Stock Exchange lets readers listen in as...

Stock Exchange lets readers listen in as staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks.

Apple Computer (AAPL)

Mike: Well, Jim, it’s time for another Stock Exchange first, and I’m not talking about us admitting that we’ve made some wrong calls.

Jim: We have?

Mike: For the first time since we started this column more than a year ago, we’re going to reconsider a stock we’ve already reviewed.

Jim: Which only makes sense. A year is a long time in the dynamic of a publicly held business.

Mike: And especially so in the case of Apple Computer. Now, when we looked at Apple last time, its new personal computer, the iMac, was being introduced. We both expressed a fair amount of skepticism that this machine would be enough to pull Apple out of what had been a years-long slump.

Jim: That’s right. Apple was really teetering at that point, and had basically bet the farm on the iMac.

Mike: Apple also was again being managed by one of its founders who had come back, that being the irrepressible Steve Jobs. And we both expressed skepticism that he had the skills to bring Apple back.

Jim: And turns out we were wrong. Because you could have made a nice profit buying Apple’s stock at the time.

Mike: Actually, for a few months after we talked about Apple, the stock didn’t do much, and we were proud of ourselves for having warned investors off the shares. But more recently, it’s taken off like a rocket.

Jim: Thanks in part to a new product...*. .

Mike: Right. It’s now introduced a companion to the iMac known as the iBook, which is the long-awaited portable laptop version of the iMac. It’s priced aggressively, around $1,600, and it’s going to be available in blueberry and tangerine.

Jim: That’s not all. Apple has now run off several straight profitable quarters and more than once has exceeded Wall Street’s forecasts. So it’s not only selling more machines, it’s doing so at a nice profit.

Mike: So now Apple is back in Wall Street’s good graces, but is it back in your good graces?

Jim: Actually it is. I’ve changed my mind, and I’d buy the stock.

Mike: Me too. I’m quite taken with Apple at the moment, and I think the stock will do well for the next few quarters at least. It’s riding a wave, and it’s going to be a while before that wave breaks on the beach.

Jim: If nothing else, Jobs has proved that Apple is still a viable player in the PC market, even if its share of that market remains very small. That’s important mostly because the software writers--those firms that design the software that people want to use on their PCs--are coming back to Apple now that they see there’s enough demand from consumers.

Mike: To give Jobs credit, as we must, he understood a year ago that as PCs overall become more of a commodity, there’s value in the marginal improvements he puts on the basic machine. He makes it look snazzy and gives it a couple of ahead-of-the-curve capabilities, like its instant connection to the Internet.

Jim: Those ads showing that you needed to plug in only one wire, into the phone jack, for the Internet were very effective.

Mike: You bet. Jobs understood the huge value of marketing, and he is, if nothing else, a great marketer. He’s turned the Macintosh into the machine to have, especially for newcomers to PCs and the Net.

Jim: And Apple’s growing sales prove the point.

Mike: Let’s be candid, though. Apple has increased its market share to about 10%, but that’s the market for retail consumer PC buying. If we add in mail-order and business purchases, Apple and the iMac are still also-rans.

Jim: To the likes of Dell Computer and Gateway.

Mike: Particularly Dell.

Jim: But there’s no question the iMac is a great-selling machine. Moreover, Apple has shown that it also can widen its profit margins, confounding those who thought they actually were going to shrink.

Mike: That’s also a sign of good management, and one more reason to throw one’s lot in with Steve Jobs this time around.

Jim: There’s another reason I’d buy the stock now. Apple is sitting on about $3 billion of excess cash, and it’s already announced plans to use about $500 million of that to buy back stock in the open market. And the stock is selling for only 19 times it’s expected earnings this year.

Mike: The bottom line is that Apple has a fair amount of momentum right now. Things can change, and there’s no telling where Apple will be another year from now.

Jim: That’s OK. We can revisit it again.

General Motors (GM)

Jim: Remember the days when what was good for General Motors was good for America?

