Apple Maven

A Good Reason To Buy Apple Stock in December

Daniel Martins — Thu, 01 Dec 2022 10:51:36 GMT

The last month of the year has begun. Is this a good time to buy Apple stock? From a seasonality and historical trend perspectives, the answer may be yes.

Apple stock (AAPL) - Get Free Report is still trying to shake off the most recent wave of bearishness triggered by the supply issues in China. Share price remained stable around $150 for a couple of weeks before sinking to the low $140s in the past couple of trading days.

Now, we enter the last month of the year. Could the recent rout be an opportunity to buy Apple shares in December and, maybe, ride the wave higher heading into 2023?

Figure 1: A Good Reason To Buy Apple Stock in December

Unsplash

Apple’s Q1 Could Disappoint

Fundamentally, I fear a bit for AAPL’s short-term prospects. The newsflow coming out of Asia has been discouraging, even if the lockdown in “iPhone City” has just been lifted. I think that Apple’s fiscal Q1 results are at risk of disappointing relative to current estimates.

Of course, it is possible that the holiday quarter earnings risk has already been discounted in the share price. Apple stock has pulled back 7% in the past month alone (as of November 30 midday), while the S&P 500 (SPY) has climbed 3% during the period instead.

Apple Stock: History Is On Its Side

From a seasonal perspective, on the other hand, AAPL investors have reasons to be more optimistic.

The chart below, provided by Stock Rover, shows how Apple stock has historically performed much better in the December-to-January timeframe than in any other two-consecutive-month period: average of 17% gains per month.

Figure 2: AAPL's average monthly return (seasonality)

Stock Rover

The most plausible rationale is that investors “sell the news” of Apple’s new iPhone launch and holiday shopping season in October – Apple’s worst month of returns, historically. From there, a coiled-spring effect pushes share price higher in the following several weeks, while bullishness gradually dies out starting in February.

If the historical trend repeats this time, especially considering that AAPL has been down quite a bit in 2022 already, we could be looking at sizable gains in the next couple of months.

Speaking of historical trends, also keep in mind that buying Apple stock during a correction has consistently led to much better-than-average returns in the long run.

The chart below shows that, following a pullback of more than 15% from peak levels (which is where AAPL currently sits), average 12-month forward returns have been a decent 5 to 6 percentage points better than what the traditional buy-and-holder has been able to produce investing in Apple shares.

Figure 3: Average one-year return on AAPL, by strategy.

DM Martins Research

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)

Will iPhone 14 Troubles Drag Apple Stock in December?

Daniel Martins — Wed, 30 Nov 2022 11:00:22 GMT

The holiday quarter is shaping up to be a tough one for Apple due to supply issues. Should Apple stock investors worry?

The news flow continues to be predominantly bearish for Apple stock (AAPL) - Get Free Report and its investors. So far this post-Thanksgiving week, shares have already dipped 5%, a good bit more than the S&P 500’s more modest decline.

The culprit remains the same of the past few weeks: the shortage of iPhone 14 Pro and Pro Max devices. Could this be the beginning of a decline in share price that persists through December, or just a bump in the road that AAPL investors should largely ignore?

Figure 1: Will iPhone 14 Troubles Drag Apple Stock in December?

Unsplash

Read also: 3 Big Reasons To Love Apple Stock

Too few iPhone 14 Pro to sell

Most recently, Bloomberg reported that Apple’s iPhone Pro sales could take a hit to the tune of 6 million units this year. This is due to China’s zero-tolerance policy on COVID-19 which has led to plant closures, assembly workers’ protests, and a production stalemate.

ItauBBA’s Thiago Kapulskis is just about the only analyst on the Street with an underperform rating on Apple stock. At least so far, Kapulskis has proven right in his caution toward iPhone unit sales estimates in the holiday quarter. In his most recent note, he said:

“This reduction of 6 million units, if it occurs, represents ~7% reduction in relation to Apple’s initial expectations. This, in our view, increases the risk for estimates, especially as it is mainly about the high-end models (iPhone Pro), which is where the market is more focused.”

More upbeat is Webush’s Dan Ives, who acknowledges the “absolute body blow” that this supply issue has been – but he sees the silver lining. According to the analyst, demand for the iPhone remains robust, which should help to support sales past the holiday period.

My take on Apple stock vs. iPhone worries

To me, the market is not wrong in its bearish knee-jerk reaction to the news coming out of China. The holiday quarter is the big one for Apple, when the Cupertino company tends to generate about one-third of its full-year revenues.

Keep in mind that, in the market, there aren’t only long-term investors exchanging AAPL shares. Traders making short-term bets are an important diving force as well. As it stands, Apple seems to be facing a rough fiscal Q1 quarter, and the January earnings print could disappoint.

However, as the reader probably knows, I think that Apple is a stock to own, and not trade – an idea that CNBC’s Jim Cramer has also defended. Therefore, I try to put this quarter’s supply issues in the context of Apple’s long-term prospects.

Let’s do some math: 6 million fewer units of the iPhone Pro sold in fiscal Q1, at an ASP of $1,100, adds up to $6.6 billion in lost or delayed sales. This figure represents about 5% of Apple’s total quarter revenues in the holiday period last year.

If I assume gross margin of 35%, which is consistent with Apple’s product margin as a whole, the impact to the bottom line could be $1.9 billion after tax, or 12 cents per share. Assign a multiple of 25 times, and we are looking at impact to share price of $3, which is next to nothing.

And keep in mind: 6 million fewer iPhone 14 Pro units sold in the quarter does not mean lost sales, necessarily. At least a good chunk of this total could merely be pushed forward, with revenues finally being recognized in the March 2023 quarter.

The point is that, in my opinion, Apple’s current supply issues should not be too big of a concern in the grand scheme of things – unless one assumes that this will be a recurring problem well into next year.

In a nutshell: it makes sense to me that Apple stock is under pressure for now. But if the share price continues to decline, the dip could prove to be an opportunity for long-term investors to buy the stock for cheaper and realize the potential gains over time.

Ask Twitter

Apple seems to be facing major supply issues in the holiday quarter, which primarily impact the iPhone 14 Pro. What does this mean for the stock, in your view?

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Apple Stock: What To Expect of the iPhone on Black Friday

Daniel Martins — Fri, 25 Nov 2022 10:27:41 GMT

Apple is likely to have a rough Black Friday weekend due to supply constraints. Here is what AAPL stock investors should know.

Yesterday, I took a step back and looked at three fundamental reasons for loving Apple stock (AAPL) - Get Free Report. Today, I get back to analyzing the company’s short-term prospects during this crucial 2022 holiday shopping season.

More specifically: how will a heavily supply-constrained iPhone perform on Black Friday weekend? Luckily, one Apple analyst has done the homework for us. Below, we discuss Wedbush’s views on the Thanksgiving weekend ahead for the Cupertino company.

Figure 1: Apple Stock: What To Expect of the iPhone on Black Friday

Apple

Read also: 3 Big Reasons To Love Apple Stock

Apple to suffer on Black Friday

Analyst Dan Ives holds an outperform rating on Apple stock and price target of $200. His bullish views seem to be grounded more on the multi-year, cyclical trends in demand for the iPhone, and less on how near-term financial results may be impacted by supply challenges.

Still, he addresses the elephant in the room. According to Mr. Ives, Apple is in a state of “major shortage heading into the next month” due to the zero Covid-19 policies in China. The impact should definitely be felt over the next few days of shopping.

The Wedbush analyst sees iPhone sales over Black Friday weekend dropping by a sizable 20% YOY to 8 million units, as inventories remain depleted. He does not seem concerned, however, because:

“We are seeing strong iPhone upgrade activity through the likes of AT&T/Verizon and in store activity has been solid for Apple in most stores as well as the online channels.”

iPhone constrained, Apple adjusts strategy

I checked the availability for a “basic” iPhone Pro with 128 Mb in my local market on Apple.com – which is only a few miles away from Cupertino, California. What I saw shocked me. The device could not be picked up at the local store, and can only ship on January 3 of next year!

The bottom line is that, unless the supply situation improves quickly, any iPhone Pro purchased online starting today runs the risk of not being recognized as revenue on Apple’s books until next quarter. Those concerned about quarter-to-quarter performance should take note.

Something else caught my attention. On Apple’s home page (see image below), the iPhone is no longer featured “above the fold”. Instead, the Cupertino company seems to be:

Promoting Apple TV+, a service that does not suffer from supply constraints;
Offering a gift card incentive on the purchase of virtually any physical product EXCEPT the iPhone 14 – a product that Apple is having a hard time delivering anyway.

Figure 2: Apple TV+ promo.

Apple

Ask Twitter

Apple investors: are you mostly (1) excited about the holiday season, as the iPhone 14 and other products seem to enjoy high consumer demand, or (2) worried about supply constraints in Asia and what it could mean for holiday quarter sales?

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3 Big Reasons To Love Apple Stock

Daniel Martins — Wed, 23 Nov 2022 10:38:56 GMT

Let’s take a step back from the news of the day: why is AAPL a great stock to own? Today, I list my top 3 fundamental reasons.

When it comes to Apple stock (AAPL) - Get Free Report, even I am sometimes to blame for focusing a bit too much on the “here and now”. What do iPhone sales in the holiday quarter look like? Is Apple pulling back production in China? Can the stock build upon recent momentum?

So now, I take one step back. More fundamentally, what are some of the main reasons why investors might want to own AAPL shares? There are probably many of them, but I will start with my own top 3 list today.

Figure 1: 3 Big Reasons To Love Apple Stock

Unsplash

AAPL Reason #1: Massive ROIC

ROIC, or return on invested capital, is a metric that many analysts and investors like to track. It contrasts a company’s earnings (numerator) against the cash raised from debt and equity investors (denominator). Think of the formula:

ROIC = NOPAT ÷ Invested Capital, in which:

NOPAT is the net operating profit after tax, a similar concept to net income
Invested capital is largely equity plus debt investments minus cash

The higher the ROIC, the better. It means that the company is able to “deliver more with less”: lots of profits with relatively small quantities of capital invested into the firm.

Companies in a good competitive position whose wide moat protects the business model well tend to have high ROIC. On the other hand, cut-throat competition that chips away at a company’s profits and margins tends to lead to low ROIC.

Apple’s ROIC hovered around 35% in 2010, within three years following the launch of the iPhone and the iPad. That’s really not a bad number at all, considering Apple’s weighted cost of capital that is probably short of 10%.

But since then, Apple’s ROIC has skyrocketed (see below). Today, the number is a staggering 56%. Relative to the investment that debtholders and equity holders have placed into the company, Apple is a massive profit-producing machine.

Figure 2: AAPL's ROIC.

Stock Rover

There are two main reasons why Apple has been able to increase its ROIC, especially in the past five years. First, profits (the numerator) have increased as (1) the 5G-capable iPhone models became a hit among consumers, (2) Apple was able to maintain pricing power, and (3) margins improved with the growth of the services segment.

Second, investments in the company (the denominator) have decreased sharply, mostly due to Apple’s aggressive strategy of buying back shares since 2012 (more on this below).

AAPL Reason #2: Highly Efficient

Although services represent a sizable 20% of total sales, Apple is still primarily a consumer products vendor. Companies like it live and die by how tightly it manages working capital – that is, receivables and inventory on the asset side, payables on the liability side.

The less cash a company ties up in receivables and inventory, and the longer it takes a company to pay its own vendors, the better. Introducing the concept of cash conversion cycle: the time it takes a company to convert cash into inventory, and then back into cash via sales.

On working capital management, Apple stands out. According to Finbox, Apple’s cash conversion cycle is -62 days – yes, a negative number. It effectively means that Apple does not tie up cash in operations at all: instead, operations are financed by Apple’s vendors.

The Cupertino giant is one of the few tech companies in the world that can pull this off.

AAPL Reason #3: Shareholder Friendly

One of the reasons why Apple has been able to increase its ROIC drastically (see #1 reason above) is due to share buybacks. Cash return to shareholders alone, in fact, is a great incentive to own Apple stock.

The chart below shows how Apple has been aggressive at buying its own shares since 2012 – shortly after CEO Tim Cook took over from legendary founder Steve Jobs. From 26 billion shares outstanding in 2013, the count has been cut by nearly half now.

Figure 3: AAPL's diluted shares.

Stock Rover

The benefits have been twofold. First, fewer shares outstanding mean that net income is distributed across fewer shareholder units. As a result, earnings per share, a metric closely tracked by investors and analysts, have increased.

Second, Apple’s stock buyback program allows the company to be an ever-present bullish force in the market. Even when other investors turn sour on Apple stock, at least the Cupertino company can be there to create demand for its own shares.

Ask Twitter

I have just identified 3 big reasons to love Apple stock: (1) massive ROIC, (2), tight working capital management, and (3) lavish cash returns to shareholders. Which of these do you appreciate most about AAPL?

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Apple Stock To Climb 40% or Sink 10%? What Wall Street Thinks

Daniel Martins — Tue, 22 Nov 2022 11:12:47 GMT

Should Apple stock climb 40% from here or dip 10% instead – or something else in between? Here is a look at Wall Street’s most extreme bullish and bearish cases for AAPL shares.

Apple stock (AAPL) - Get Free Report has been an outperformer compared to other US stocks – whether in the past few weeks or in the last many years. Looking forward, however, not every Wall Street expert agrees on how shares of the Cupertino company will fare.

Today, I turn to the most bullish and the most bearish of analysts. How do their analysis and opinions of AAPL stock vary? And who does the reader think has the best chance of being right: the ultra-optimist who sees Apple climbing 40%, or the pessimist warning of a 10% downside?

Figure 1: Apple Stock To Climb 40% or Sink 10%? What Wall Street Thinks

Unsplash

AAPL: Still a Wall Street Favorite

On average, analysts still see AAPL climbing 21% over the next year to a price target of nearly $180 apiece, according to TipRanks. For reference, this kind of performance would be very much in line with the stock’s annual returns since the 1980s, maybe one percentage point lower.

Among Wall Street experts, five super-bulls have a price target of at least $200 per share, for an upside gain potential of 35% or more. See the table below.

Figure 2: List of analyst forecasts on AAPL.

TipRanks

Tigress Financial’s Ivan Feinseth has historically been among the most optimistic of Apple analysts. Today, he is the king of the bulls, as he sees AAPL climbing a whopping 40% from current levels to $210.

His bull case is centered not around one, but several fundamental reasons that I believe check the boxes for most other bullish sell-side professionals:

At the highest level: Feinseth believes that Apple will continue to increase ROIC (return on invested capital) on the back of “strong brand equity, driven by [the company’s] innovative ability and powerful cash generation.” He also sees Apple’s cash-rich balance sheet as a positive for “future growth, acquisitions, and higher shareholder returns.”

Regarding iPhone 14 worries: Bloomberg has recently reported on a pullback in iPhone 14 production in China. The Cupertino company itself has also warned of lower-than-expected iPhone 14 Pro sales in the holiday period. But Feinseth seems much less worried. At the core, he sees strong demand for the pricier Pro models, suggesting that supply hiccups are less of a concern. Also, he believes that the demographic group most interested in the Pro is also more likely to consume more services, which is a double dose of bullishness.

What’s around the corner? Regarding near-term opportunities, Feinseth sees potential in (1) driver assistance systems and (2) virtual reality devices. On the former, the Tigress analyst believes that the CarPlay Interface is Apple’s first move into the large (and possibly very profitable) automotive market.

Not Everyone Is an AAPL Fan

If the most bullish of Apple analysts see the stock skyrocketing next, the most bearish of them believes in another 10% move lower from here. The table below shows that three Wall Street experts think that Apple stock will be trading below its current price 12 months from now.

Figure 3: List of analyst forecasts on AAPL.

TipRanks

The sell-side pro that stands out is Thiago Kapulskis, from ItauBBA. He is the only analyst listed on TipRanks with a “sell” rating on Apple.

I have written about Kapulskis’ views on this channel before. In summary, he does not favor an investment in Apple stock for the following reasons:

It’s about the economy: Apple could be more exposed than other companies to the challenges faced by the global economies. Among them are (1) the end of monetary easing and (2) a potential recession on the horizon, something that does not usually bode well for the consumer discretionary space.

No longer an innovator: I believe that Apple has done a good job at bringing tech innovation to the table – from a hugely popular 5G smartphone to a radically redesigned Mac lineup. But Kapulskis disagrees, suggesting that Apple’s “innovation has been more incremental than disruptive since Steve Job’s death.”

Too expensive: perhaps the easiest bear argument to support is that of stretched valuations. The chart below, provided by Stock Rover, shows that AAPL is far from being a bargain. The ItauBBA team thinks that Apple stock should not command a forward P/E as rich as Microsoft’s (MSFT) - Get Free Report, which it currently does.

Figure 4: Apple's P/E ratio history.

Stock Rover

Ask Twitter

On average, Wall Street analysts see Apple stock climbing 21% from current levels – but the range of predictions varies widely. Which of the following do you think is most likely to happen to AAPL in the next 12 months?

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How Warren Buffett Got Apple Stock Wrong

Daniel Martins — Mon, 21 Nov 2022 11:16:56 GMT

Warren Buffett and his Omaha-based conglomerate have profited greatly from their Apple stake. But selling over 10% of the position in the past 10 quarters has proved to be a mistake.

Apple stock (AAPL) - Get Free Report is Berkshire Hathaway’s largest holding. Warren Buffett’s conglomerate reported last week that the firm had allocated a sizable 42% of its portfolio to shares of the Cupertino company as of the end of Q3.

Considering that AAPL has easily outperformed the S&P 500 over virtually any time frame, Buffett and crew have clearly been proven right on their highly concentrated bet. But in one sense, Berkshire got Apple stock wrong: by leaving some money on the table.

Figure 1: How Warren Buffett Got Apple Stock Wrong

Gerard Miller | CNBC

Buffett: not enough of an AAPL fanboy?

If an investor had put a whopping 40% of the portfolio in Apple stock in early 2020 and made a killing, it would be unreasonable to look at the glass half empty and say that he or she missed out by not investing even more in this outperforming name.

In other words: Warren Buffett and his portfolio managers have done great by being long AAPL since early 2016 (modestly at first, then much more aggressively in the past few years). Kudos to them.

But Buffett is best known for being a value investor. Maybe this is why, in the last several quarters, Berkshire Hathaway has divested some of its Apple shares just as the stock recovered strongly from the bottom of the COVID-19 bear, reached in Q1 of 2020. See chart below, particularly the blue bars.

Figure 2: Berkshire's ownership of AAPL since 2Q'20.

DM Martins Research

“Buying low, selling high” seems like a reasonable approach to investing – that is, if one can figure out what “high” and “low” mean exactly. But in the case of AAPL, the strategy has fared worse than the simple “buy and hold, don’t trade” idea that I have defended on this channel.

Case in point, Warren Buffett and his company would have done better over the past 10 quarters if they had left their Apple position alone, instead of selling the 2020 rally into the first half of 2021.

AAPL: how Buffett left money on the table

Berkshire Hathaway owned 1 billion shares of Apple in Q2 of 2020, worth at the time $91.5 billion. Had the firm held on to the same shares through today, the position would have been worth nearly $152 billion now, for about 66% appreciation.

Instead, Berkshire Hathaway progressively shed its Apple position, from 1 billion to a low of 887 million shares in Q4 2021. Assuming, for simplicity, that the sales proceeds were parked in the S&P 500, Berkshire’s Q2 2020 investment in Apple would have been worth about $150 billion today.

Sure, the difference of nearly $2 billion in gains may not represent much to a conglomerate the size of Berkshire Hathaway – although it certainly looks like an endless pile of money to most of us, mere mortals.

But what strikes me as curious is that even the almighty Warren Buffet has not been able to time Apple stock all that well, at least in the past 10 quarters.

Dare I say, humbly, that the Oracle of Omaha should have been more open to the idea of “buying and holding, not trading” AAPL, as I believe to be the best strategy for this particular stock?

Ask Twitter

In the past 10 quarters, WarrenBuffett and his $BRKA $BRKB left about $2 billion on the table by selling some of the firm’s AAPL position after the 2020 rally, rather than just buying and holding. What do you think they should do with their Apple shares now?

