This strategy usually works in the short term, but fundamentals always win out in the long run. In Apple’s case, the bad news yesterday was really bad and the more I think about it the worse it feels.

Monday morning (Jan. 17^th), during the U.S. holiday honoring Martin Luther King, Apple issued a press release in which CEO Steve Jobs announced that he was “taking a medical leave of absence” so that he “can focus on [his] health.” No timeline on when he will be back, only saying that he loves Apple and hopes to be back soon.

Apple Stock Falls in Europe

Although the U.S. stock market was closed yesterday for the MLK holiday, Germany’s market was open and Apple stock fell almost 8%. So far today in the U.S, the stock has recovered somewhat and is only down 3.3% measured from Friday’s close.

Significant Uncertaintly as to How Long Steve Jobs Will Be Gone

The no-timeline part of the announcement worries me because it differs from what he said back in January 2009, the last time he had health issues. Back then, he announced that he had a “hormone imbalance” that was “complex” and he would be out for six months, returning by the end of June 2009.  As it turned out, “complex” turned out to be an understatement as he underwent a liver transplant in April 2009. The operation was successful and he did return in late June 2009. 

Steve Jobs Has History of Cancer

This time around, the reason I’m so concerned about Jobs’ latest health announcement is because his health problems have involved cancer. In October 2003 he was first diagnosed with pancreatic cancer, which is usually a death sentence, but he was “lucky” to have a rare form of pancreatic cancer that was slow-growing and operable. Unfortunately, he delayed having surgery to remove the tumor for nine months until July 2004 because he thought (i.e., hoped) he could eliminate the cancer with a special diet. That crucial nine-month delay probably gave the cancer time to metastasize into his liver, which explains his 2009 liver transplant. 

I’m just speculating, but it wouldn’t surprise me if Jobs’ cancer has returned to his pancreas, his liver, or both. After a liver transplant, the patient needs to take immunosuppressive drugs for the rest of his life in order to prevent organ rejection. The downside is that immunosuppressive drugs make it harder for the body to fight off a recurrence of cancer.  If cancer has returned to Jobs’ pancreas, he’ll need to have the entire thing removed this time, which risks severe diabetes and would leave him dependent on massive doses of insulin that are not easy to gauge correctly and could subject him to a constant blood sugar rollercoaster. If it’s his liver, he may need another transplant assuming it is an operable form of cancer. Worst case, the cancer has not simply returned but has metastasized throughout his body and he is terminal.

Of course, his health problem may not be cancer at all. It could involve just a standard rejection of his transplanted liver or something completely unrelated to his previous health issues. Let’s hope so. But again, why didn’t Jobs give an expected return date like he did in 2009? Also, in yesterday’s press release he said “I love Apple so much,” which is a very sentimental thing to say and almost sounds like a goodbye. I sure hope I’m over-reading this thing . . . .

Apple’s Future Depends on Steve Jobs

Most companies are much bigger than one man. CEOs may steer the corporate ship slightly left or right, but the ship’s course is pretty well set.

Apple is different.

As I wrote in an advisor’s roundtable entitled Your Favorite CEO, Jobs is the best CEO of all time. Prior to Jobs’ return to Apple as CEO back in September 1997, the company was virtually dead. Through his personal vision, however, he has transformed Apple into the largest tech company in the world and the second-largest company in the S&P 500.  Many people go so far as to say that Apple is Steve Jobs. For example, the New York Times wrote in 2008:

Steve Jobs is not like other chief executives — he is, instead, the single most indispensable chief executive on the planet. Apple is Steve Jobs and Steve Jobs is Apple. The stock could drop 25 percent or more if he were to leave the company unexpectedly. When investors whisper about Mr. Jobs’ health, it’s not just gossip they are indulging in — his health really matters to Apple’s future.

Short-Term Outlook for Apple Stock is Negative

Apple’s stock has taken a consistent dive after previous announcements of Steve Jobs’ health problems. See the table below:

I think the reason Apple’s stock has declined only 3% so far today is because the company reports first-quarter earnings after the close. Investors are anticipating blow-out earnings and this excitement is propping up the stock. If I was a betting man – and I am – I would feel pretty confident shorting Apple or buying puts at the close today. Even if Apple’s earnings are great, the celebration will likely be short-lived. Investors will soon return to looking into the black-abyss possibility of Apple without Steve Jobs.

Of course, we all hope that Mr. Jobs recovers quickly from whatever ails him. But the fact remains that the announcement creates significant uncertainty and the market hates uncertainty. Attentive traders can profit from such uncertainty. In the coming weeks, I wouldn’t be surprised to see Apple stock fall back towards $300 per share. 

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