Mike: Now, Jim, I hear a mournful note in your voice. Is it because no matter which way you slice it, GM is still the weakest, stodgiest, highest-production-cost company among the Big 3 auto makers?

Jim: That’s the least of it. You know, Mike, it’s almost become a pastime to beat up on GM and its stock for being so lackluster, and for so many years. Yet GM doesn’t seem to do much to change anyone’s perception.

Mike: Do you think the problem is too many successive chairmen named Smith?

Jim: It’s as good a reason as any GM can find. The point is, GM desperately needs someone to come in and turn that place upside down, as we’ve seen with other corporate giants that were stumbling along, like International Business Machines and Procter & Gamble. It’s the only way to unlock the value of its enormous assets and get the stock price up.

Mike: That, of course, is not GM’s style.

Jim: Exactly. People have been pleading with GM to shake things up for decades. But it still isn’t as aggressive as, say, Ford, whose recent steps include buying Volvo of Sweden. GM still has far too many brands of vehicles cannibalizing each other and wasting each other’s resources--and that’s just for starters.

Mike: We should note, though, that GM owns more than a car company.

Jim: That’s right. It also owns majority control of Hughes Electronics, the big satellite maker. But even that doesn’t seem to be translating into a higher stock price for GM. Our friends at Barron’s magazine noted recently that with GM trading in the low-60s, the stock isn’t much higher than it was 35 years ago, and it’s trading for a pathetic seven times its expected ’99 earnings.

Mike: So you would shy away from this stock?

Jim: I would.

Mike: Huh. Because I really like this stock.

Jim:You’re kidding. Well, I’m listening.

Mike: First off, I’m making a bullish case for the stock, not GM itself. I think the pressure is on GM management to do something within its power to get this stock moving again.

Jim: It’s been under that pressure for years, Mike.

Mike: Wait. There’s a little more pressure than before, and it could build even more after the current boom in auto sales starts slowing down. They can’t keep going up forever.

Jim: The threat of a downturn in auto sales is actually one of my arguments against this stock. I mean, if GM’s stock can’t rally when sales are at record levels... . .

Mike: The pressure is on GM’s management to pull a rabbit out of its financial-engineering hat. In other words, people are pressing for GM to manipulate its capital structure in some way to deliver some more value to shareholders. And GM has lots of rabbits it’s holding.

Jim: Example?

Mike: It could launch a much more aggressive stock-repurchase program--or something I think is even more inviting, and that’s a more comprehensive spinoff of Hughes. That’s something management can do, and I believe it will do it.

Jim: Let’s note, by the way, that Hughes has its own so-called tracking stock, which trades on the Big Board under the symbol GMH and gives people a chance to invest only in Hughes’ fortunes.

Mike: Right, and Hughes right now is hot because of DirecTV, its satellite-to-home TV service.

Jim: Sorry, I just don’t believe GM is going to make the dramatic changes you expect, and that even if it makes some of them, that they will help the stock much. History shows GM doesn’t much succumb to anyone’s pressure, except organized labor’s perhaps.

Mike: Just watch. The spotlight is on, and with GM still making the least profit per dollar of sales among the big car makers, the company will feel even more heat when this auto-sales market starts to fade. GM will be compelled to do something fairly soon, and the stock will get a good pop.

Jim: I don’t see it. GM and its bureaucracy are creatures of habit, and they’ll be too bogged down with worrying about next year’s car designs, and those profit-eating rebates it has to offer, to make the big changes you expect. So I’d pass on this stock; there are just better stocks out there.

Mike: Well, I wouldn’t argue with that.

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Write or e-mail with a stock you would like to see discussed in this column. Times Staff Writer James Peltz (james.peltz@latimes.com) covers the markets and corporate financial trends. Times Staff Writer Michael Hiltzik (michael.hiltzik@latimes.com) covers technology and entertainment and is the author of the new book “Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age.” Either can also be reached at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.

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Apple Computer, Friday: $54.44

General Motors, Friday: $62.50