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How Apple Stock Continues To Impressively Outperform

Daniel Martins — Fri, 18 Nov 2022 10:08:39 GMT

Apple stock spiked on an overall bearish day for the market, despite no big news. Here is why shares of the Cupertino company have done so much better than the S&P 500 lately.

Apple stock (AAPL) - Get Free Report ended the trading session of Thursday, November 17, higher by 1.3%.

The number, in isolation, does not mean much. What is most impressive is that the gain (1) was much better than the S&P 500’s modest loss for the day, and (2) adds to Apple’s impressive track record against the US equities benchmark.

Today, we look at some interesting data that shows how Apple investors have been faring so much better than the average investor in the stock market.

Figure 1: How Apple Stock Continues To Impressively Outperform

Unsplash

AAPL: lavish outperformer

Apple stock is back above $150 apiece, after an unusual climb on Thursday: AAPL jumped more than 1% when the S&P 500 finished the session in the red by 0.3%.

The single-day outperformance of 1.6 percentage points or more is somewhat rare. Over the past five years, it has happened only once every 10 trading days or two calendar weeks, on average. See the histogram below.

Figure 2: Histogram: AAPL's daily performance vs. the S&P 500.

data from Yahoo Finance

But even less common is for AAPL to move higher by this much on a market day that was overwhelmingly bearish. All four major stock indices, also including the Dow, Nasdaq, and Russell 2000, dipped for the day.

AAPL being up by more than 1% while the S&P 500 declines for the day has happened less than 4% of the time over the past five years. That is: a once-in-a-five-week period occurrence.

Whatever time period one chooses to look at, Apple has been performing better than the broad US market index:

2.8% better in the past five trading days
2.7% better in the past calendar month
5.2% better in the past six months
16.0% better in the past year
17.6% better (cumulative) in the past two years
About 200% better (cumulative) in the past five years

Apple stock: why so bullish?

It is hard to tell exactly why Apple stock had such a better Thursday than the rest of the market. Even its FAAMG peers were left in the dust. Microsoft (MSFT) - Get Free Report, just shy of flat for the day, came closest to matching Apple’s performance.

Over a longer time period (say, anywhere from YTD to three years), Apple’s impressive run can be mostly explained by the following:

A strong brand and product portfolio that has been keeping demand afloat in 2022, despite a tighter monetary environment and recession worries;
A general market belief that Apple could be a good “inflation play” in a year of rising consumer prices;
Some benefits from the stay-at-home economy of 2020 and 2021, which helped to support demand for tech devices and related services – think games and streaming;
Product launches, particularly within the iPhone (5G models) and Mac (M1 and M2 chips) segments, that seem to have struck a chord with consumers.

Ask Twitter

Apple stock is beating the S&P 500 on a 5-day, calendar month, YTD, two-year and five-year bases. Why do you think this is, primarily?

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Apple Stock: iPhone Demand Is Still On Fire

Daniel Martins — Thu, 17 Nov 2022 10:51:18 GMT

Supply chain challenges vs. robust demand for Apple’s iPhone. In the end, how will the Cupertino company’s smartphone segment perform in the next several months?

Apple stock (AAPL) - Get Free Report investors must be really confused at this point. Conflicting information regarding the performance of the iPhone in the next few months continues to pour in. After all, how is the segment expected to perform through the holiday season and into 2023?

The most recent data point is encouraging – maybe not to recognized sales in fiscal Q1, but certainly to consumers’ interest for Apple’s flagship product.

According to UBS, lead times for the iPhone, especially the Pro models, continue to increase. Even if the Cupertino company has been facing supply challenges lately, at least demand for the company’s smartphones seems to be on fire still.

Figure 1: Apple Stock: iPhone Demand Is Still On Fire

Unsplash

Apple’s iPhone: a hot commodity

Analyst David Vogt cited his firm’s Evidence Lab data to claim that “wait times for Apple's iPhone 14 lineup have continued to move higher in the wake of supply issues out of China and continued strong demand.”

The analyst provided some specific numbers. For example, the wait time for the Pro and Pro Max in the US has reached 34 days. The last time that I checked, only about a week ago, this number was lower (but still historically high) at 31 days.

In China, wait times have reached 36 days. This is an increase of 10 days in only one week.

iPhone: the pros and the cons

Apple is facing a unique problem that I bet most consumer product companies would not mind dealing with: too much demand relative to how much the tech giant can produce and deliver.

This is the good news: there does not seem to be any concern about consumers’ willingness to buy, pay, and wait for a new iPhone. The “super cycle” seems alive and well, even well past the pandemic-driven spike in demand witnessed last year.

The bad news might not be that bad after all. The main issues are production capacity and delivery speed, particularly from assemblers in China. But these problems are likely to be resolved, given enough time. Don’t forget that Apple is the king of inventory management and supply chain.

The key question, one that is hard to answer, is whether missed opportunities to sell in the 2022 holiday quarter will only push those transactions forward another quarter or two, or if they will be lost forever. In 2020, when COVID-19 disrupted supply channels following the launch of the iPhone 12, the former proved to be true – and Apple stock marched higher.

Analysts have been taking both sides of the debate this time: Wedbush’s Dan Ives seems to be more optimistic, while Bernstein’s Toni Sacconaghi is skeptical. Time will tell who on Wall Street has gotten the story right.

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Apple Stock: Expect Tough Love From Wall Street

Daniel Martins — Wed, 16 Nov 2022 10:18:43 GMT

Following mixed fiscal Q4 results and a holiday quarter preannouncement on iPhone sales, analysts have become a bit more cautious about Apple stock. Here is what investors should do.

Apple stock (AAPL) - Get Free Report is still highly rated by Wall Street. On average, analysts see shares of the Cupertino company as a “strong buy” and believe in 20% upside opportunity implied by the average target price of nearly $180 per share – all the data provided by TipRanks.

However, as much as the sell-side may appreciate Apple stock, analysts seem willing and ready to give it some tough love. Several of these experts have de-risked their expectations for the holiday quarter and early 2023 months. If more of them follow the trend, AAPL could take a hit.

Should investors worry? I think not, for the reasons presented below.

Figure 1: Apple Stock: Expect Tough Love From Wall Street

Unsplash

Apple and a Challenging Environment for the iPhone

It all started with fiscal Q4 earnings, which we covered on this channel in real time. During the earnings call, CFO Luca Maestri guided revenue growth to decelerate relative to the pre-holiday quarter – granted, in great part due to FX impact that escapes Apple’s control.

CEO Tim Cook then spoke of iPhone Pro supply constraint, which cuts both ways: it bodes well for overwhelming demand, but ill for sales as the company can’t produce enough to meet consumers’ needs. Clearly, the environment has been challenging for the iPhone.

On the heels of mixed earnings results came even worse news: Apple’s preannouncement of weaker-than-expected iPhone 14 Pro and Pro Max sales in the upcoming quarter due to production issues in China.

This is probably the catalyst that led analysts to rethink their estimates of Apple’s financial results in the next few months.

On November 9, Bernstein’s Toni Sacconaghi pointed out that consensus was still too high, especially for the balance of fiscal 2023. In his view, iPhone sales missed due to supply chain issues may never be recovered, unlike what others on Wall Street seem to believe.

JPMorgan’s Samik Chatterjee followed suit and lowered his iPhone estimates on November 14, which seems to have triggered some temporary bearishness that pushed AAPL lower in pre-market trading. It is precisely this potential domino effect of estimate cuts that could put some pressure on Apple shares, which now trade at roughly $150.

AAPL: Is It Time to Fear?

Even though the stock market at large has rebounded strongly on the back of favorable inflation data in the past few days, I continue to think that this is a volatile environment. In the short term, I would not rule out (but neither would I root for) Apple stock U-turning and heading back towards 2022 lows.

In the long term, I still think that owning AAPL is a smart move. Therefore, any meaningful weakness in share price caused by expectations for weaker iPhone performance in the immediate term will likely prove to be an opportunity to buy.

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Apple Stock: iPhone 14 Pro Fears Could Be An Opportunity

Daniel Martins — Mon, 07 Nov 2022 18:38:59 GMT

Apple preannounced worse-than-expected iPhone Pro sales in the holiday quarter. Should Apple stock investors panic? I think not, and I explain why.

Apple stock AAPL dipped by as much as 1.9% on Monday morning. The culprit: through a very brief press release, the Cupertino company preannounced weaker-than-expected iPhone 14 Pro and Pro Max sales in the holiday quarter.

These two smartphone models have been at the core of many analysts’ investment thesis. Will lower fiscal Q1 shipments spell trouble for the bullish story?

I think not. In fact, any meaningful pullback in stock price on this piece of news could be an opportunity to buy cheaper AAPL shares. Below, I explain why.

Figure 1: Apple Stock: iPhone 14 Pro Fears Could Be An Opportunity

Unsplash

Why iPhone worries could be an opportunity

Apple was very clear on why the company expects lower iPhone 14 Pro and iPhone 14 Pro Max shipments than previously anticipated:

“COVID-19 restrictions have temporarily impacted the primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility in Zhengzhou, China. The facility is currently operating at significantly reduced capacity. [But] we continue to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models.”

Therefore, the issue is supply-related, not demand-driven. This can be verified, to an extent, by looking at lead times – the number of days that it takes for an iPhone Pro order to be fulfilled and for the device to ship.

In the fourth week of October, “the iPhone 14 Pro and Pro Max saw their times shift from 24 days each” to 31, according to AppleInsider. Such moves are usually associated with supply not being robust enough to meet demand. Today, the lead time is already pushing 37 days.

Figure 2: Apple's iPhone 14 Pro.

Apple

Revenue recognition rules in the US dictate that sales can not be booked until ownership and control of the product have been transferred to the buyer. If lead times remain above one month, Pro and Pro Max devices sold at the end of November ahead of the holiday festivities risk not being included in Apple’s fiscal Q1 revenue number.

Remember Apple’s 2020?

This story reminds me of the first year of COVID-19. Ahead of that holiday season, iPhone 12 sales were at risk of disappointing due to the delayed launch of Apple’s first 5G smartphone model – all due to pandemic disruptions. Below is what iPhone sales looked like in the September quarter: -21% YOY.

Figure 3: Fiscal 4Q 2020, revenue growth by segment.

DM Martins Research

Probably not unlike today, the iPhone 12 issues back then were caused by supply only, as demand remained robust. Then, segment sales growth caught up quickly over the following few quarters, even overshooting to the upside. See the bars highlighted in orange below.

Figure 4: Apple's iPhone revenue growth around F4Q 2020.

DM Martins Research

Could the same happen in the 2022 holiday quarter and the first few months of 2023? If the strong demand story holds any water – and it probably does – then I believe that lost sales in the December period will merely shift into calendar 2023. This is not enough of a reason, in my view, for Apple investors to panic and ditch their shares.

Key takeaway on Apple stock

I maintain my view that Apple stock could continue to suffer in the short term due to market volatility. In fact, I speculated that AAPL could dip back to $130 when it was trading at around $150 only a few weeks ago, which almost ended up happening late last week.

But in the long term, buying AAPL on sharp pullback will likely prove to be a smart move. Apple stock is currently sitting 25% below all-time highs, and the iPhone 14 Pro supply story could put further pressure on the share price. Such a discount looks compelling to me.

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Apple (AAPL) Fiscal Q4 Earnings: Highlights and Takeaways

Daniel Martins — Fri, 28 Oct 2022 13:21:26 GMT

Apple delivered a fiscal Q4 that was neither a beauty, nor a disaster. Here are the key takeaways for AAPL investors

On October 27, Apple stock (AAPL) - Get Free Report traded sideways in after hours action as the Cupertino company delivered a mixed-bag fiscal Q4. Below, we present the highlights of Apple’s earnings day, organized by main topics.

Figure 1: Apple (AAPL) Fiscal Q4 Earnings: Highlights and Takeaways

Getty

(Read more from Apple Maven: Apple’s Fiscal Q4 Earnings Live Blog: Our Coverage In Real Time)

Apple’s earnings in a nutshell

Apple's quarter was not the best I have seen, but it may have been the best in the Big Tech universe this quarter.

What I saw were some of the themes that we all expected, including (1) a resilient iPhone, (2) a very strong Mac, (3) a soft services segment, (4) some headwinds in China and Japan, with "the West" holding up better.

Figure 2: Apple's fiscal Q4 2022 growth by segment and geography.

DM Martins Research

Apple stock ended the earnings call up +1%, after being down as much as -4%. The reasons for the recovery, in my view, are two: (1) plain volatility in the tech space during this earnings season, and (2) a business that, under the surface (think FX challenges and some lingering supply constraints), continues to do quite well.

On this last point, I think it took the earnings call to make it clear that the management team remains upbeat about what they see and the holiday quarter ahead.

iPhone held up well

iPhone revenue of $42.63 billion was below my own projection of $43.1 billion. But we are still talking YOY growth of about 10%, not terrible. CFO Luca Maestri attributed the strong performance to the iPhone from upgraders and switchers.

When asked about the iPhone demand, which was really the big question, CEO Tim Cook was pleased with the performance, 3 of the top 4 smartphones in US and UK. Apple is still constrained on 14 Pro and Pro Max, so they are trying to catch up with demand.

Mac was a shining star, iPad fought all headwinds

When questioned on iPad and Mac about what were the important factors that explain the divergent performance, CEO Tim Cook said that Mac was helped by product launches and some supply issues in June quarter that were resolved.

On the iPad side, the opposite happened on launches, as the 2021 comps were tough. iPad struggled due to FX and tough comps against product launches last year. iPad revenues were down 13% YOY.

Services could be a concern

Services were not good at all, even worse than I expected. Revenues of $19.2 billion for growth of 5%. This is the lowest segment growth that I have ever seen. This is largerly due to FX headwinds.

Some services hurt more than others from the macroeconomic challenges, namely digital advertising and gaming. Strong growth in paid subscriptions -- double the subs vs. three years ago.

About services and price strategy, CEO Tim Cook talked about price hikes in Apple Music, TV+ and Apple One. Cost of music licensing increased, which explains the price hike. On TV+, Tim mentions the increase in content volume, which justifies the price hike.

Impressive margins

Going down the P&L, gross margin of 42.3% was solid, near the end of the guidance range. What could have played a role here is a heavier mix of pricy iPhone Pro models, maybe offset by the higher-margin services segment spinning it wheels.

CFO Luca Maestri when asked about gross margin puts and takes, said that 42.3% was a September quarter record, despite FX. Strong dollar makes pricing a challenge, but Luca sees commodities behaving favorably.

Here's a fun graph that shows how Apple's margins have improved drastically during this COVID-19 period -- but they seem to have plateaued.

Figure 3: Apple's gross and op. margins since fiscal 2018.

DM Martins Research

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Apple’s Fiscal Q4 Earnings Live Blog: Our Coverage In Real Time

Daniel Martins — Thu, 27 Oct 2022 11:09:22 GMT

The day has come! Will Apple stock react positively to the Cupertino company’s fiscal Q4 results? Join us for real-time coverage of Apple’s earnings day.

The day has come! Thursday, October 27, is Apple’s (AAPL) - Get Free Report fiscal Q4 earnings day.

The Apple Maven follows the developments of the day via live blog below, starting at 4 p.m. EST – the exact time of the closing bell at the corner of Broad and Wall Streets, in New York City. We start with a brief wrap-up of what investors should expect to see. To skip straight to live coverage, scroll down to the section Live Coverage Starts Here.

As a reminder, refresh your browser every so often to see the most recent update, in case the browser does not do so automatically.

Figure 1: Apple’s Fiscal Q4 Earnings Live Blog: Our Coverage In Real Time

Unsplash

Apple’s Fiscal Q4: What to Expect

For the September quarter, analysts expect revenues to increase just short of 7% to $88.8 billion. The growth rate may seem small, but it is off of tough comps in 2021. Compounded over two years, the annual sales growth number is a much more impressive 17%.

EPS is projected to land at $1.27, only 2% above last year’s comparable figure. The story is similar, however: over a two-year period, annualized earnings growth looks much better, at 32% compounded.

As usual, the iPhone will be a very important story to follow. I expect to see strong numbers, as Apple has likely gained quite a bit of market share from its global smartphone competitors in calendar Q3. My estimate is for segment revenue growth of 12% to 15%, in FX-neutral terms.

The Mac accounts for only 10% of total revenues, but it could be one of the bullish stories this quarter. Supported by a robust new MacBook Air equipped with M2 chip, I think that segment revenues could climb as much as 38% – less so when currency headwinds are factored in.

The segment that I expect to lag relative to its own historical record is services. Pressured by lower discretionary spending that is likely to have hit the App Store and other offerings, I would not be surprised to see segment revenue growth dip to or below 10%.

Apple stock is currently about 17% off the early January 2022 peak. Keep an eye on how the share price will react to the earnings print. I asked Twitter for an opinion on what to expect, and here is what they had to say:

Live Coverage Starts Here

3:00 a.m. PST: Today is the big day! But it is still early in New York City, even earlier at Apple’s HQ, in Cupertino-California. Live coverage begins at 4 p.m. EST, see you then!

12:55 p.m. PST: Hello, everyone! The day has come, and the time is (almost) now!

12:56 p.m. PST: In about half an hour, Apple will release its fiscal Q4 results.

12:57 p.m. PST: Quick reminder, my name is Daniel Martins, and I will be following the events of the day starting now. The earnings release should come out at 1:30 p.m. Cupertino time, and the conference call starts 30 minutes after that.

12:58 p.m. PST: The trading session has NOT been friendly to Apple stock... it is down a sizable 3% as I type this sentence.

1:00 p.m. PST: ...and the closing bell has rung! It's been a rough day for stocks in general, but especially for the tech sector.

1:02 p.m. PST: If anyone has an interest, Amazon's (AMZN) - Get Free Report Q3 results are out, and the stock is taking a big hit! Down about -10%.

1:03 p.m. PST: Within the FAAMG or Big Tech peer group, only Apple can save the day... what a terrible earnings season for tech!

1:04 p.m. PST: Oh, never mind... AMZN is down 20% in afterhours! AAPL is now also dipping 1.5% in addition to what it lost during the regular session, certainly in sympathy.

1:06 p.m. PST: From a sentiment perspective, everything that we have seen from the likes of Amazon and Meta Platforms (META) - Get Free Report this quarter is not good news for AAPL. But from a glass-half-full perspective, maybe AAPL goes into the print today a bit more de-risked and with lower expectations.

1:08 p.m. PST: AAPL stock is down nearly 2% in afterhours... reminder: this has nothing to do with the company's results yet. They're coming in about 25 minutes.

1:10 p.m. PST: Apple stock has been down 22% for the year so far, including today's afterhours action. Shares have been shifting in and out of bear market territory since May -- although all-time highs were nearly hit in August.

1:12 p.m. PST: Let's talk Apple's fiscal Q4 results for a moment. The numbers to keep in mind are revenue expectations of $88.9 billion for nearly 7% growth YOY. EPS is forecasted to hit $1.27, barely an improvement YOY.

1:14 p.m. PST: As I mentioned in my previews, one theme that I expect to see is that the global economies have been putting pressure on tech companies and their ability to keep demand afloat... but that Apple is likely performing way better than its competition.

1:15 p.m. PST: We'll see if I am right...

1:17 p.m. PST: While we are talking projections, I think that the iPhone will do well, with ex-FX growth north of 10%. I think that the Mac will be a shining star, and I see a big sales number within that segment. Of course, because of its size, the iPhone will likely be the most important piece of the puzzle. My main concern is services, where I would not be surprised to see segment revenue growth dip below 10%.

1:19 p.m. PST: And then, of course... guidance. It will be huge. Pay attention not so much to the numbers themselves -- in fact, Apple no longer offers a total revenue guidance range anymore. Instead, keep an eye on the demand narrative heading into the holiday quarter, including an early read on the success of the iPhone 14.

1:20 p.m. PST: Right now, AAPL stock down 2% in afterhours, for a total loss of about $120 billion in market value between today's opening bell and now.

1:22 p.m. PST: We are only about 10 minutes away from Apple's earnings release! I'm a bit nervous, not going to lie... well, time for a quick break to regroup. Stay tuned, I will be back soon!

1:28 p.m. PST: Ok, I'm back! And I'm glued to this chair, there's no getting up now... Apple fiscal Q4 numbers will be out in 3 minutes!!

1:29 p.m. PST: AAPL still down 2% in afterhours... will it be the ONLY of the Big Tech stocks not to take a massive hit on earnings day??

1:30 p.m. PST: Eyes on the screen for stock price reaction any moment now...

1:31 p.m. PST: And AAPL stock is on the move! Shares down a bit more, -4%!

1:31 p.m. PST: Quick numbers, revenues of $90.15 billion is a slight beat, and so is EPS of $1.29.

1:33 p.m. PST: iPhone revenue of $42.63 billion is below my own projection of $43.1 billion... we are still talking YOY growth of about 10%, not terrible.

1:34 p.m. PST: Services were not good at all, even worse than I expected! Revenues of $19.2 billion for growth of 5%. This is the lowest segment growth that I have ever seen.

1:35 p.m. PST: Wedbush's Dan Ives calls Apple's print a "positive data point in a dark market".

1:36 p.m. PST: Let me plug in some numbers for a couple of minutes... AAPL stock recovered a bit, down -1% now.

1:40 p.m. PST: Ok, here are a couple of graphs for you:

DM Martins Research

1:42 p.m. PST: What I see here is some of the themes that we all expected, including (1) a resilient iPhone, (2) a very strong Mac, (3) a soft services segment, (4) some headwinds in China and Japan, with "the West" holding up better.

1:43 p.m. PST: The problem, not a huge one, is that what was good may not have been as good as some expected. I suspect that FX has a lot to do with this gap to expectations, we'll hear more about it during the earnings call.

1:46 p.m. PST: Going down the P&L, gross margin of 42.3% was solid, near the end of the guidance range. What could have played a role here is a heavier mix of pricy iPhone Pro models, maybe offset by the higher-margin services segment spinning it wheels.

1:49 p.m. PST: Opex of $13.2 billion was actually above the guidance range. This is interesting, considering that companies usually have some control over this line (think about headcount management, etc.). Is this bad, or a good sign that Apple is not too worried about investing in R&D and its sales infrastructure? Tough one, but I am not too concerned here.

1:51 p.m. PST: Other expenses landed at $237 million, which is worse than guidance of $100 million. That alone accounts for 2 cents in EPS.

1:52 p.m. PST: Well, from that perspective... FX was a huge headwind, opex came in rich, so did other expenses (which has nothing to do with the core of Apple's business) ... I'm starting to think that, operationally, the quarter was not a thing of beauty, but it wasn't bad either. It may have been the best FAAMG earnings print of the past week.

1:53 p.m. PST: It will come down to the earnings call narrative and the guidance to be delivered in about 30 minutes. So definitely stay tuned for that!

1:54 p.m. PST: By the way, here is the link for the earnings call, if you want to listen in. I will be live blogging through it as well. It starts in 5 minutes.

1:55 p.m. PST: Let me prepare for the call, I will be back with you in 5! AAPL stock now down only -0.5%.

1:59 p.m. PST: Earnings call start any moment now. Here's a fun graph (I know, I'm a dork for having fun with graphs) that shows how Apple's margins have improved drastically during this COVID-19 period -- but they seem to have plateaued.

DM Martins Research

2:01 p.m. PST: The call has started!

2:03 p.m. PST: Reminder that the 2022 holiday quarter will have one extra week... watch out for how this could impact YOY comparisons.

2:04 p.m. PST: CEO Tim Cook has the floor. "Record revenue", "better than anticipated despite heavier than expected FX".

2:05 p.m. PST: The CEO sounds upbeat, not a surprise. He talks about strong double-digit growth in certain emerging markets. Also, he mentions that supply chain issues were not significant in the quarter. That's good.

2:06 p.m. PST: "Customers are loving our iPhone 14 lineup", says Cook. Looking for indication that the Pro has done much better than the rest of the portfolio.

2:07 p.m. PST: The CEO talks about each product segment, including the iPad. iPad revenues were down 13% YOY, likely due to timing of product launches (I suspect, not confirmed by Tim Cook).

2:10 p.m. PST: "Enthusiasm and strong engagement" in services, says Cook. He is talking product/service performance, not necessarily financial results yet.

2:12 p.m. PST: So far, the call is going as expected. Tim Cook is excited, no yellow flags at this point. Tim and Microsoft's (MSFT) - Get Free Report Satya Nadella are always very optimistic. AAPL down 1% still.

2:13 p.m. PST: If any yellow flag comes up, it will likely be introduced by CFO Luca Maestri. He is up next. Keep an eye on guidance.

2:15 p.m. PST: Tim Cook is talking about ESG matters at this point, which he usually addresses on every earnings call.

2:15 p.m. PST: Here is Luca. He is "very pleased" with performance, despite volatile macro environment.

2:16 p.m. PST: 600 bps headwind from FX. Strong double-digit growth outside the US on an FX-adjusted basis.

2:17 p.m. PST: Over 600 bps headwind in services. So, outside currency, service revenues would have increased 12% YOY.

2:18 p.m. PST: "Favorable mix" helped to push gross margin higher 10 bps. Considering that high-margin services lagged, a heavier mix of pricy iPhone models played a role, I suspect.

2:20 p.m. PST: Luca talks about the iPhone, strong performance from upgraders and switchers. He also talks Mac, citing the launch of new models as a plus. Filling the channel and fulfilling pent-up demand helped as well.

2:20 p.m. PST: iPad struggled due to FX and tough comps against product launches last year.

2:22 p.m. PST: In services, large FX headwinds. Some services hurt more than others from the macroeconomic challenges, namely digital advertising and gaming. Strong growth in paid subscriptions -- double the subs vs. three years ago.

2:23 p.m. PST: Oh, hello! Apple stock turns positive in afterhours! Up +1%.

2:24 p.m. PST: I would say that the narrative is more encouraging than concerning. Nothing about softening demand, it's more about FX and some hiccups in corners of the product and service portfolio (e.g., ad and gaming).

2:25 p.m. PST: Even AMZN stock has recovered nicely, from a loss of 20% to a loss of "only" 13% in afterhours. Market is volatile.

2:26 p.m. PST: CFO now talks cash flow. Apple is an impressive cash machine!

2:27 p.m. PST: Guidance is now!

2:29 p.m. PST: No specific revenue guidance, as expected. Overall, sales performance will decelerate vs. September with 10 percentage points of FX headwinds. Tough Mac comps. Services will grow, but with lots of challenges. Gross margin should fall within 42.5% and 43.5%. Opex will be within $14.7 billion and $14.9 billion. Other expense should be $300 million, and tax rate 16.5%.

2:30 p.m. PST: Q&A has started! AAPL stock back down! Now -3%.

2:30 p.m. PST: Tim Cook is asked about the iPhone demand, which is really the big question. CEO was pleased with the performance, 3 of the top 4 smartphones in US and UK. Apple is still constrained on 14 Pro and Pro Max, so they are trying to catch up with demand.

2:32 p.m. PST: Question on gross margin puts and takes. Luca says that 42.3% was a September quarter record, despite FX. Strong dollar makes pricing a challenge, but Luca sees commodities behaving favorably.

2:36 p.m. PST: Question on iPad and Mac performance, what were the important factors that explain the divergent performance? Tim Cook says that Mac was helped by product launches and some supply issues in June quarter that were resolved. This topic was addressed during the prepared remarks. On the iPad side, the opposite happened on launches, as the 2021 comps were tough.

2:37 p.m. PST: Question on the 14-week quarter ahead. Luca says that calendar shift will have an impact on both revenues and costs but did not see anything worth elaborating further on.

2:37 p.m. PST: Apple stock inches up, now -1%.

2:39 p.m. PST: Question on services and price strategy. Tim talks about price hikes in Apple Music, TV+ and Apple One. Cost of music licensing increased, which explains the price hike. On TV+, Tim mentions the increase in content volume, which justifies the price hike.

2:41 p.m. PST: Question on capex for 2023 and the moving pieces. Luca says that Apple has "good capital intensity". Company is monitoring the 3 big capex buckets (manufacturing, data center and offices) and Luca sees nothing unusual for the next 12 months. He seemed to hesitate a bit on the answer, but I won't read much into it.

2:43 p.m. PST: Question on wearables. As a reminder, this segment represented 11% of total revenues in fiscal Q4 and grew 10% YOY. Tim Cook seems satisfied, two-thirds of Watch were sold to first time users. Supply constraint, FX headwinds and Russia were soft spots.

2:44 p.m. PST: Question on Mac again. Tim answers it the same way that he had previously.

2:47 p.m. PST: Question on services and FX impact, could the headwinds be front-loaded for the segment? Luca agrees that services and products behave differently to FX effects. He restates some of the same talking points of earlier in the call, then reemphasizes that the customer is very engaged. It feels like the answer was to a different question, but we move on...

2:50 p.m. PST: We are heading to the last 10 minutes of the call. Questions tend to become more "obscure" at this point of the call, as the important topics have already been addressed. I may start to shift the focus of this live blog to my key takeaways. AAPL stock pretty much flat in afterhours.

2:53 p.m. PST: Good question on FX, inflation and labor costs, what can Apple do? Tim says that Apple is taking care of its teams, "empowering them to do the best work of their lives". Regarding inflation, Tim sees pressures in labor and silicon components. The management team has taken all of this in consideration in the gross margin guidance. Luca adds that Apple hedges its FX exposure, including in China.

2:53 p.m. PST: Apple stock turns slightly positive again, +0.2%.

2:56 p.m. PST: Question on revenue guidance, is growth going below 8%? Luca says that the rate will be lower as guided, but too much uncertainty to be more specific. "Keep in mind the 10-percentage point of FX headwinds".

2:57 p.m. PST: Question on acquisitions. Tim says that company is constantly looking around, especially for IP and talent. He reminds that Apple acquires a company per month, on average. Luca jumps in on Apple's buyback program. It has been successful, and Apple is still positive on net cash. Cash flow remains strong.

2:58 p.m. PST: Ok, the call is over! Time for some quick takeaways.

3:00 p.m. PST: Apple stock ends the call up +1%, after being down as much as -4%. The reasons for the recovery, in my view, are two: (1) plain volatility in the tech space during this earnings season, and (2) a business that, under the surface (think FX challenges and some lingering supply constraints), continues to do quite well. On this last point, I think it took the earnings call to make it clear that the management team remains upbeat about what they see and the holiday quarter ahead.

3:01 p.m. PST: Apple's quarter was not the best I have seen, but it may have been the best in the Big Tech universe this quarter.

3:02 p.m. PST: And that's all for today! Thanks for your company, I'll see you later on thestreet.com/apple !

Apple’s Fiscal Q4 Earnings Preview: Keep An Eye on Guidance

Daniel Martins — Wed, 26 Oct 2022 10:23:55 GMT

Apple is only days away from releasing its fiscal Q4 results. In today’s preview, we address one topic that could be an Apple stock mover: guidance for Q1 of fiscal 2023.

This is the last preview article that I will publish ahead of Apple’s (AAPL) - Get Free Report fiscal Q4 earnings, which is scheduled for Thursday, October 27, after the closing bell. Up to this point, I have written the following pieces:

The key fiscal Q4 numbers to track, from revenues to EPS and beyond
The Mac and how Apple has been lavishly beating the competition
The iPhone is likely to be the star of the show once again
One key area of concern: the services segment

Now, I address what I believe to be one of the most impactful topics for Apple stock: guidance for the following quarter, Q1 of fiscal 2023. Below are some key numbers that investors should keep in mind heading into earnings day.

Figure 1: Apple’s Fiscal Q4 Earnings Preview: Keep An Eye on Guidance

Unsplash

Read more from Apple Maven: Apple’s Fiscal Q4 Earnings Preview: Services Under Pressure

Apple’s Fiscal Q1: Progressively Easier

Look at the graph below, which shows Apple’s total revenue growth since the start of fiscal 2019, and one thing should become clear: COVID-19 acted as a huge boost to Apple’s sales. In fiscal Q2 of last year, growth of more than 50% was unthinkable for a company of this size.

Figure 2: Apple's total revenue growth since 2019.

DM Martins Research

Nearly all that “froth” seems to be gone now, which leaves us with easier comps and a more normalized growth scheduled ahead.

That said, Wall Street currently expects fiscal Q1 revenue growth in 2023 to be 4%, less than fiscal Q4’s 7%. On EPS, the bar to clear is $2.13, which would represent a modest 2% improvement YOY.

Read more from Apple Maven: Apple’s Fiscal Q4 Earnings Preview: How Will Mac Perform?

What to Expect from Apple’s CFO

Since the start of COVID-19, Apple stopped publishing its guidance on the face of the earnings release. So, expect the outlook to be offered directly from Apple’s CFO Luca Maestri during the earnings call, which is scheduled to start at 5 p.m. EST.

On revenues, the guidance will likely be directional – that is, only commentary on a few key drivers will be offered, but not a dollar range. Still, pay close attention to any color that Apple’s executive team may provide on important iPhone 14 sales.

Apple should, however, specifically guide on (1) gross margin, (2) opex, (3) other income or expense, and (4) tax rate – as it usually does.

To assess how strong guidance might be, it helps to look at the previous year’s comparable P&L metrics and use them as a reference. Here is what Apple reported for Q1 of fiscal 2022:

Gross margin of 43.8%: this was an improvement of 130 basis points YOY. Since then, however, expansion has slowed down. Margin is projected to flip into compression in fiscal Q4, at the midpoint of the guidance range, due to the higher costs of managing the supply chain. I expect the same to be true of fiscal Q1 of 2023.

Opex of $12.8 billion: R&D and SG&A costs have been rising at a decent pace lately. This could be driven by efforts to improve and expand the product and service portfolio. I expect guidance to be well above $14 billion.

Other expense of $247 million: while this number can have a noticeable impact on EPS, it is generally immaterial to any investment theses and Apple stock price. I would not worry too much about this line.

Tax rate of 16%: not unlike other expenses, the tax rate is mostly irrelevant to Apple’s core business. Keep in mind, however, that the rate has ranged in the past 12 quarters from nearly 11% to as high as 17%.

Ask Twitter

On Apple’s earnings days, what do you think is most likely to move AAPL stock in either direction in after-hours trading?

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To learn more, click on this link and use the code APPLEMAVEN10 for 10% off the course.

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Apple’s Fiscal Q4 Earnings Preview: Services Under Pressure

Daniel Martins — Tue, 25 Oct 2022 10:58:51 GMT

Apple will report fiscal Q4 earnings on October 27. In this part of our earnings preview series, we talk about the services segment, and why it could be a concern for investors this time.

The day is fast approaching: Apple (AAPL) - Get Free Report reports fiscal Q4 results on Thursday, October 27, after the closing bell – stay tuned for our live blog coverage. So far, we have previewed the event with the following articles:

The key numbers to track, from revenues to EPS and beyond
The Mac and how Apple has been lavishly beating the competition
The iPhone is likely to be the star of the show once again

Today, we talk about the services segment. While this business may have been greatly responsible for Apple’s financial success and expanding stock valuations in the past few years, it could be more of a problem in the short term. Below, I explain why.

Figure 1: Apple’s Fiscal Q4 Earnings Preview: Services Under Pressure

Apple

Read more from Apple Maven: Apple Q4 Earnings: Countdown Begins, Here Are The Key Numbers

Apple’s Services: boosted by COVID-19

The graph below shows the growth in service revenues over time. The business produced less than $30 billion in revenues in 2017, representing 13% of the company’s top line. Five years later, the segment is on track to spitting out nearly $80 billion, or one-fifth of company sales.

Figure 2: Apple's service revenue growth since 2019.

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However, notice a pattern above: service revenues had been on a downtrend until the first few months of the pandemic, in 2020. The stay-at-home economy, aided by monetary and fiscal stimuli, provided a boost to the segment. The growth rate surpassed 30% in fiscal Q3 of 2021.

Since then, the business has cooled off. Sure, tough comps play a role, and it will again in fiscal Q4 of 2022. But it is likely that the days of explosive growth in this segment may have been left in the rearview mirror as consumers began spending on outside-the-home experiences again.

App Store and licensing: potential soft spot

During Apple’s most recent earnings call, CFO Luca Maestri provided the following outlook for services in fiscal Q4:

“Specifically related to Services, we expect revenue to grow but decelerate from the June quarter due to macroeconomic factors and foreign exchange.”

Since services growth landed at 12% last quarter, Apple’s management team is effectively guiding for growth that could even dip into the single-digit territory this time – i.e., 9% or less – as a result of softness in consumer spending and a strong dollar.

One potential area of concern is the App Store, which I estimate accounts for about one-third of Apple’s service revenues. Morgan Stanley has recently reported that “[September marked] the slowest App Store growth as far back as we have the data [to 2015]”. The research shop sees App Store revenues declining by 2% in the quarter.

Another important piece of Apple’s services portfolio is licensing. It is believed that Google’s TAC payments to Apple for search and traffic from iOS devices amounted to $3 billion in 2017.

Very little is publicly known about the terms of the agreement between Apple and Alphabet. What has become clear very recently is that online advertising budgets have been taking a hit during these early innings of global economic deceleration.

Whether Apple will have felt the pain through its services segment in fiscal Q4 is a question that I will try to answer in just a few days.

Read more from Apple Maven: Apple’s Fiscal Q4 Earnings Preview: How Will Mac Perform?

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Apple’s Fiscal Q4 Earnings Preview: iPhone Under The Microscope

Daniel Martins — Mon, 24 Oct 2022 11:11:22 GMT

The Apple Maven resumes its countdown to Apple’s fiscal Q4 earnings day. Today, we talk about the iPhone, and how it holds the key to Apple stock possibly rallying after earnings.

Apple is set to report fiscal Q4 results on Thursday, October 27. In anticipation, I have written a preview article on the Mac segment so far. Today, I turn my attention to what is likely to be (once again) the star of the show: the iPhone.

If, on the one hand, I believe that Mac results by themselves will be insufficient to move Apple (AAPL) - Get Free Report stock in either direction, the opposite is probably true of the iPhone. Below, I discuss how well the segment may have performed in the summer period, and what to expect going forward.

Figure 1: Apple’s Fiscal Q4 Earnings Preview: iPhone Under The Microscope

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Read more from Apple Maven: Apple Q4 Earnings: Countdown Begins, Here Are The Key Numbers

Apple’s iPhone: likely strong numbers

As a quick recap, analysts expect Apple to deliver total company revenue growth of 7% in fiscal Q4, along with EPS of $1.27 that would be roughly flat YOY.

The iPhone accounted for 52% of Apple’s sales in fiscal 2021. With the last quarter of the year coming in next week, I expect this ratio to increase to nearly 54% in fiscal 2022 – despite the predictions of a few years back that smartphones would enter their decline life cycle soon.

Research company Canalys has already given us a sneak peek into smartphone shipments in calendar Q3. The bottom line: the industry at large is struggling to grow amidst a period of high inflation and rising interest rates, except for Apple. See the table below.

Figure 2: Worldwide smartphone shipment share by top vendors.

Canalys

In the summer period, smartphone unit sales dropped 9% YOY, the worst calendar Q3 since 2014, as consumers cut back on discretionary spending. But notice that Apple increased its market share from 15% to 18%.

Quick back-of-the-napkin math suggests that Apple managed to grow iPhone shipments by nearly 10% YOY in the September quarter. This is an outstanding number, and yet another indication that the company’s device has been a huge hit among tech consumers.

As the old infomercials would say, “but wait, there’s more!”

There have been many reports lately suggesting that the Pro version of Apple’s new iPhone 14 (and likely the older iPhone 13 as well) has sold much better than the less expensive trims. This probably means that iPhone ASP, or average selling price, will also improve this time due to a more favorable mix towards the pricey Pro models.

Put together the pieces of the “price x volume = revenues” equation, and it becomes clear that the iPhone will likely impress in fiscal Q4. How much is a tougher question to ask, but I am betting on 12% to 15% revenue growth on top of the 47% reported this time last year.

Read more from Apple Maven: Apple’s Fiscal Q4 Earnings Preview: How Will Mac Perform?

iPhone: will it be all about Q4 sales?

Having said the above, I think that the earnings day discussions about the iPhone will transcend the results of the most recent quarter.

Lately, analysts have been reporting on a mixed bag of bad and good news regarding iPhone 14 production. On the one hand, Apple seems to be ramping up on Pro inventory to meet demand, as mentioned above. However, the new Plus already seems to be a dud.

It is almost certain that CEO Tim Cook and CFO Luca Maestri will need to address questions about the first few weeks of iPhone 14 sales during the earnings call. As usual, I expect both to sound upbeat about demand and execution, but investors will be reading between the lines.

Expect that conversation to be as much of an AAPL stock mover as the fiscal Q4 numbers printed on the earnings report.

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Apple’s Fiscal Q4 Earnings Preview: How Will Mac Perform?

Daniel Martins — Fri, 21 Oct 2022 11:36:48 GMT

Apple’s fiscal Q4 earnings day is around the corner. As we count down the days, I discuss the performance of the Mac segment: will it impress this time?

With Apple stock (AAPL) - Get Free Report still down 21% for the year, the Cupertino company is gearing up to report fiscal Q4 results. As promised, the Apple Maven will publish a series of daily previews ahead of the October 27 event, which I will cover in real-time via live blog – don’t miss out!

Today, I talk about the Mac segment. Will Apple deliver decent growth on top of fairly easy 2021 summer comps (see chart below)? And more importantly, can this business help to fuel a rally in AAPL share price?

Figure 1: Growth in Mac segment since 2019.

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Read more from Apple Maven: Apple Q4 Earnings: Countdown Begins, Here Are The Key Numbers

Apple earnings: Mac likely a stronghold

Research company IDC may have spoiled the fun ahead of earnings day. According to one of their recent reports, Apple was the only winner among the top five players in the personal computer space in calendar Q3.

The Cupertino company allegedly shipped over 10 million Mac units between July and September, for astounding YOY growth of 40%. The PC space in general, Apple included, saw unit sales decline 15% instead. See the table below.

Figure 2: Top 5 companies, worldwide traditional PC shipments, market share and YoY growth, Q3 2022.

IDC

What probably helped Apple in the quarter was the launch of its M2-equipped MacBook Air in July. The device has been lauded as “the biggest design overhaul to the MacBook Air line since 2010”.

As the reader probably knows, revenue is a function of unit sales times price. If we know (or have good reasons to believe) that the former increased by 40% YOY, the missing piece is the average selling price. Here, the question becomes: how much of an impact did heavy Air sales have on the revenue mix and, as a consequence, ASP?

As the image below illustrates, the basic version of the M2 MacBook Air sells for about $1,200. The figure is about $100 below the price of two of Apple’s other popular models: the M2 MacBook Pro with a 13-inch screen, and the 24-inch iMac.

Figure 3: Apple's Mac lineup.

Apple

Simplifying a bit, one can say that a heavy mix of cheaper MacBook Air might be detrimental to the average selling price. Therefore, I would not be surprised to see Mac revenues in fiscal Q4 rise YOY by 35% to 38%, contributing $3 billion to total company revenues – or 4 percentage points in top-line growth.

Can Mac lift AAPL share price?

The next question is: can the Mac segment deliver impressive-enough results to bump Apple stock higher? Of course, it depends on how strong of a print we are talking about.

Generally, Mac accounts for only 10% of total company revenues (see below). Personal computers are unlikely to be central in many investment theses, even though the product category experienced surprisingly robust demand during the COVID-19 period.

Figure 4: Fiscal 2021 revenues by segment.

DM Martins Research

Therefore, I think that strong growth in Mac can be the icing on the cake of a potentially solid quarter that will probably have to be driven by the iPhone. Mac is more likely to be a supporting rather than a leading actor in this story.

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Apple Q4 Earnings: Countdown Begins, Here Are The Key Numbers

Daniel Martins — Thu, 20 Oct 2022 10:39:44 GMT

Apple is a week away from reporting fiscal Q4 results. Will AAPL stock find traction on the heels of its earnings report? We begin the countdown by looking at a few key numbers for the quarter.

Thursday, October 20: we are exactly one week away from Apple’s September quarter earnings day. Today, the Apple Maven talks about some of the key metrics to pay attention to, as we begin our countdown with a series of daily earnings preview articles.

Will Apple stock (AAPL) - Get Free Report react positively to fiscal Q4 results and holiday season outlook, finally leaving the bear market behind and heading closer to peak levels?

Figure 1: Apple Q4 Earnings: Countdown Begins, Here Are The Key Numbers

The Street

Read more from Apple Maven: Apple Is Having Another iPhone Mini-Like Problem

Apple’s headline numbers

An earnings report will usually attract the attention of analysts and investors first on two key metrics: revenues and earnings per share. On the latter, consensus suggests that EPS will land at $1.27, a figure that is only a few pennies above last year’s number.

On the former, Apple is expected to deliver $88.9 billion for year-on-year growth of nearly 7%. Despite being single digits only, the sales increase over 2021 is not too bad, considering the very tough comps that were probably boosted temporarily by pandemic-driven demand.

If Apple delivers 7% in revenue growth this time, the annualized fiscal Q4 growth rate since the comparable pre-pandemic period will have been a quite respectable 12%. The number could have been better, if not for FX headwinds that should be sizable this time. See the graph below.

Figure 2: Apple's total revenue growth per quater since 2019.

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Revenue is exactly what Apple has refrained from guiding since the start of the COVID-19 crisis, and the one key metric whose consensus estimate is most susceptible to being wrong. Further down the P&L, Apple’s executive team projected the following during the Q2 earnings call:

Gross margin: between 41.5% and 42.5%
Operating expense: between $12.9 billion and $13.1 billion
Other income and expenses: around negative $100 million
Tax rate: around 16%.

Not guided above, in addition to revenues, is share count. But assuming the recent trend in share retirement (see graph below), it is fairly safe to assume that shares outstanding will hover around 16 billion.

Figure 3: Apple's diluted shares per quarter since 2019.

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What Apple’s FQ4 P&L may look like

Assuming the consensus revenues and share count estimate mentioned above, I have put together Apple’s expected FQ4 P&L below, alongside last year’s FQ4 results.

Keep these numbers in mind when assessing the Cupertino company’s performance. Upside to this benchmark, in addition to guidance for the holiday period, could be crucial in determining which way Apple stock price might head in after-hours trading, on earnings day.

Figure 4: Projected P&L vs. last year.

DM Martins Research

Here are a few interesting observations about Apple’s projected income statement above:

Growth in gross profit that is lower than the increase in sales suggests gross margin compression. This could be mainly due to unfavorable foreign exchange movements.
Operating expenses should increase at about twice the pace of revenues. Regarding these costs, CEO Tim Cook has recently mentioned that Apple “believes in investing through the downturn [and will] continue to hire people”.
Last year’s Q4 effective tax rate landed south of 12%, much lower than the 16% projected this time.
Apple’s net income is actually projected to dip slightly YOY. The main reason why EPS will grow instead, by 3%, is the decrease in diluted share count – I talked about this phenomenon in detail a while back.

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Apple Is Having Another iPhone Mini-Like Problem

Daniel Martins — Wed, 19 Oct 2022 20:10:04 GMT

On October 18, Apple stock slid nearly 3% in only 10 minutes of trading, as the Cupertino company may be facing another iPhone mini-type problem. Here’s what investors should know.

No, the title of this article does not contain a typo. And yes, the iPhone mini is not even one of Apple’s key product offerings anymore, after the models launched in the past two years failed to capture enough demand from consumers.

With the mini effectively discontinued at this point (the trim has not been featured in the iPhone 14 lineup), how come Apple still has an iPhone mini problem today?

The clue is in Apple stock (AAPL) - Get Free Report having lost a whopping $70 billion in market value in a matter of 10 minutes on Tuesday, October 18 (see chart below).

Figure 1: Apple Is Having Another iPhone Mini-Like Problem

Stock Rover

iPhone Plus: what happened

At around 2:30 p.m. EST, The Information reported on Apple’s alleged decision to scale back on iPhone 14 Plus production. As a reminder, this is the smartphone model introduced in September that very much resembles the basic iPhone 14 version, but with a larger screen of 6.7 inches compared to 6.1 inches.

According to the story, at least one component maker in China was asked to halt production of iPhone 14 Plus parts, while two assemblers reduced their activities by 70% and 90%. All of it was allegedly a reaction to Apple’s decision to reassess demand for the iPhone 14 Plus.

Seconds after the news broke, Apple stock sank from about $145 to less than $141 in minutes. Despite the lack of any other relevant developments, the S&P 500 dipped nearly 1% very quickly – in part because AAPL is such a significant component of the index, but also possibly due to trading algorithms doing their “magic”.

Is the iPhone Plus the new iPhone mini?

In terms of specs, the iPhone 14 Plus and the iPhone 13 mini share very little in common. The former is much larger, has a better camera and battery life, and is pricier.

But the two smartphone models have one thing in common: they may have been failed attempts at expanding Apple’s target market. The mini was probably intended to fill the gap between the iPhone SE and the flagship iPhone, while the Plus was meant to fit between the regular iPhone and the iPhone Pro.

Apple, the largest and arguably most competent consumer company in the world, may have severely overestimated the market potential of both the iPhone mini and iPhone Plus. For it, and at best for a brief moment of trading on October 18, the Cupertino company paid the price.

Should AAPL investors be worried?

Following the recent iPhone 14 Plus developments, should Apple stockholders be concerned? Not too much, in my opinion.

First, production cuts of one iPhone 14 Plus trim, one that is far from being Apple’s flagship smartphone offering, might merely suggest an adjustment to the product mix.

For example, there seems to be a consensus that the iPhone Pro has been a big hit this year. If weakness in Plus sales is mostly a reflection of consumers upgrading their purchases to the Pro model, investors should feel encouraged instead.

Second, as I have argued plenty in the past few days, the direction of Apple's share price in the foreseeable future will likely be a function of macroeconomic variables: inflation, interest rates, and economic activity.

So, before choosing to buy or sell AAPL today, I think that investors should start by thinking about where the economy is heading – and not about the performance of this or that version of the iPhone in the current quarter or year.

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Apple Stock: Are Virtual Reality and the Metaverse a Flop?

Daniel Martins — Tue, 18 Oct 2022 11:11:48 GMT

Meta Platforms’ efforts in mixed reality and the metaverse have been unimpressive so far. Is this still a compelling growth opportunity for Apple?

Apple stock (AAPL) - Get Free Report has been trading over the past few months mostly on the strength of the company’s execution; and over the past few weeks on macroeconomic worries and the eventual rebounds. But many investors count on new ventures and products to drive the share price over the long haul.

When looking for growth stories for Apple, mixed reality (AR and VR) is one area that many turn to. But tech peer Meta Platforms (META) - Get Free Report might be proving the opposite: that the metaverse is far from being the at-scale opportunity that many thought would unfold in the foreseeable future.

Figure 1: Apple Stock: Are Virtual Reality and the Metaverse a Flop?

(Read more from Apple Maven: Apple Stock: This Is The Only Thing That Matters, For Now)

Metaverse: a slow start

Only a few days ago, Meta unveiled its new mixed reality piece of hardware: the $1,500 Quest Pro.

However, things have not been going so well for the Menlo Park company in its metaverse efforts. The pricey headset is barely the main problem.

For starters, Meta has suffered plenty of criticism for thinking far out in the future, but failing to address the problems that it has been facing on its social media platforms today — for instance, the spread of malicious content. That perspective may be enough to turn consumers off to the new technology, at least for now.

Regarding the metaverse itself, Meta’s Horizon World platform has fallen way short of expectations. The Wall Street Journal has recently reported that signups have only reached 200,000, less than half of the company’s internal goal.

Of those few that are on the platform, many may be disappointed by what they have seen so far. Users have been mocking the overly simplistic design of the avatars, for example, including that of CEO Mark Zuckerberg himself.

Internally, there have been reports that not even Meta employees have adhered en masse to Horizon World. If Meta itself has to “hold managers accountable for their teams using it”, what can one expect of the average consumer adopting virtual reality and its current applications in the near term?

Apple: where’s the opportunity?

Apple has not failed as much as Meta has on mixed reality and the metaverse for one key reason: the tech giant has not done much about them. Simply put: if you don’t try, you don’t fail.

To be fair, a mixed reality device is widely anticipated from Cupertino, as I covered in more detail a few days ago. So, it is a matter of time until Apple finally enters the space — even if the first device launched, expected to be priced aggressively, may not appeal to the average retail consumer at first.

The question that remains is: will Apple revolutionize mixed reality and the metaverse, making it more appealing to the masses more quickly than Meta can? Or will Apple step into a severely underdeveloped industry that might still be many years away from becoming a meaningful and profitable business for the tech giants?

For now, some could reasonably argue that virtual reality and the metaverse are a dud. At the same time, it is probably too early to make definitive statements that may not age very well, given enough time.

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Apple Stock: This Is The Only Thing That Matters, For Now

Daniel Martins — Mon, 17 Oct 2022 11:25:09 GMT

The iPhone 14, the App Store, and opportunities in the metaverse and driverless cars. None of it matters for Apple stock at the moment. The only thing that does is the economy.

Looking back at my most recent articles on Apple stock (AAPL) - Get Free Report, one clear theme emerges. I have spent much more time discussing historical price movements and volatility than company-specific developments involving the iPhone or similar topics.

At the risk of sounding like a broken record, I am still compelled to argue that, for now, all that matters for AAPL share price is the macroeconomic landscape – more specifically: inflation, interest rates, and economic activity.

Below, I elaborate further on why I think that, in the short term, traders and investors should set aside company fundamentals and stay laser-focused on the direction of consumer prices and the actions taken by the global central banks to stabilize them.

Figure 1: Apple Stock: This Is The Only Thing That Matters, For Now

Unsplash

(Read more from Apple Maven: Apple Stock: Fears Are Overdone, Say These Analysts)

AAPL: all about the economy

On Thursday, October 13, I talked about the intraday swing in AAPL. From the low of the day to the high, Apple stock moved by nearly 7%, or $160 billion in market cap. My main conclusion was not that bulls were ready to take over, but that volatility would likely remain very high.

So, what happened on Friday? Between the high and the low of the day, shares moved nearly 4% – except this time, they sank rather than climbed (see below). To reinforce, the erratic stock price behavior is very consistent with a frantic, highly volatile stock market.

Figure 2: AAPL's performance on October 14 trading session.

Stock Rover

Also notice above how the moves in AAPL almost perfectly mirrored the ups and downs of the S&P 500 (SPY) - Get Free Report in general. Clearly, whatever drove the equity market’s upticks and downticks were also responsible for Apple stock’s wild ride.

This is the telltale sign that what matters to AAPL now is not the iPhone 14 cycle, how strong service revenues will be in fiscal Q4, or expectations for Apple’s entry into the mixed reality space. The only topic of conversation, for now, is the economy.

Apple stock gone wild: other examples

I have recently given one other example of when Apple moved wildly within the same trading session over the past decade. On August 24, 2015, AAPL climbed as much as 16% from the bottom in a matter of hours.

The dominant topic of discussion at that point was the rare economic growth deceleration in China. Sure, Apple was very exposed to this important Asian market, but the developments were barely company-specific. In fact, NBC called the economic slowdown “the biggest business story of 2015“.

Another good example is March 2020. During the month, AAPL swung by at least 7% within a single trading day, like it did last Thursday, five times. We all know what was going on back then: the start of the COVID-19 crisis, an event that impacted the entire global economy.

The other remarkable case happened on December 26, 2018. On relatively low trading volume compared to the early pandemic days, Apple stock jumped roughly 7% between the intraday bottom and the top.

Back then, the market was reacting negatively to monetary tightening, following about 8 years of zero rates since the Great Recession. Again, this was a macroeconomic event, not a company-specific one. The hopeful news is that AAPL rebounded strongly shortly thereafter.

The key takeaway: brace for turbulence

I don’t want to convey that Apple’s business fundamentals are not important. They are, for the long-term investment thesis. They may even be important briefly in the short term – for example, AAPL could rally for a day on the back of drop-the-mic earnings results, which the company is scheduled to deliver in about 10 days.

But for now, all that matters is the macroeconomic landscape. This is why I reinforce my belief that AAPL will continue to bounce off the walls for several days or weeks. Bold and patient investors may feel compelled to buy the fear, but risk-avoiding traders should be extra careful.

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Apple Stock: Making Sense of Thursday’s Ferocious Rally

Daniel Martins — Fri, 14 Oct 2022 11:04:34 GMT

A whopping $160 billion in market value was created for Apple stock between Thursday’s opening and closing bells. Here’s why, and what it could mean for AAPL investors.

Was Thursday, October 13, a good or a bad day for Apple stock (AAPL) - Get Free Report and its investors? It depends on what time during the trading session the question refers to.

At its lowest of the day, AAPL traded at just above $134. This is the smallest price at which Apple stock has exchanged hands in the second half of 2022.

Less than seven hours later, Apple shares were valued at nearly $144, an intraday jump of nearly 7%. Between the opening and closing bells, Apple gained $160 billion in market value – that is, the equivalent of an entire Wells Fargo (WFC) - Get Free Report or Verizon (VZ) - Get Free Report.

Below, I try to make sense of this action-packed day for the markets and Apple stock.

Figure 1: Apple Stock: Making Sense of Thursday’s Ferocious Rally

Unsplash

(Read more from Apple Maven: Apple Stock: Fears Are Overdone, Say These Analysts)

AAPL: a few key facts about this rally

Let me provide the reader with a bit more context about this very unique day of trading. As I pointed out not long ago, an intraday swing from low to high that would be considered normal for Apple is roughly 2%. This has been the average over the past 10 years, for example.

Thursday’s 6.7 percentage point climb from the bottom fell within the top 1% of trading ranges for Apple stock in the last decade. See the histogram below, which shows the percentage change in share price from lows to highs of the day.

Figure 2: AAPL distribution of intraday swings, last 10 days.

DM Martins Research

Out of curiosity, the wildest ride for Apple stock within a single day in the past decade happened on August 24, 2015. Back then, investors were spooked over growth deceleration in China, a market to which Apple was (and still is) heavily exposed. AAPL bounced nearly 16% from the lows of that day to the peak, but retreated and ended the session down 2.5%.

For clarity, an intraday swing (opening to closing bell, i.e. same day) is different from an overnight gap (closing to opening bell, i.e. from one day to the next). A “gap up” or “gap down” can also be very large, especially around earnings day and other important events.

Why stocks bounced so hard

Those who followed closely the news flow must know why trading was so volatile on October 13. The September CPI (a.k.a. inflation to the consumer index) report came in hot once again. The headline number climbed 8.2% YOY, about 10 basis points above expectations.

The core inflation measurement, which excludes volatile energy and food prices, increased 6.6% and 0.6% YOY and compared to August, respectively. In both cases, the readings were worse than most had been projecting.

Given the bad news, why didn’t stock prices fall then? Well, they did. The S&P 500 (SPY) - Get Free Report, very early in the trading session, dropped 2% from the previous day’s close. All of a sudden, a bullish tide sent every sector and most stocks much higher.

It is not clear what triggered the rally. I suspect that market mechanics were to blame (or credit) for the phenomenon.

Traders probably placed bets against stocks ahead of the inflation print, which helps to explain why the S&P 500 had been down nearly 5% over the previous five trading days. Once the bets paid off in the morning, traders probably moved quickly to close their short positions. That might have been enough to unleash a buying spree that became self-reinforcing.

Of course, this is just speculation on my part. At least I find this explanation more plausible than the idea that investors might have capitulated and decided that the CPI report did not look as bad as they originally thought.

AAPL investors feel great… should they?

There is nothing wrong with Apple stock turning a 2.4% loss at the worst of the day into a 3.4% gain at the end of the session. The problem is that Thursday’s rally might not mean that bulls are ready to take over from here.

I have been arguing repeatedly that, in the short term, AAPL investors should expect more volatility. And because volatility is a reflection of weak markets, further drops in share price are certainly not out of the question.

Take the August 2015 example mentioned above. Despite Apple shares having recovered by as much as 16% in one single trading session, (1) volatility remained very high, and (2) returns were disappointing over the following 12 months. See the graph below.

Figure 3: AAPL performance from August 2015 to August 2016.

Stock Rover

For this reason, I have not changed my stance on AAPL. In the long term, buying shares at current levels will likely prove to be a smart move. But in the short term, buckle up for what will likely be a few more rounds of sharp ups and downs in the share price.

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Apple Stock: Fears Are Overdone, Say These Analysts

Daniel Martins — Thu, 13 Oct 2022 11:14:40 GMT

Amid growing concerns over inflation and an eventual recession, two analysts don’t seem too concerned about Apple stock. Here is why.

It is looking uglier by the day. With mounting fears over lingering inflation, rising interest rates that don’t seem to find a ceiling, and deterioration in global economic activity, Apple (AAPL) - Get Free Report stock has reached 24% lower for the year alongside an equally soft S&P 500 (SPY) - Get Free Report.

However, even ahead of a nail-biting CPI report scheduled for this Thursday and the upcoming calendar Q3 earnings season for tech companies, a couple of analysts have been emphatic: there isn’t too much about AAPL that should worry investors now.

Below are the arguments recently made by Citi’s Jim Suva and Key Banc’s Brandon Nispel, two analysts that see Apple stock rising to $185 per share, for 34% upside opportunity.

Figure 1: Apple Stock: Fears Are Overdone, Say These Analysts

Unsplash

(Read more from Apple Maven: Will Apple Follow Meta And Launch A Mixed Reality Device?)

Apple: delivering the goods

Mr. Suva’s leaned on “the full package” that Apple has been this year to explain why he is not concerned about the Cupertino company ahead of earnings season.

According to him, Apple has hit the nail on the head with the recent iPhone 14 launch. The analyst was particularly optimistic about consumer preference towards the Pro models, which carry a higher price tag – and likely better margins.

That said, the Citi researcher did not have a particularly differentiated view on the number of iPhone units that he expects Apple to ship in the second half: 90 million. This is a sales figure that other analysts on Wall Street have also projected, and something that would not be substantially better compared to the iPhone 13 last year.

Mr. Nispel, on the other hand, looked at Apple’s performance from the top down. He started off by noting that big-ticket purchases by US consumers in September exceeded what the historical month-over-month trend would have suggested.

Based on the analyst’s report, spending increased by 11% from August. This is good news, considering that seasonality tends to be negative heading into the last month of the quarter, according to the researcher.

These observations bode well for Apple’s hardware sales in the company’s fiscal Q4. KeyBanc sees the number climbing 11% sequentially, roughly three percentage points above consensus.

But what about AAPL stock?

None of the above should be bad news for Apple stock and its investors – the contrary, if anything. Considering the uncertainty about economic activity and consumers’ spending power heading into the end of 2022, Apple may continue to execute better than most of its peers.

I wonder, however, how much the company’s financial performance might matter to Apple shares in the near term. I have recently argued that macroeconomic factors, and not the performance of the iPhone 14 or any other of Apple’s products and services, will likely dictate the direction of AAPL in the foreseeable future.

Therefore, I continue to expect high levels of volatility in AAPL over the next weeks, maybe even a retesting of the 2022 lows. Inflation and the conversations around monetary policy will be the most important variables to keep an eye on, in my opinion.

That is not to say, however, that the data points presented by the two Wall Street analysts are meaningless. Should Apple continue to deliver the goods, as it has in the past few years, the company’s stock could eventually leap ahead of the S&P 500 again.

Witnessing and benefitting from this potential outperformance, however, will require some patience from investors.

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Will Apple Follow Meta And Launch A Mixed Reality Device?

Daniel Martins — Wed, 12 Oct 2022 11:08:09 GMT

Meta has just launched its Quest Pro mixed reality device. Will Apple follow suit, and what could the battle for AR and VR dominance mean for Apple stock?

Tuesday, October 11, could prove to be an important day in the world of consumer tech. Meta Platforms (META) - Get Free Report, Mark Zuckerberg’s empire formerly known as Facebook, launched the Quest Pro – the company’s $1,500 mixed reality wearable device.

Apple has been long rumored to be the next big player to enter the AR and VR spaces. When will the Cupertino giant finally make its move, and will Apple stock (AAPL) - Get Free Report benefit as a result?

Figure 1: Will Apple Follow Meta And Launch A Mixed Reality Device?

Shutterstock

Quest Pro: what happened?

Meta launched its long-awaited headset, formerly identified by the codename “Project Cambria”. The device is an upgrade to Meta’s previous model, the Meta Quest, and offers 37% more pixels per inch and 75% more contrast than the predecessor.

This time last year, the company formerly known as Facebook pivoted its business model to focus on opportunities in the augmented and virtual reality arenas.

Coincidence or not (I would say “not a coincidence”), the shift came in the same year that DAU (daily active users) of the company’s social media platforms plateaued, signaling a slowdown in the growth rate of the legacy business. See below.

Figure 2: Facebook daily active users (DAUs).

Meta’s investor relations

Is Apple next?

In February of this year, I wrote about how Apple would likely enter the mixed reality business within the following 12 months. Roughly four months away from the deadline, the Cupertino company remains quiet about its plans.

New-tech enthusiasts, however, need not worry much. Only a couple of months ago, analyst Ming-Chi Kuo reinforced the idea that Apple would unveil its device by January 2023.

As best as we know, Apple’s first mixed reality product may not even be geared toward general consumer use. Due to the potentially high price tag, the device may be better suited for commercial applications at first and not reach iPhone-like scale for a few years, at best.

How AAPL stock could benefit

The AR and VR spaces are still too nascent, in my view, for anyone to have a well-informed opinion about how it may be a game changer for Apple and its stock.

For now, my expectations remain the same. In a best-case scenario – and making a few assumptions about market size, penetration, and ASP (average selling price) – Apple’s 2025 revenues may climb 1% to 2% as a result of its soon-to-be-launched mixed reality product.

Something is better than nothing, but I don’t find the top-line (let alone the bottom-line) growth opportunity in this case particularly compelling.

Then, there is the question of whether any upside to Apple’s financial performance driven by mixed reality may already be reflected in AAPL stock. Given the rich valuations, the answer could be yes, which would limit the investment opportunity from current levels.

In the end, I believe that the mixed reality opportunity for Apple could be meaningful, but only in the longer term. Morgan Stanley’s analyst team believes that, in a self-reinforcing cycle, Apple’s entry into this space could be the catalyst that finally unlocks value in AR and VR that Apple would, in turn, be able to capture.

Also, Apple could benefit from creating a successful mixed reality ecosystem of hardware and services that, not unlike the iPhone plus the App Store, could allow the company to reap the benefits for many years to come.

But once again, none of the above is likely to happen in the next few weeks or months. Meta’s Quest Pro launch today and an eventual product announcement by Apple are likely to be only the first few chapters in a story that will probably unfold slowly, over many years.

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Apple Stock: Wild Start To Q4, What Next?

Daniel Martins — Tue, 11 Oct 2022 10:45:09 GMT

Not a surprise, Apple stock has been on a roller coaster ride in the first few days of October. Here’s what investors should expect to see next.

The last quarter of a turbulent 2022 has begun. Those that were hoping for a more constructive stock market environment got, instead, more of the same: intense price volatility.

Take Apple stock (AAPL) - Get Free Report, for example. After rallying on the first two days of October (up 3.1% and 2.6%) and surpassing $146, shares U-turned and nearly reached the September low of $138 apiece. The short-lived rally and pullback were not a surprise to the Apple Maven.

Today, I look at some numbers that help to illustrate how unpredictable AAPL has been lately – and how much of a roller coaster ride investors should continue to expect in the near term.

Figure 1: Apple Stock: Wild Start To Q4, What Next?

Unsplash

(Read more from Apple Maven: Apple: Q3 Mac Sales Impress, Will AAPL Stock Surge?)

AAPL: volatility at a high

I know, it is a statistical crime to take a small sample size and extrapolate the observations to describe the bigger picture. But hear me out for a moment.

The chart below shows the rolling ten-day volatility in AAPL stock, in annualized terms. The higher the number, the more “jittery” Apple shares have been in the previous few trading days.

Figure 2: AAPL annualized volatility, previous 10 trading days.

DM Martins Research

Notice a couple of things:

Historically, the stock’s average volatility has been roughly 27%, which is about 1.5 times higher than the S&P 500’s
As of the end of the first week of October, this number reached a whopping 41%, one of the highest readings since the start of 2021

Here’s another way to think about how intense the ups and downs in AAPL share price have been. Over the past ten trading days, Apple stock has swung an average of 3 percentage points from the lowest to the highest point within one trading session.

That is: from peak to trough within a single day, Apple has lost an average of $67 billion in market cap (or, glass half full, gained this much from trough to peak, when the stock moved in the opposite direction). See chart below.

Figure 3: Apple's 10-day average swing in price, session high-low.

DM Martins Research

For reference, the average intraday swing since the start of 2021 has been 2.3%. Since the start of the last decade, i.e. January 2010, the number has been even lower: 2.2%.

Why volatility matters

There are two common features of stock volatility. First, it usually happens when the market is in distress, not when it is on its way to new highs. Second, it tends to invite more volatility in the near term – a phenomenon that is known as volatility clustering.

This is why heightened volatility in Apple stock matters: because it helps to inform investors what to expect in the immediate future.

More specifically, I believe that AAPL will continue to seesaw over the next few days. In the long term, those who buy the fear today are likely to be rewarded. But in the short term, expect more ups and downs, maybe even new lows – AAPL dipped to as much as $131 in June 2022.

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Apple: Q3 Mac Sales Impress, Will AAPL Stock Surge?

Daniel Martins — Mon, 10 Oct 2022 20:04:13 GMT

Apple stock outperform on Monday, October 10, when IDC reported impressive Mac shipment numbers in Q3. Could this be the start of a rally in AAPL?

On Monday, October 10, Apple stock (AAPL) - Get Free Report traded a good bit higher than the rest of the US stock market, likely for one key reason: mesmerizing Mac sales in Q3.

Could Apple’s recent dominance in the personal computer space translate to further upside to the share price?

Figure 1: Apple: Q3 Mac Sales Impress, Will AAPL Stock Surge?

Unsplash

(Read more from Apple Maven: AAPL Bears Do A Happy Dance: Were They Right?)

Mac leaves all other PCs in the dust

The report came from research shop IDC: in the third quarter of 2022, global PC shipments fell by a worrying 15%. The sharp decline is in line with the drop observed in the June period, probably driven by deteriorating economic fundamentals, and not a rogue quarter of soft sales.

The drought, however, did not impact Cupertino-CA. While big names in the PC industry, including HP and Dell, saw shipments sink by more than 20% in Q3, Apple’s unit sales skyrocketed by 40%, according to IDC. See table below.

Figure 2: Top 5 companies, worldwide traditional PC shipments, market share and YoY growth, Q3 2022.

IDC

Apple’s success in the third quarter can be probably credited to the July launch of the MacBook Air equipped with the M2 chip.

MacRumors called the new device “the biggest design overhaul to the MacBook Air line since 2010” and a product that “looks entirely different from the prior-generation version”.

What strong Mac sales could mean for AAPL

There is a chance that IDC’s report on PC sales helped to push Apple stock higher on a day when the rest of the market failed to gain traction. Case in point, Dell Technologies (DELL) - Get Free Report stock trailed AAPL by more than one percentage point through most of the Monday trading session.

The question in investors’ minds is whether 40% growth in Mac shipments could help to propel Apple stock even higher. To me, the answer is probably no, at least for now.

For starters, as I suggest in a recent article, I believe that Apple stock will behave in accordance with the rest of the market over the next few weeks and months, which in turn should be heavily impacted by economic growth deceleration, inflation, and the direction of interest rates.

Second, the Mac segment is still fairly small compared to the rest of Apple’s product and service portfolio. Mac sales accounted for only 9.6% of total company revenues in fiscal 2021 and 9.8% in the past four quarters.

Third, the Mac’s growth story could take a bit of a break, following a period of suring demand for the product that was triggered by the pandemic. The chart below shows how Mac sales growth skyrocketed in early 2021, but it is likely to normalize a bit over the next quarters.

Figure 3: Growth in Mac segment since 2019.

DM Martins Research

That said, AAPL investors must be feeling good about the company’s competitive position in the PC industry. While IDC’s report is unlikely to trigger a massive bullish wave, at least it reinforces the idea that the Cupertino company continues to execute very well, even in the current macroeconomic environment.

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Apple Stock: Changes To Supply Chain Are Great News

Daniel Martins — Fri, 07 Oct 2022 11:00:25 GMT

Apple stock could benefit over time from the company’s decision to diversify its supply chain. Here are the latest developments that investors should know about.

Faced with production challenges, Apple continues to make changes to its supply chain. Now, the company is reportedly moving “some AirPods and Beats headphone manufacturing to India for the first time”.

This is just another chapter in Apple’s supply chain diversification strategy – one that I think is a positive for Apple stock (AAPL) - Get Free Report and its holders.

Figure 1: Apple Stock: Changes To Supply Chain Are Great News

Unsplash

(Read more from Apple Maven: AAPL Bears Do A Happy Dance: Were They Right?)

Apple: moving away from China

About two years ago, I spoke about Apple’s reliance on China to make its popular tech gadgets. Back then, nearly half of the Cupertino company’s top 200 suppliers were located in what is perhaps the world’s largest manufacturing hub.

But even back then, another production powerhouse was starting to gain notoriety. India committed $6.7 billion to the country’s smartphone manufacturing capabilities through an incentive program.

Apple was certainly one of the Indian government’s main targets, following a year of increased tensions between the US and China that led to the escalation of a trade war between the two countries in 2019.

Earlier in 2022, I revisited Apple’s supplier list and observed something interesting (see the pie chart below). Down from 48% in 2020, China mainland was home to only 39% of Apple’s top suppliers this year. The “Other Asia” group, which includes India, leaped from 17% to 28%.

Figure 2: Location of supplier facilites by main region, 98% of total spend.

DM Martins Research

The pie chart above is likely to become even more evenly split, in my opinion. In addition to AirPods and Beats production mentioned above, iPhone 13 and possibly 14 will also be made in India. Meanwhile, Vietnam and its neighbors continue to gain prominence as key suppliers.

Bloomberg reports that “iPhone exports from India [...] are set to reach $2.5 billion in the 12 months through March 2023.” The figure still represents less than 1% of iPhone revenues in the past four quarters, but I expect this number to climb further in the next few years.

The benefits of supply chain diversification

COVID-19 has shed light on what has been one of Apple’s main weaknesses: overreliance on China for device production. Supply chains have been disrupted in 2022 in great part due to pandemic-driven plant shutdowns in the Far East.

Reaching out to India and other Asian countries as part of the solution can only be good news for Apple and its stock. Once the supply chain ceases to be a drag to Apple’s financial performance, maybe AAPL shares will find room to climb further from their current levels.

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AAPL Stock: Bad News For App Store And The Investment Thesis

Daniel Martins — Fri, 07 Oct 2022 10:50:51 GMT

After encouraging news surfaced on iPhone 14 demand in September, Apple stock suffered from other, more bearish developments. The most recent pertains to the App Store.

After Apple stock (AAPL) - Get Free Report rallied on the back of optimism over the iPhone 14 cycle, expectations have started to moderate since late September. The most recent data point could spell trouble for the company’s financial performance and the stock, in my view.

Today, I talk about the App Store, one of Apple’s most important product or service subcategories, aside from the iPhone. Could it be showing signs of slowing consumer spending that has yet to show up in Apple’s financial statements?

Figure 1: AAPL Stock: Bad News For App Store And The Investment Thesis

Apple

(Read more from Apple Maven: Apple Stock: The Stakes Are Sky-High Ahead of 3Q Earnings)

App Store cools down

For context, the App Store is Apple’s ecosystem of applications for the iPhone, iPad, and other Apple products.

While the Cupertino company does not disclose financial data on it, it is well understood that the App Store is one of the most important pieces within the services portfolio. I estimate that App Store revenues account for around one-third of service segment sales.

Recently, Morgan Stanley published a report on App Store sales for September and fiscal Q4. According to analyst Erik Woodring, based on data from Sensor Tower:

“[September] marks the slowest App Store growth as far back as we have the data [to 2015]”

He estimates that September quarter sales declined by 2% YOY. With that, the analyst sees service revenues in fiscal Q4 rising by only 8%, three percentage points below consensus.

The implications of App Store growth deceleration

I believe that Apple stock managed to capture substantially higher valuation multiples in the past 10 years (see chart below) as a result of three primary factors:

Apple recovered swiftly in the fight for global smartphone dominance against Samsung and other Asian vendors, especially after the launch of the iPhone 7.
CEO Tim Cook went all-in on share repurchases, starting in 2012.
The company began to shift its business model to monetize on its growing installed base: away from lower-margin products, toward higher-margin services.

Figure 2: Apple's valuation in the past 10 years.

graph by Stock Rover

It is hard to tell which of the three factors above was the most important in sending AAPL’s P/E skyrocketing from 10x in 2013 to as high as 40x during the pandemic and around 24x today. But I suspect that services – and the App Store within this segment – played a crucial role.

Going back to late 2016, I recall the early conversations about what the services segment could become for Apple. In a now six-year-old article that I wrote on Seeking Alpha, I said that “services [would] determine Apple's success”. And they did, as Apple roughly doubled segment revenues between 2015 and 2018, then again from there to 2022.

Granted, comps are particularly hard in fiscal Q4 of 2022. This time last year, Apple managed to increase service sales by an impressive 26%. But if Morgan Stanley is right about growth dipping to the single digits (i.e., less than 10%), investors may start to feel a bit uneasy.

A decline in App Store sales might not only have an impact on a single subsegment. It could be one of the first signs of weaker consumer spending, a result of the toxic cocktail of high inflation and rising rates leading to what many believe will be a recession in 2023.

Ask Twitter

As an AAPL investor (or pretend that you are), which of the below concerns you the most about the stock, if anything?

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Apple Stock: The Stakes Are Sky-High Ahead of 3Q Earnings

Daniel Martins — Thu, 06 Oct 2022 11:43:08 GMT

3Q earnings season could be the moment of truth for Apple stock and the rest of the tech space. Here is why.

As a new quarter begins, investors are starting to get ready for another earnings season. This time, the stakes could be particularly high for tech names, including Apple stock (AAPL) - Get Free Report.

Wedbush’s Dan Ives, who is currently the most bullish Wall Street analyst on AAPL at a price target of $220, has recently shared his preliminary thoughts about the upcoming tech earnings season. Below, we look at a few key takeaways and my opinions on them.

Figure 1: Apple Stock: The Stakes Are Sky-High Ahead of 3Q Earnings

Unsplash

(Read more from Apple Maven: AAPL Bears Do A Happy Dance: Were They Right?)

2001 and 2008 all over again

One of the quotes that stuck out the most to me from Dan’s recent report was the following:

“We compare investor negative sentiment today to what we have seen only two other times in our decades of covering tech stocks: 2008 and 2001.”

As a reminder, 2001 preceded the worst of the 2000-2002 stock market crash that became known as “the bursting of the dot-com bubble”. From March 2000 to September 2002, both AAPL and the Nasdaq (QQQ) - Get Free Report corrected by a whopping 75%-plus. See the chart below.

Figure 2: Nasdaq and AAPL performance during 2000-2002.

Yahoo Finance

Considering that Apple stock has been down “only” 20% so far this year (although the Nasdaq 100 has already dipped 30% from the peak), comparing the current environment to 2001 seems a bit exaggerated. But on second thought, maybe it isn’t.

From conversations that I have had with investors and market professionals lately, I also sense quite a bit of bearishness and skepticism. Data from AAII, the American Association of Individual Investors, seem to support the idea.

The chart below shows that, at the end of September, investor sentiment reached a historic low: nearly 61% of survey respondents claimed to be bearish about the market (granted, this is not limited to the tech sector). Over the past 35 years, only in 1990 and 2009 has the number been any worse than this.

Figure 3: Investor sentiment at the end of September.

AAII

Also keep in mind that, while Apple stock has not corrected much in 2022, many high-growth tech names already have. Think of the ARK Innovation fund (ARKK) - Get Free Report, for example. This group of innovative companies has seen their stocks dip by a painful 63% in the past year.

In my view, extreme caution can be explained by one set of factors: rarely-before-seen inflation that has pushed Central Banks to act very hawkishly. The worst part is that both the end of this inflationary period and the maximum that rates can reach are very hard to estimate today.

3Q earnings to trigger extreme reactions

The other quote in Dan Ives’s report that I found particularly interesting was the following:

“3Q earnings season [...] will either expose the negative underlying fundamentals across the tech space and cause massive earnings cuts into 2023 along with further multiple compression OR instead prove that the bearishness and the demise of growth tech were premature and many pockets of tech are holding up well despite the dark storm clouds.”

The main message here is that investors should expect extreme reactions from the market following the tech earnings season. Either the sector will confirm fears, leading to the downward spiraling of estimates and sentiment, or the greenlight will be flashed for tech stocks to rebound on the back of better-than-expected results.

Here, I bet we will see a mixed bag of winners and losers. Many tech companies have been laying off employees lately or enacting hiring freezes – including big names, like Meta (META) - Get Free Report. It is hard to imagine these companies conveying an upbeat message to investors this time.

But then, there are the Apples and the Microsofts (MSFT) - Get Free Report of the world. These companies have proven in the last few years that they can execute very well, even when faced with adversity.

Were I to bet on winners in 3Q, I think that the usual suspects in Big Tech, AAPL and MSFT included, are the most likely to outshine the rest.

Ask Twitter

Earnings season is around the corner. What do you think will happen when tech companies report 3Q results later this month?

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This Is When Apple Stock Will Outperform The S&P 500

Daniel Martins — Wed, 05 Oct 2022 11:12:09 GMT

When will Apple stock outperform the S&P 500 again? I found important clues by going back to 2007 and looking at the data. Here is what investors should know.

As the old saying goes, history does not repeat, but it often rhymes. This is why I like to look at the past performance of Apple stock (AAPL) - Get Free Report and compare it to the S&P 500 (SPY) - Get Free Report to understand when shares are most likely to produce strong gains.

Today, I go back to 2007, the year that the original iPhone was unveiled, and try to understand: under what circumstances has AAPL outperformed the broad market in the past decade and a half? Could doing so provide a clue as to when shares will impress once again?

Figure 1: This Is When Apple Stock Will Outperform The S&P 500

Unsplash

(Read more from Apple Maven: AAPL Bears Do A Happy Dance: Were They Right?)

AAPL does not merely follow the market

Those familiar with the capital asset pricing model must have heard of the concept of beta. This statistical metric informs the sensitivity of one stock’s price, for example, to the movements of the overall stock market.

For instance, Apple stock’s beta is approximately 1.2. This means that for every increase or decrease of 1% in the S&P 500, investors should expect AAPL to also rise or decline, but by 1.2% instead – that is, 1% times the 1.2 beta.

The problem is that beta simplifies things a bit too much, as it establishes a static relationship. Look more closely at the different periods, and one can see that Apple’s outperformance or underperformance relative to the market is not easily caputurd by beta.

The scatter plot below shows the relationship between the 12-month rolling returns in SPY (horizontal axis) vs. those of Apple stock (vertical axis).

If AAPL consistently produced 1.2 times the performance of the S&P 500, the dots would line up perfectly in ascending fashion, from left to right. They do, to be fair, but only minimally. The very low r-squared of 0.02 suggests that the connection between the two is largely immaterial.

Figure 2: Scatter plot: AAPL outperformance vs. SPY returns.

DM Martins Research

In other words: if the S&P 500 is up 10% over 12 months, it is far from a certainty that Apple will be up 12%. Therefore, I don’t think it is fair to say that AAPL will outperform the S&P 500 once the broad market heads higher, merely as a result of the former’s sensitivity to the latter.

Look for company-specific catalysts

The following graph seems to point us in a different (and better) direction. The chart shows AAPL’s rolling 12-month outperformance or underperformance since 2007. I have highlighted the outliers in the bullet points below:

Figure 3: AAPL rolling 12-month outperformance vs. SPY.

DM Martins Research

Early 2008: AAPL lavishly beat the S&P 500 due, in great part, to the launch of the original iPhone. The revolutionary device was unveiled in January 2007, after which investors aggressively bought the stock through the beginning of the following year.
Early 2010: once again, AAPL produced superior returns relative to the S&P 500. While the rebound from the recession can partly explain the phenomenon, it was Apple’s ability to deliver growth even during the deep economic crisis that probably explains best the outperformance. The announcement of the original iPad, in January 2010, probably played a role too.
Mid-2013: this time, AAPL lagged the S&P 500 by quite a bit. 2012 and 2013 were great years for the broad market, but Apple fell way behind due to increased competition with Android and Samsung, which led to unimpressive growth and loss of profitability.
Late 2020: the most alpha that Apple stock managed to deliver in the past decade and a half was in the middle of the COVID-19 crisis. First, Apple produced solid financial results when most expected demand for consumer discretionary products and services to take a hit due to the pandemic. Second, Apple was gearing up to announce its first 5G-capable smartphone, which many argued would kickstart the “iPhone super cycle”. Lastly, the Cupertino company announced a stock split that, while largely immaterial on paper, served as a massive catalyst to increase demand for shares – especially from retail investors.

What do the above points have in common? Apple stock deviated substantially from the performance of the S&P 500 when meaningful, company-specific events took place: from the launch of the iPhone to outperformance during the Great Financial Crisis to stock splits.

This should provide us with a clue as to what could happen next. AAPL is most likely to beat the market, in my view, as a result of company-specific factors – and not market-wide events – that can range from substantially better-than-expected quarterly results to the launch of new products or services that could surprise (positively) its investors.

What could these next catalysts be? A killer holiday quarter? The launch of a mixed reality device? The announcement of a new venture involving automated vehicles? It is hard to tell for sure, but taking a few guesses can be an interesting exercise.

So, let me know your thoughts below.

Ask Twitter

Historically, AAPL has beaten the S&P 500 following meaningful, company-specific events – the launch of the iPhone in 2007 and the stock split in 2020, for example. What do you think will be the next major catalyst that drives outperformance?

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Apple Stock: What Jim Cramer Says Investors Should Do

Daniel Martins — Mon, 03 Oct 2022 10:43:38 GMT

Apple stock is on a losing streak. But Jim Cramer thinks that this is the time to buy, not sell AAPL. Here’s what the celebrity investor had to say.

Apple stock (AAPL) - Get Free Report continues to head lower. After outperforming for most of 2022, shares of the Cupertino company had their worst week since March 2020, down 8%. AAPL has headed lower six out of the past seven weeks.

But one celebrity investor does not seem to be fazed – in fact, he thinks that investors should buy Apple stock following this dip. Below is what CNBC’s Jim Cramer has said recently about AAPL, along with my opinions about his views.

Figure 1: Apple Stock: What Jim Cramer Says Investors Should Do

MadMoney

(Read more from Apple Maven: AAPL Bears Do A Happy Dance: Were They Right?)

Jim Cramer’s take on AAPL

Sometimes, it is refreshing to hear a simple, no-frills take on investment strategies. This is what I believe Jim Cramer did on Friday morning. He started by saying the following:

“Why not buy good companies? Why buy companies that are NOT doing well and anticipate a bottom when we can buy really good companies that are doing well right now? What’s the matter with that?”

It sounds obvious, doesn’t it? When the market is in distress, which is certainly the case at this moment, investing in quality and secular (not cyclical) growth stories tend to be the better approach.

Inflation is still high, interest rates are rising, and the economy could be slowing down. So… take a gamble and buy highly-leveraged airline stocks? I think not.

Jim Cramer elaborated a bit more on his views. He seems to like the fundamentals of the business and looks at history to justify a buy a current levels – something that I have repeatedly defended as well. Here is Jim’s quote:

“The high-end Apple is doing well, the low-end Apple has too much inventory. I like the service economy. Apple has had periods when it’s been down 20% or 25% and you had to buy it, not sell it. But you’re not going to catch the bottom.”

Notice this very last sentence, which Jim managed to squeeze in at the end of his discourse about Apple. Once again, simple but wise words, in my view.

Buying Apple stock at the current price of $140 can be both (1) a great play for the long run and (2) not the cheapest that shares will ever be. Fundamentally, I think this is a big mistake that many investors make: not buying a good company out of fear that the stock could go lower.

I believe, in fact, that AAPL can very well dip further from current levels. I talked very recently about this period of increased volatility, and that investors should expect more pronounced ups and downs in the short term. That is to say, don’t be surprised to see AAPL dip into the $130s.

Still, I find it likely that, given enough time, Apple stock investors will be glad to have held on to their shares for the long haul. In the next few weeks, however, they need to be comfortable with volatility and the idea that catching a bottom is something very hard to accomplish.

Ask Twitter

Apple stock has had a rough week, and it could soon lose its status of outperformer for the year. What would you do in this situation?

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AAPL Bears Do A Happy Dance: Were They Right?

Daniel Martins — Fri, 30 Sep 2022 11:19:08 GMT

After a year of outperformance against the S&P 500, Apple stock took a hit following reports of lackluster demand for the iPhone 14. Will bears finally be proven right?

For most of 2022, a very disruptive year for equities and risk assets in general, Apple stock (AAPL) - Get Free Report stood out as a safer bet.

Around mid-August (see first carrossel chart below), shares of the Cupertino company nearly set all-time highs. At the same time, the S&P 500 (SPY) - Get Free Report hovered near correction territory and the tech-rich Nasdaq (QQQ) - Get Free Report was a step or two away from a bear market.

But lately, the tables have turned. In the past week alone (see second carrossel chart below), AAPL has lost 7% of its value, the equivalent of about $170 billion in market cap. Meanwhile, the S&P 500 has dipped only 3%. Apple stock is still an outperformer YTD, but the gap to the broad market has shrunk to only two percentage points.

Have the bears finally gotten this figured out? Is Apple, indeed, headed towards a period of underperformance relative to other US-based stocks?

Why AAPL slipped

First, it helps to understand why Apple stock has trailed the S&P 500 by four percentage points in the last four trading days alone.

It started with a Bloomberg report issued on Tuesday evening. According to it, Apple has scaled back on its plan to increase production of the iPhone 14, allegedly the result of demand for the device that was expected to come in shy of previous, more aggressive projections.

That was enough for Apple shares to gap down by 3.5% on Wednesday – while the S&P 500 kicked off the trading session in the green.

One Apple bull in particular did not seem too concerned about the recent news. Wedbush’s Dan Ives reminded investors that, while soft demand for the base models can be a disappointment, the story really revolves around the iPhone 14 Pro.

The analyst sees 85%-plus of the revenue mix going to this higher-end product category, which would be a huge positive for ASP (average selling price) – and, as a consequence, revenues and likely gross margin.

Bears take a quick victory lap

But the AAPL bulls seem to be under heavy scrutiny here. Case in point: on Thursday, two sell-side analysts revised their ratings on Apple. Rosenblatt upgraded the stock from neutral to buy, while Bank of America went the opposite way: buy to neutral.

Net net, bearishness took over, and Apple shares sank nearly 5% in a single day. The S&P 500 was down a tamer 2%.

I believe that bulls have bid up Apple enough in the past weeks and months to the point that the stock unlocked plenty of alpha to those that bet on it vs. the rest of the market. Now, it may be time for the (relative) winners to de-risk their positions, putting pressure on AAPL.

Only a few Wall Street sell siders can take a victory lap here, even if still early in the race, following Apple stock’s most recent slip up. ItauBBA’s Thiago Kapulskis is the only analyst tracked by TipRanks with an underperform rating on AAPL.

Most recently, Thiago and his team reinforced the idea that, as the title of their latest report suggests, “signs of weak demand for new iPhones [could cause] our Underperform call to finally work”.

After looking at Apple’s decision not to raise the price of the iPhone Pro by $100 this year, ItauBBA concluded that demand for the device could be lackluster this year and next. Worse yet, with production costs rising, lack of ASP uplift could hurt margins.

It is too early, in my view, to draw firm conclusions about Apple’s sales in the upcoming holiday season and next year. But at least at this moment, it looks like skeptics may be on to something.

It will be interesting to see how this story unfolds. The next chapter will probably play out in about four weeks, when earnings season for the tech sector kicks off.

Ask Twitter

Conflicting reports and opinions have surfaced on the success of the iPhone 14 in the first few weeks. The Pro version could be experiencing high demand, but not so much the entry-level models. What do you think this means for AAPL investors? They should:

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Apple Stock: What To Expect In The Next Few Days

Daniel Martins — Thu, 29 Sep 2022 11:00:36 GMT

Apple stock has been losing ground in the past month, in line with bearish broad market behavior. Here’s what investors should expect of (and do about) the next few days.

While stocks finally found some support on Wednesday, September 28, the tone in the markets has turned overwhelmingly bearish in the past weeks. The culprit is the increasingly hawkish stance of central banks around the world as they fight hard to keep inflation under control.

Apple stock (AAPL) - Get Free Report, at times more resilient than most other stocks in 2022, has also felt the pinch. Shares have been down 7% in the past month, roughly in line with the losses seen in the S&P 500 (SPY) - Get Free Report.

What should investors expect of AAPL going forward? Is this most recent pullback, which brings Apple’s YTD losses to 17%, an opportunity to buy the weakness? Or should shareholders be more conservative in the face of deteriorating market sentiment?

Here’s one way to think about the next few days for AAPL – and for equities at large.

Figure 1: Apple Stock: What To Expect In The Next Few Days

Getty Images

AAPL: volatility on the rise

I wish I had a crystal ball that told me what will happen to asset prices in the future. Obviously, I don’t have it, and this is something that investors should keep in mind when making decisions. An investment strategy that relies on consistently predicting the future is just not good enough.

One thing is obvious, however: volatility is back on the rise.

The chart below shows the 12-month trailing volatility in Apple stock, in annualized terms. The higher the number, the more share prices tend to jump up and down. AAPL’s 31.5% today is nearly four percentage points higher than the average of the past decade.

Aside from the first few months of the COVID-19 crisis, this is about as jittery as Apple stock has been in the past decade.

Figure 2: AAPL 12-month rolling volatility, past 10 years.

DM Martins Research

Why do I care about volatility?

AAPL’s price has been fluctuating more wildly lately, but so what? Shouldn’t volatility help to uncover good deals in the market, as long-term investors are able to buy low and hope to sell high in a few months or years?

Generally, this has been true of AAPL and the US stock market. In fact, I have written plenty about “the best investment strategy”: buy Apple stock at a 15% drawdown or worse, as is the case now, for 12-month returns that could be five or more percentage points better than average.

But doing so and hopefully capturing better future gains come alongside increased risk. Sure, AAPL has historically recovered from sharp pullbacks – every single time up to this point. But don’t expect the path of recovery to be up and to the left.

Investors that choose to hang on to the same AAPL position during bull (calm) and bear (chaotic) markets should expect one thing: to see their portfolios swing a bit more vigorously from day to day.

Can you handle the uncertainty? If so, I believe that owning and even accumulating more Apple shares today makes the most sense.

Otherwise, the more conservative and risk-averse investors looking for a less erratic journey ahead might want to trim their stock position. Once again, in the absence of a crystal ball, the best course of action is to understand one’s risk tolerance and position the portfolio accordingly.

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Why Apple Stock Took A Big Hit on Fed Day

Daniel Martins — Thu, 22 Sep 2022 11:31:26 GMT

With interest rates climbing another 75 basis points, the broad equities market headed lower still. But why did Apple stock underperform the S&P 500? Here is what investors should know.

Recently, I wrote about Apple stock’s (AAPL) - Get Free Report outperformance vs. the S&P 500 (SPY) - Get Free Report. Over the past 3 months, shares of the Cupertino company have lavishly topped the returns of the US broad market benchmark, and it remains a winner year-to-date.

Despite AAPL being perceived as a higher quality stock that could weather the macroeconomic headwinds better than most others, it took a big hit on the day that the Federal Reserve announced its most recent 75-bp interest rate hike: -2.0% vs. SPY’s -1.7%. About $50 billion in Apple’s market cap vanished in a matter of a couple of hours.

Did the market overreact, or was there a good reason for AAPL to trail the index on September 21? And could this mean that Apple’s winning streak against the S&P 500 might be over? We take a closer look below.

Figure 1: Why Apple Stock Took A Big Hit on Fed Day

Unsplash

Read more from Apple Maven: Why Apple Stock Should Be A Winner This Week

Fed Day: what happened

First, it helps to understand what drove the markets on Wednesday. In a widely anticipated move, the US Central Bank increased the federal funds rate to a range of 3% to 3.25%.

Apple behaved very much like every other major stock in the S&P 500 and the index itself: (1) in positive territory ahead of the interest rate decision; (2) sharply lower at 2 p.m. EST; (3) back to session highs within a matter of minutes; (4) then sharply lower to end the day trading at the lows of the session. See the chart below.

Figure 2: AAPL vs. S&P 500 on September 21.

Stock Rover

The interest rate decision was not a surprise, which at first made me scratch my head: why did equities sink in the first 10 minutes following the consensus-matching announcement? A bit more logical to me was the full intraday recovery, although it proved to be short-lived.

The second wave lower that started at 3 p.m. EST made more sense to me. During the press conference, Chairman Jerome Powell reinforced the idea that the Fed will do what it takes to regain control of consumer prices. That means increasing interest rates for as long and as aggressively as it is necessary.

The dot plot (see below) that shows each Fed member’s outlook on the direction of short-term interest rates suggested a hawkish view. Now, the Central Bank expects the interest rate to rise to 4.6%, on average, before they finally stabilize. The market did not like what it saw.

Figure 3: FOMC participants' assessments of appropriate monetary policy.

Federal Reserve

But why did AAPL underperform?

I would not read much into AAPL’s underperformance on Wednesday. First, the gap to the S&P 500, of about 30 basis points, was relatively small.

Most importantly, I do not think that Apple stands to lose more than other companies and stocks from this current environment of higher rates. Demand for Apple’s products and services shows no sign of softening, as we have discussed recently on this channel.

From a balance sheet perspective, higher rates can even be good news for the Cupertino company. Apple owns about $70 billion more in cash than it has in debt on the books. Higher rates mean higher interest income, to the tune of about $240 million in pretax profit for each 100-bp increase in rates (as I had estimated in a previous article).

Apple stock probably dipped more than the S&P 500 on Fed Day because it had more “fat to shed”. So far in 2022, AAPL has been down “only” 13% while SPY has returned to bear market territory (i.e. 20%-plus decline from the peak). Maybe investors looked at AAPL and saw an opportunity to lock in gains relative to the benchmark.

Whether Apple stock will underperform going forward is a tough question to answer. At least from a business fundamental perspective, I continue to see AAPL as a good buy-and-hold play in this environment of economic and market uncertainty.

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AAPL Beats The Market Again: Why Shares Jumped On Monday

Daniel Martins — Tue, 20 Sep 2022 10:22:49 GMT

Apple stock has been on a tear relative to the S&P 500 in the past 3 months. Here is why shares topped the benchmark again on September 19, and what investors could expect next.

Apple stock (AAPL) - Get Free Report continues to impress. During a choppy session, the S&P 500 rallied at the end of Monday, September 19, and closed the day up about 0.8%. But AAPL did better: higher by a whopping 2.5%.

Below, I talk about why Apple shares managed to outperform the market yet again. Also, might it be too late for potential investors to own shares of the Cupertino company at current levels?

Figure 1: AAPL Beats The Market Again: Why Shares Jumped On Monday

Unsplash

Read more from Apple Maven: Why Apple Stock Should Be A Winner This Week

AAPL leaves SPY in the dust

Apple’s outperformance on Monday was not a fluke. The stock has been handily beating the S&P 500 over the past three months: 19% vs. the broad market’s 7%.

Figure 2: Apple's performance vs. S&P 500 and Tech.

Stock Rover

Year-to-date, AAPL only lagged the S&P 500 for any more than a few days between mid-May and the start of July. As soon as the summer started, Apple rallied relative to the market.

It is possible that word of a strong iPhone 14 cycle may have helped to support share price ahead of the September 7 product launch event. But unlike in previous years, investors did not “sell the news”, as AAPL kept ahead of the S&P 500 in the last two weeks.

Why AAPL rallied on Monday

It is exactly the iPhone 14 that can be credited for AAPL’s sizable 2.5% gain on September 19. Keep in mind that, as reported by the Apple Maven, Wall Street analysts published several reports in the last few days sharing their views that the new iPhone, and especially the pricier versions, had met strong demand worldwide, particularly in the US and China.

On Monday, another bullish report surfaced. According to famed Apple expert Ming-Chi Kuo, Apple has asked supplier Foxconn to shift the production mix from the cheaper iPhone 14 to the more expensive Pro model.

The supply chain move lines up with a recent report from Wedbush’s Dan Ives, who saw that the Pro and Pro Max models would be particularly successful during this cycle.

Apple does not provide financial details on revenues and margins for each iPhone model (or even for the iPhone as a product subcategory). But it is safe to assume that a heavier mix of Pro versions would likely mean better ASP (average selling prices), higher revenues, and richer margins.

Too late to buy AAPL?

The question that is left to be answered is: given the recent outperformance, is it too late to buy Apple stock? In my view, it is not.

First, the equities market continues to be in a fragile state, given (1) high inflation and (2) rising interest rates. I believe that Apple is less sensitive to these two variables than most other companies and stocks, which bodes well for AAPL shares in the short term.

Second, Apple stock is still well off its early January high of $182 apiece. Historically, buying AAPL following a 15%-plus drawdown (where the stock stands today) has produced annual returns that are about 580 basis points higher than buying AAPL at any price (see graph below).

Figure 3: Average one-year return on AAPL, by strategy.

DM Martins Research

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Why Apple Stock Should Be A Winner This Week

Daniel Martins — Fri, 16 Sep 2022 11:36:33 GMT

A volatile week in the market is coming to an end – but Apple stock is likely to be a relative winner. Here is what helped to keep AAPL afloat during turbulent times.

On Tuesday, September 13, the S&P 500 (SPY) - Get Free Report had its worst day in over two years. As a result, the broad market is on track to log yet another week of losses, the fifth in the past six weeks.

But Apple stock (AAPL) - Get Free Report investors have not felt the pinch as badly. As the chart below depicts, AAPL has been down a manageable 1.2% in the past five trading days – less than half the size of the fall in the S&P 500 and Nasdaq 100, and only about one-third as bad a dip as the losses seen in the tech sector.

Figure 1: Why Apple Stock Should Be A Winner This Week

Stock Rover

Below, I discuss why Apple bulls come out celebrating yet another week of outperformance over the benchmark: AAPL is now up 15% for the past 3 months against SPY’s timid 5% gains.

Figure 2: Why Apple Stock Should Be A Winner This Week

Unsplash

(Read more from Apple Maven: Apple’s iPhone 14 Launch: The Biggest Surprise For Investors)

Delayed iPhone 14 Reaction

What separated Apple stock’s performance from that of the rest of the market was Monday’s market action. While the S&P 500 finished the September 12 session higher by 1.1%, AAPL climbed by a much more exciting 3.9%.

In fact, it would not be a stretch to say that the entire market benefitted from the spike in Apple's share price. Keep in mind that AAPL accounts for about 7% of the S&P 500.

The reason for the strong performance was clear: the iPhone 14. To be clear, Apple’s new smartphone was introduced last week, on September 7. On that day, AAPL shares did not move much and, in fact, trailed the S&P 500 for the day.

The big development came only this week, and straight from Wall Street – not from Cupertino, California. As reported by the Apple Maven channel, a few analysts presented their findings on the initial demand for the iPhone 14. And they were impressed by what they saw.

Wedbush’s Dan Ives, who sees AAPL climbing to $220 per share, noted that “demand and orders for iPhone 14 are tracking slightly ahead of iPhone 13 and [ahead of his] expectations”.

JPMorgan’s Samik Chatterjee went one step further and reported that (1) the Pro and Pro Max trims have been doing particularly well in China and the US, which combined account for half of global iPhone sales; and (2) the new Watch Ultra is also seeing traction out of the gates.

On Wednesday, September 14, Apple jumped another 60 basis points ahead of the S&P 500. The driver seems to be fundamentally the same. This time, it was Morgan Stanley’s turn to report that the iPhone 14 cycle is looking stronger than expected already.

The analyst’s quote below shows that the bullish narrative on AAPL has been well supported by the company’s new wave of product launches:

“Collectively, these early cycle data points are helping to dispel fears of material iPhone weakness, aligning with our view that the iPhone is a more staples-like product more resilient to macro shocks (although we caution that it's still very early in the cycle).”

Ask Twitter

Apple stock has outperformed the S&P 500 in the past 5 trading days (and past 3 months, for that matter). To credit are several Wall Street reports that the iPhone 14 cycle is already showing early signs of strength. WIll AAPL continue to outperform the market?

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How Apple Stock Could Sink 21%: Analyst Report

Daniel Martins — Thu, 15 Sep 2022 11:43:01 GMT

Most on Wall Street believe that Apple stock is a buy, but one lone bear sees the share price dipping another 21% from here. Here is how it could happen.

Nearly all analysts on Wall Street believe that owning Apple stock (AAPL) - Get Free Report is a good idea. But one bearish expert stands out from the crowd – we have talked about ItauBBA’s Thiago Kapulskis and his underperform thesis on AAPL recently.

The analyst, in fact, thinks that Apple shares could decline 21% from current levels to $122. Today, I review how this could happen, in his opinion, and why the ItauBBA team of researchers cut its price target on AAPL following the announcement of the iPhone 14.

Figure 1: How Apple Stock Could Sink 21%: Analyst Report

Unsplash

(Read more from Apple Maven: Apple’s iPhone 14 Launch: The Biggest Surprise For Investors)

AAPL: the core of the bear thesis

Upon launching his coverage of Apple, Mr. Kapulskis supported his bearish stance towards the company’s stock based on the following key factors:

The end of monetary easing should introduce to the economy “significant headwinds in the next few quarters”.
“Innovation has been more incremental than disruptive since Steve Job’s death”. Thiago believes that the company’s growth opportunities could be more limited to price hikes and upsell moves.
Apple’s P/E is richer than Microsoft’s (MSFT) - Get Free Report and those of many SaaS companies, which could be unsustainable.

iPhone 14: a negative catalyst?

On September 7, Apple launched the iPhone 14 and a couple other product updates, including a new Watch and AirPods Pro. Most analysts saw the event as a positive for Apple stock, especially after some of them saw that demand for the new smartphone has been quite strong out of the gates.

ItauBBA sees things a bit differently. The analyst and his team noted that Apple refrained from raising the price of the iPhone Pro and Pro Max, when most experts expected the company to do so by $100. Last week, I talked about the negative implications of maintaining prices unchanged during a period of rising producer and consumer prices.

Mr. Kapulskis thinks that lack of a price bump “is evidence that demand is weakening, particularly in developed regions”. Should he be right, Apple could be hit twice: (1) lower volume sold (2) at a price that is relatively reduced YOY, in inflation-adjusted terms.

The ItauBBA team quantified the impact of flat prices and rising COGS on Apple’s gross margin. In a nutshell, product margins could contract by 220 bps YOY in a base case scenario, which in turn has led Thiago to lower his EPS estimate by 11%.

The Apple Maven’s take

Apple stock is currently down 15% from the early January peak. Should the share price dip to $122, as Mr. Kapulskis believes will be the case, the drawdown would reach 33%.

Such a dip would be, to an extent, “business as usual” for AAPL. The chart below shows that Apple has corrected this much (and beyond) about five times since the start of the century. Therefore, history suggests that a large correction ahead is certainly possible.

Figure 2: AAPL's drawdowns since 2000.

DM Martins Research

For such a decline to happen, I believe that the whole stock market would need to turn sour. AAPL represents about 7% of the S&P 500, and it is hard to imagine the share price sinking another 20%-plus without the entire equities index doing so as well.

So, to me, the macroeconomic risks associated with lingering inflation, rising interest rates and deteriorating consumer sentiment are the most relevant. In a worst case scenario, the iPhone 14 cycle probably means less to AAPL than the health of the global economies at large.

Still, I continue to find AAPL a good stock to own. While valuations are not cheap, I think that the Cupertino company has repeatedly proven that it can execute very well in a number of environments, in part due to the appeal of the Apple brand that seems to be at a high – and that I think will continue to support demand for Apple’s products and services even if discretionary spending in general takes a hit.

Because quality matters most during distressed times in the markets, I remain an AAPL bull.

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Apple Stock Spikes On iPhone 14 Report: Can It Keep Climbing?

Daniel Martins — Tue, 13 Sep 2022 10:49:43 GMT

AAPL was the strongest among the 90 largest stocks in the S&P 500 on Monday, September 12. Here is why, and whether the rally could continue in the next days and weeks.

On Monday, September 12, Apple stock (AAPL) - Get Free Report shot higher by nearly 4%. Of the 90 largest stocks in the S&P 500, AAPL was the best performing of the day.

The reason? Wall Street has begun reporting on the demand for the iPhone 14 family and the new Apple Watch lineup. The early readings have been encouraging. Could this be the beginning of a rally in AAPL shares over the next days and weeks?

Figure 1: Apple Stock Spikes On iPhone 14 Report: Can It Keep Climbing?

Apple

(Read more from Apple Maven: Apple’s iPhone 14 Launch: The Biggest Surprise For Investors)

iPhone 14: Strong Out of the Gate

Not one, but at least two analysts came out on Monday with bullish news on Apple’s 2022 suite of smartphones and smartwatches. Wedbush’s Dan Ives, the most optimistic of sell-side experts with a price target of $220 on Apple shares, chimed in first.

Based on his September 10 report, “so far demand and orders for iPhone 14 are tracking slightly ahead of iPhone 13 and are tracking ahead of our expectations out of the gates.”

Better yet, Mr. Ives believes that the Pro and Pro Max mix of iPhone 14 sold so far has been very high, at an estimated 80% to 90%. This bodes well for ASP (average selling prices), which in turn can be good news for both revenues and margins in fiscal Q1.

Then, JPMorgan’s Samik Chatterjee jumped in and provided additional color. According to the analyst:

“Lead times for the two Pro models are already more extended relative to last year. [...] Amongst the remaining products, lead-time based demand indication for the Apple Watch Ultra is quite strong as well.”

Samik pointed at extended lead times, which in turn could mean hotter-than-expected demand, for the iPhone 14 Pro and Pro Max in the US and in China. He estimates that these two markets alone account for roughly half of global iPhone shipments.

Is This Good News for AAPL Stock?

The most important question for investors is whether the early read on product demand could translate to further share price appreciation. Since the intraday low on September 7, the day of the iPhone 14 launch, Apple stock has already climbed 6% in only three trading days.

From the reports above, especially Dan Ives’ account of demand that is “slightly ahead” of last year’s, I would be careful not to project unrealistically upbeat results. Keep in mind that iPhone revenues in fiscal 2021 jumped by a whopping 47% YOY (see sales growth trend by quarter below), so the comps should be very tough this year and next.

Figure 2: Growth in iPhone segment since 2019.

DM Martins Research

Keep in mind, however, that stock prices tend to move not on absolute results delivered, but on actual financial performance relative to expectations. So the tough question to answer is: have analysts and investors already priced in a robust iPhone 14 cycle?

According to Yahoo Finance, consensus revenue growth for fiscal 2023 is just short of 5%. Considering the supply chain issues impacting the iPad, Mac and Watch, I suspect that much of this top line growth is expected to be supported by the iPhone.

That being the case, I am skeptical of an iPhone 14-driven rally in the near term. The 6% spike in share price (or about $150 billion in market cap) since midweek last week could be about as much of a bull run as we may see for now.

Still, a positive early read on iPhone 14 and Watch sales should be welcomed by Apple investors as a sign that the Cupertino company may have hit this one out of the park once again.

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Apple’s iPhone 14 Launch: The Biggest Surprise For Investors

Daniel Martins — Fri, 09 Sep 2022 01:06:41 GMT

September 7 was an action-packed day for Apple, as the Cupertino company unveiled the iPhone 14 and other products. Here’s what must have caught investors by surprise.

Apple (AAPL) - Get Free Report unveiled the anticipated iPhone 14 on September 7. The product lineup largely matched expectations as I had outlined in a recent article. The Cupertino company introduced a brand-new trim, the iPhone 14 Plus, and retired the largely unsuccessful mini model.

Among a barrage of product and feature announcements, one piece of news must have surprised attentive investors due to its potential financial impact. Contrary to expectations, Apple has chosen not to raise the price of the popular iPhone Pro and Pro Max.

Figure 1: Apple’s iPhone 14 Launch: The Biggest Suprise For Investors

Apple

(Read more from Apple Maven: Will Warren Buffett Buy More Apple Stock in Q3?)

iPhone Pro and Pro Max: 2021 Prices?

Several sell-side analysts had anticipated, prior to Apple’s event, that the company would bump the price of its iPhone Pro and Pro Max devices by $100. Among them were the most bullish of bulls, Wedbush’s Dan Ives, and the sole AAPL bear on Wall Street, ItauBBA’s Thiago Kapulskis.

Yet, the iPhone 14 Pro will continue to sell for $999 at the cheapest configuration, while the Pro Max will hit the market at the same starting price of $1,099 as last year’s comparable model.

2022 has been a year of historically high consumer and producer prices. While the headline CPI (consumer) and PPI (producer) numbers have reached peaks of 9.1% and 11.7%, respectively, the price of tech components has been propelled even higher due to supply chain disruptions.

It would be understandable for Apple to raise the price of the iPhone to fight inflation. Instead, it looks like the Cupertino company played it safe and did not put the burden on its consumers, maybe fearing that doing so during a period of economic deceleration could hurt demand.

Quantifying the Impact

But with so many new products and cool features coming out of Apple’s September 7 event, why should investors focus on the $100 price increase (or lack thereof)?

As we say in the industry, a change in price “flows straight to the bottom line”. Think about it: it costs the company something to sell an extra unit of a product. However, assuming no change to demand, an increase in price does not imply an increase in costs. In this case, earnings and margins benefit dollar for dollar.

According to MacRumors, about 30% of the iPhones sold earlier this year were Pro or Pro Max. And according to Wedbush’s Dan Ives, Apple should sell around 220 million units of the iPhone in fiscal 2023. Put these two pieces together, and one can estimate that some 66 million units of the Pro and Pro Max should be sold next year.

Here’s the math behind the impact of the $100 price increase that never happened, using a few assumptions that I find reasonable:

Apple could have made $6.6 billion extra in revenues, assuming no change in demand
Assuming an effective tax rate of 15%, the impact to net income could have been 5.6 billion
Assuming share count of 16 billion, 2023 EPS could have been higher by 35 cents, or roughly 6% of the current earnings per share estimate

Key Takeaway

On the surface, Apple’s decision not to increase the price of the iPhone 14 Pro and Pro Max looks like a negative to me, from an investor perspective. In times of inflation, the company may have signaled lack of confidence in its consumers’ discretionary spending power.

On the other hand, I trust that Apple, the largest consumer company in the world, makes pricing decision based on detailed studies of consumer behavior. Playing conservative on pricing today could help to maintain the red-hot demand for iPhones strong going into this important holiday season.

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Will Warren Buffett Buy More Apple Stock in Q3?

Daniel Martins — Tue, 06 Sep 2022 12:09:19 GMT

History provides a clue as to whether Warren Buffett may buy or sell Apple stock in Q3. Here are the details.

Perhaps the best-known value investor of our time, Warren Buffett is an Apple stock (AAPL) - Get Free Report bull. His firm, Berkshire Hathaway (BRK.A) - Get Free Report, owned a staggering 895 million shares of the Cupertino company as of the end of Q2, which were then valued at around $122 billion.

Looking at history may provide a clue into Warren Buffett and company’s future trades. Might Berkshire’s managers be willing to add to the firm’s AAPL position in Q3?

Figure 1: Will Warren Buffett Buy More Apple Stock in Q3?

Gerard Miller | CNBC

(Read more from the Apple Maven: Apple Stock: What To Do Ahead Of The iPhone 14 Launch)

Berkshire’s concentrated portfolio

Berkshire allocates over 40% of its assets to Apple. Given such a large ratio, it is reasonable to think that the conglomerate might be reluctant to buy more AAPL shares now.

However, the portfolio has been highly concentrated into few names for the past many quarters, suggesting that Berkshire might not be too concerned about diversification. As of Q2, the top 5 holdings accounted for a whopping three-fourths (or 74%) of the firm’s assets. See below.

For reference, Berkshire Hathaway’s top 5 stocks ex-AAPL are, in descending order of allocation size: Bank of America (BAC) - Get Free Report at 11%, Coca-Cola (KO) - Get Free Report and Chevron (CVX) - Get Free Report at 8% each, and American Express (AXP) - Get Free Report at 7%.

Figure 2: Berkshire's holdings: AAPL vs. others.

DM Martins Research

Berkshire’s AAPL position: buy low, sell high

There seems to be one clear historical trend in how Berkshire adjusts its AAPL position. It helps to keep in mind that Warren Buffett is a classic value investor. Therefore, expect him to be a proponent of the “buy low, sell high” strategy.

The chart below shows Berkshire’s stake in Apple stock each quarter since the June 2020 period. Notice how AAPL as a percentage of the firm’s portfolio has varied substantially from a low of 38% to a high of 48% ⁠— in part due to the fluctuations in the value of AAPL vs. that of the rest of the market.

But now focus on the more important blue bars below, which display the total number of AAPL shares that Buffett’s company has held in the past eight quarters.

Figure 3: Berkshire's ownership of AAPL since 2Q'20.

DM Martins Research

Berkshire sold a large portion of its stake in the Cupertino company between mid-2020 and the first quarter of 2021. This period coincided with a sharp increase in AAPL price, from $91 in June 2020 to about $130 at the start of April 2021.

Then, as Apple shares stalled out in the second half of last year, Berkshire held its position steady. Once AAPL and the rest of the market began to unwind in 2022, Buffett and company jumped in to “buy the fear”. After three quarters of no additional purchases, Berkshire started to accumulate again in Q1 and Q2 of the current year.

The chart below is a scatter plot that shows the inverse relationship between (1) the change in AAPL share price from quarter to quarter and (2) the change in AAPL shares owned by Berkshire Hathaway. In other words: Berkshire has consistently bought AAPL low, sold high.

Figure 4: Berkshire's change in AAPL position vs. change in AAPL price.

DM Martins Research

Buffett: unlikely to accumulate AAPL in Q3

If history repeats, then it is unlikely that Buffett’s firm will add to its AAPL position in Q3. This is the case because, between the end of Q2 and now, Apple stock has appreciated 14%.

In the graph above, the red triangle shows what I estimate to be the change in Berkshire’s AAPL position as of now: down about 20 million shares, assuming that the historical trend is a good predictor.

Even if I am right, however, this is not to say that Buffett is less of an AAPL bull today. It merely suggests that, following the buy-low-sell-high playbook, the Oracle of Omaha might choose to lock in some of his profits this time instead of expand its ownership of the company.

Ask Twitter

Berkshire Hathaway’s portfolio was 40%-plus allocated to AAPL in Q2. If you could advise the Oracle of Omaha himself, would you recommend that his firm buy more Apple stock in Q3?

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Apple Stock: What To Do Ahead Of The iPhone 14 Launch

Daniel Martins — Wed, 31 Aug 2022 11:18:52 GMT

Apple is only a week away from unveiling its iPhone 14. But does it mean that now is a good time to own AAPL stock?

It is time for Apple to unveil yet another version of its flagship tech device. The iPhone 14 will see the light of day on September 7, during the company’s product launch event that starts at 10 a.m. Cupertino time.

Should investors take advantage and buy Apple stock (AAPL) - Get Free Report ahead of this important date? We discuss below the risks and opportunities.

Figure 1: Apple Stock: What To Do Ahead Of The iPhone 14 Launch

MadMix

(Read more from the Apple Maven: Is Apple Stock Overvalued? What The Peer Comparison Says)

iPhone 14: another success story?

It is undeniable that Apple’s smartphone has been a success story, even 15 years after the late Steve Jobs introduced the original model. While the Cupertino company joined the 5G party at least one or two years late, with the launch of the iPhone 12 in 2020, Apple has certainly caught up with the competition as sales and market share gains have impressed in the past 24 months.

At least one analyst believes that the iPhone 14 will maintain the status quo — in the best way possible. Wedbush’s Dan Ives, who recently bumped his price target on AAPL to $220 for about 38% upside opportunity, sees demand staying near a peak.

The analyst has recently stated that, per his channel checks, iPhone 14 initial orders should remain at about 90 million units, in line with last year’s iPhone 13. If true, this will be impressive, in my view, considering the many headwinds: fears over lower consumer spending, global economic growth deceleration, and lingering supply chain constraints.

Even some of the bears seem to believe that the iPhone 14 will lend further momentum to Apple’s 5G cycle. ItauBBA’s Thiago Kapulskis is perhaps the only sell-side analyst to have an underperform rating on Apple shares. He fears that the new Pro and Pro Max models will see an inflation-driven $100 bump in price that may not even hurt demand for the portable device. In fact, the expert sees the iPhone 14 as a key risk for his bearish thesis on the stock.

But what about Apple stock?

One thing is the debate over how well the iPhone 14 will perform in the holiday season and into next year. A very different topic of conversation is whether strong financial results, if they come to fruition, will help to push Apple stock higher from the current levels of about $159 apiece.

When it comes to share price movement, iPhone launches have historically triggered more bearishness. The chart below shows that AAPL tends to outperform during the spring and early summer months. But once the new iPhone is announced, investors seem to “sell the news” and cause Apple stock to underperform into the end of the year, all the way through January.

Figure 2: AAPL average monthly returns since iPhone launch.

DM Martins Research, data from Yahoo Finance

I believe that the prospects for Apple investors look even worse in the short term if one considers the current mood of the markets. The S&P 500 rallied during parts of July and August, only to set up yet another pullback later this month. The story is all too familiar to equity investors: record-high inflation continues to pressure the central banks to keep raising interest rates, which is bad news for most risk assets.

For these reasons, I think that the iPhone 14 event is most likely to coincide with share price weakness. However, I would encourage long-term investors to think past the short-term challenges — and maybe even consider buying AAPL on weakness, should the stock price dip in the next few weeks.

Keep in mind that, historically, buying AAPL on dips has consistently produced better 12-month returns (see chart below). At this moment, shares are only about 13% below all-time highs. A discount of another few dollars, however, could present a good opportunity.

Figure 3: Average one-year return on AAPL, by strategy.

DM Martins Research

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One AAPL Bear Wonders: How Could I Be Wrong?

Daniel Martins — Thu, 25 Aug 2022 11:25:46 GMT

After presenting his bear case on Apple stock, one analyst played devil’s advocate and considered the risks to his underperform rating. Here are the highlights.

I have recently written a brief article about ItauBBA’s Thiago Kapulskis thesis on Apple stock (AAPL) - Get Free Report. He is the only sell-side analyst on my radar (and also according to TipRanks) who has a bearish rating of “underperform” on the shares of the Cupertino company.

Most recently, Thiago published a piece in which he plays devil’s advocate to his own convictions. What are the biggest risks to the bear thesis? I think it is always a good idea for bulls to consider the bear case and vice versa.

Below are some of the key points raised by the analyst, followed by my own takes on them.

Figure 1: One AAPL Bear Wonders: How Could I Be Wrong?

Unsplash

(Read more from the Wall Street Memes: Is Apple Stock Overvalued? What The Peer Comparison Says)

Risk #1: the iPhone 14 cycle

According to the ItauBBA team, Apple’s next smartphone could be a catalyst for further share price appreciation. Very specifically, the analyst fears that the iPhone 14 could go to market at a higher selling price than last year’s model, something that could boost both revenues and gross margins.

Thiago and his team suspect that the new Pro and Pro Max trims could see a price bump of between 9% and 10% to $1,099 and $1,199 in the US, respectively. However, he points out that the negative impact that the price hikes could have on demand remains to be seen.

Lastly, Mr. Kapulskis observes that Apple stock generally rallies each year ahead of the iPhone launch, which this year has been scheduled to happen on September 7. In the month of August over the past 10 years, AAPL has gained an average of about 7%, and only produced a loss twice – in 2015 and 2019.

Risk #2: growth through M&A

The second risk to the bearish thesis mentioned by the analyst is M&A. In his view, Apple stock could react positively if Apple were to pursue inorganic growth through the acquisition of a company in the media and/or tech spaces.

Thiago thought big by wondering if Netflix (NFLX) or Electronic Arts (EA) could be the targets. He pointed out that, during the most recent earnings call, CEO Tim Cook kept the door open to M&A activity, even large deals:

“We never buy just to buy or buy just for revenue purposes. But [...] we would buy something that is strategic for us. To date, we have concentrated on smaller IP and people acquisitions [...] but I wouldn’t rule anything out for the future.”

The Apple Maven’s take

Regarding the iPhone 14, I too would not be surprised to see higher ASP (average selling prices) across the portfolio. Whether through the COVID-19 crisis or during the challenging period that followed the thick of the pandemic, demand for the iPhone remained red hot.

Why not take advantage of Apple’s strong market position to raise prices on the popular device? This is even more likely in an environment of rising consumer prices. Because “inflation-proof stocks” are likely to catch a bid nowadays, a price increase announcement next month could be a bullish development.

If I were a bear, I would be less concerned about Thiago’s point regarding seasonality. The historical trend makes intuitive sense to me, but is never a guarantee. Also, any thesis that relies on month-by-month price behavior seems overly short-term focused, in my view.

Regarding Apple’s potential M&A activity, mega mergers have often been the subject of speculation. Back in 2017, one Wall Street team tossed around the idea of the Cupertino company acquiring Disney (DIS) - Get Free Report, the media powerhouse valued today at over $200 billion – about three times the size of Apple’s net cash position.

But Apple has historically never been a big-ticket M&A player. To date, the company’s largest acquisition (by far) has been Beats, purchased for a “meager” $3 billion in 2014 – see table below.

Figure 2: Apple's acquisitions.

Wiki

So, for starters, a mega deal would be quite atypical for Cook and company. Second, a deal may not necessarily please the markets, depending on acquisition costs and considering the macroeconomic risks ahead.

If anything, were I an Apple bear, I would be much more concerned about what the iPhone maker could launch from within to jumpstart growth over the next few years. Specifically, I am thinking (1) mixed reality hardware and serviceS in the next 12-18 months and (2) autonomous vehicles in the next 3-5 years.

I doubt that many analysts, if any at all, currently have these top-line growth opportunities fully factored into their model projections. If or once they do, Apple’s growth profile could improve substantially, posing what I believe to be sizable risk to the bearish case.

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Is Apple Stock Overvalued? What The Peer Comparison Says

Daniel Martins — Wed, 24 Aug 2022 11:55:08 GMT

One of the main pillars of the bearish thesis on Apple stock is the rich valuation. But compared to the peer group, maybe AAPL is not so pricey after all.

Apple stock (AAPL) - Get Free Report is considered a buy by the majority of analysts that cover the name. According to TipRanks, more than 80% of Wall Street experts think that owning shares is a good idea, while only one analyst has a sell rating on the stock.

Among skeptics, one of the main arguments against owning AAPL is the elevated P/E ratio. But a closer look at the peer comparison suggests that Apple stock may be more affordable than many seem to believe.

Figure 1: Is Apple Stock Overvalued? What The Peer Comparison Says

Unsplash

(Read more from the Wall Street Memes: Apple Stock: Is The Rally Over? This Expert Says “Be Patient”)

Apple’s valuations: fair, too rich, or a bargain?

The following graph probably explains why so many value investors are cautious about Apple stock today. Notice what has happened to AAPL’s price-to-earnings (or P/E) ratio over the past 10 years:

Figure 2: Apple's valuation.

Stock Rover

Starting a couple of years after the launch of the original iPad, Apple’s P/E fluctuated between 10 and 20 times for a few years. Then, beginning in 2019, the valuation multiple skyrocketed to as high as 44 times early last year, settling now to just below 30 times.

The multiple expansion happened for a few reasons, the most relevant of which was probably Apple’s business model shift to higher-margin and more predictable services. The post-iPhone X success of Apple’s smartphone segment, along with the company’s generous cash return policy, probably helped too.

But tech companies, especially those in high growth stages of their lifecycles or whose “moats” are considered wide, tend to command high P/Es. Take a look at the following table comparing some of Apple’s key valuation metrics with those of peers selected by Stock Rover:

Figure 3: Apple peers key valuation metrics selected by Stock Rover.

Stock Rover

Starting with P/E, in the sixth column, notice how AAPL’s 27.6 times is actually much lower than NVIDIA’s 46.1 and Adobe’s 40.1 times, for example. Part of the reason for AAPL’s more de-risked valuation is the growth profile: while the Cupertino company is expected to increase EPS by 6% next year, NVIDIA and Adobe should deliver growth of 17% instead.

The only companies on the list with substantially lower P/E vs. Apple are Intel and Cisco, possibly Broadcom. But considering these companies and their industries’ much less encouraging growth profile, it is understandable that these stocks would trade more cheaply.

Let’s look beyond P/E. On a price-to-FCF (free cash flow) basis, Apple’s 25.6 times multiple seems even cheaper compared to the peer group. Only Broadcom and Cisco, at about 16 times, look substantially more de-risked.

Apple’s cash flow-based valuation metrics look good because the Cupertino company is particularly competent at turning earnings into hard cash. Tight control of working capital and capex is probably what best supports the argument.

Lastly, notice how Apple looks quite overvalued on a price-to-book basis. A multiple of 46.1 times, in fact, is an eye sore compared to Salesforce.com’s 3.0 times and Intel’s 1.4 times.

But here, the metric is deceivingly distorted. Because Apple buys so many of its shares via stock buybacks, the company’s equity size has been shrinking quickly over the years – which is not a bad thing at all. Since equity is the denominator in the P/B ratio, the multiple understandably looks too rich, on the surface.

My views on AAPL’s valuation

I still believe that Apple’s valuations are far from being a bargain. But at the same time, once I look at the peer group comparison, I find it hard to side with the bears as well. To me, AAPL’s P/E is fair and consistent with the robust business fundamentals of the company.

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Apple’s P/E of about 27 times is still higher than the broad market multiple, but lower than those of several tech peers. What do you think of AAPL’s valuation multiple today?

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Apple Stock: Is The Rally Over? This Expert Says “Be Patient”

Daniel Martins — Tue, 23 Aug 2022 10:57:25 GMT

Apple stock has pulled back. Is this a sign that the summer rally is over? One analyst seems to think that, when it comes to AAPL and certain other tech stocks, patience will be rewarded.

Apple stock (AAPL) - Get Free Report is starting to lose steam. After shares quickly climbed 35% from a 52-week low of $130 in mid-June to an intraday high of $175 in only two months, AAPL has pulled back 6% in less than a week. Has the long-awaited rally run its course?

One Wall Street analyst says that investors should be patient, and that Apple stock is likely to end the year strong. Here are the reasons why investors should be optimistic, according to Wedbush’s Dan Ives.

Figure 1: Apple Stock: Is The Rally Over? This Expert Says “Be Patient”

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(Read more from the Wall Street Memes: Is Apple Stock A Sell? What This New Bear Has To Say)

Apple and tech peers impress

The direction of stocks from here, higher or lower, is far from being a consensus. Uncertainty is at a high, as bulls and bears clash.

On the one hand, the stagflation-type environment (that is, decelerating growth coupled with elevated consumer prices) is a cocktail of bad news for equities. The macroeconomic backdrop does not seem to be improving very quickly either.

On the other hand, many wonder if the worst has been left behind. Because the stock market tends to look ahead several months, fears over rampant inflation and an overly hawkish Federal Reserve may have been a hot theme in the first half of the year, less so in the second.

Dan Ives recognizes that “the trifecta of a slowing macro, hawkish Fed, and sky high inflation” was thought to be a major risk for the tech sector as recently as May. But he points out that:

“June earnings season was a major victory parade for the tech bulls as enterprise spending, cloud driven budgets, consumer product/e-commerce demand, and even digital advertising was much better than feared given the white knuckle backdrop.”

Apple, in fact, delivered outstanding fiscal Q3 results, as the Apple Maven debated in detail only a few weeks ago. The iPhone continues to be on fire, while the Mac and iPad could have performed better, if not for lingering COVID-related supply chain disruptions and the unfavorable timing of certain product launches on the personal computer side.

What next for AAPL?

With solid numbers under the belt, will Apple see its stock price recover from the recent slip up and continue to rise? Dan Ives is not particularly optimistic about the performance and prospects of what he calls “smaller tech players with less stable business models and unproven moats”.

Of course, this is not the case of Apple. The Cupertino company has proven to be great at execution, despite the challenges associated with COVID-19, supply chain issues, inflation, rising rates and geopolitical tensions. According to the Wedbush analyst:

“The 4th Industrial Revolution tech trends are not going away due to this slower near-term period of growth over the next 6-9 months and we firmly stay bullish on tech stocks into the second half of the year.”

I tend to agree with the expert. In my view, now is the time to hold quality tech stocks, although probably not those of companies that have yet to prove themselves amid an adverse environment. I continue to like Apple, along with Microsoft (MSFT) - Get Free Report and Amazon stocks (AMZN) - Get Free Report.

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Is Apple Stock A Sell? What This New Bear Has To Say

Daniel Martins — Wed, 17 Aug 2022 11:08:16 GMT

A new Apple stock bear has emerged. Could this analyst be right about the 21% downside risk to share price?

It has not been easy to be an Apple stock (AAPL) - Get Free Report bear or skeptic. Some of the few sell-side analysts that have pounded the table with their less-than-optimistic views on the Cupertino company and its stock lately (I’m thinking Goldman Sachs’ Rod Hall and New Street’s Pierre Ferragu) have had to throw in the towel as AAPL share price continued to climb in the past many years.

TipRanks tracks 28 analysts that cover AAPL, and the coverage universe is probably much larger than this. For a while, not a single Wall Street expert believed Apple to be a sell. Until a couple of weeks ago, that is.

Below, I review the bear case recently presented by ItauBBA’s Thiago Kapulskis and his team on AAPL. The analyst believes that Apple stock will underperform the Big Tech peer group, and that the share price will decline by an uncomfortable 21% by the end of next year.

Could this analyst put an end to the bears’ losing streak and be proven right about the performance of Apple stock over the next several months?

Figure 1: Is Apple Stock A Sell? What This New Bear Has To Say

Getty Images

It starts with the economy

Apple, valued at $2.8 trillion, is the most valuable company in the US — about 7% of the S&P 500 and an estimated 6% of the entire US stock market. It is also one of the best-known consumer product and service companies — keep in mind that about two-thirds of the US GDP is driven by personal consumption. Therefore, it is nearly impossible to be downbeat on Apple without having reservations about the US economy at large.

In that regard, the ItauBBA analyst sees the end of monetary easing as a “significant headwind in the next few quarters”.

This is neither the only pillar of Mr. Kapulskis’ bearish thesis (see section below for more) nor a rare argument against investing in stocks nowadays. The current year has been rough for risk assets across the board, in great part due to reduced liquidity in the system, higher interest rates and the prospect of inflation levels not seen in 40 years.

I question, however, how much Apple may end up suffering from economic deterioration. It is clear that global economic growth has been slowing lately. Yet, while tech companies like Meta (META) - Get Free Report have started to feel the pinch, Apple continues to find plenty of demand for its products and services — enough for the Cupertino company to deliver impressive iPhone sales growth of 3% in fiscal Q2 on top of last year’s 50% YOY increase despite severe supply chain challenges in 2022.

In my view, execution that has been much better than peer group average is what has led Apple stock to climb more than 30% in the past 2 months alone.

Growth could be a problem too

The team at ItauBBA also seems concerned about Apple’s growth prospects in the longer term. According to Thiago, Apple’s “innovation has been more incremental than disruptive since Steve Job’s death”.

Without substantial TAM (total addressable market) expansion driven by the introduction of new and revolutionary products like the iPhone and iPad, the company’s growth opportunities could be more limited to price hikes and upsell moves.

I understand the argument above, although it is hard to tell for sure if it has merits. The iPhone and the Mac, in particular, have been performing very well, despite the smartphone and the personal computer markets having been dismissed by many as mature at best a few years back.

Have both been revived, although only temporarily, by the COVID-19 crisis? Or has Apple hit the nail in the head with the introduction of its 5G smartphone family and M1/M2-equipped portfolio of laptops?

Also, I would not underestimate the growth potential of Apple’s many new products and services introduced in the past decade: the Apple Watch, AirPods, Apple Music, TV+, etc. While any one of these may not be enough to make much of an impact on Apple’s top line, the combination of all of them certainly have.

Finally, future growth could come from product categories that have yet to be introduced. To Mr. Kapulskis’ credit, the analyst recognizes that the successful launch of the Apple Car and/or mixed reality hardware and services could be a sizable risk to the bear thesis.

Valuation is rich

Lastly, no underperform rating on AAPL would be complete without a word of caution about valuation. The ItauBBA report points out that Apple’s P/E is richer than Microsoft’s (MSFT) - Get Free Report and those of many SaaS companies.

The analyst believes that a 2023 P/E of 20 times for AAPL is fair, even if the multiple still represents “a premium to 8% to 12% EPS growth compounders”.

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Apple Stock: Is This Bear Market Rebound The Real Deal?

Daniel Martins — Tue, 16 Aug 2022 11:09:28 GMT

Apple stock has jumped in the past few weeks. Is this the beginning of the climb past previous all-time highs, or a mere bear market rally that could fizzle at any moment?

Most people will agree that a bear market is defined as a 20% dip from an all-time high. By this definition, Apple (AAPL) - Get Free Report stock entered bear market territory in May 2022. But shares have long left correction mode, as the current price of $173 is only 5% below the January peak.

Is the current rebound in AAPL stock price the real deal? Will shares finally climb and move past the previous high, or will this prove to be nothing more than a short-lived bear market rebound?

Figure 1: Apple Stock: Is This Bear Market Rebound The Real Deal?

Unsplash

(Read more from Apple Maven: Why Apple Stock Rallied After The Recent Interest Rate Hike)

Apple: delivering the goods

There is a qualitative argument to be made in favor of AAPL bulls. As discussed a few days ago on this channel, Apple has been delivering the goods and pleasing investors with flawless execution.

Even if the global economy is no longer white hot (far from it, in fact), the Cupertino company has enjoyed strong demand for its products and services. Supply chain constraints continue to be a manageable problem, but iPhone sales remain strong despite the odds.

Therefore, I would entertain the argument that Apple stock has seen the worst of 2022, since the shock of high inflation, rising interest rates, supply chain disruptions and geopolitical tensions have largely worn off by now. Apple came out the other end of the storm looking as strong as ever.

Then, there is the quantitative or historical part of the debate, which I address below. Is it normal for Apple stock to dip more than 20% as it did in May 2022; climb 33% in only two months, as it has since mid-June; then sink again to new 52-week lows?

How Apple stock behaves during bear markets

Apple is no stranger to bear markets. Despite AAPL stock having climbed a whopping 650% in the past 10 years, shares have dipped more than 20% from the peak several times. Here are the main instances, aside from 2022:

Down about 45% between late 2012 and early 2013
Down 30% heading into 2016
Down roughly 40% very quickly, in Q4 of 2018
Down a bit over 30% at the start of the COVID-19 crisis, in 2020

In all four examples mentioned above, the recovery happened relatively fast and without many false starts.

About 10 years ago, after finding a bottom in April 2013, AAPL climbed 16% quickly, but immediately tested its low. From there, the recovery was V-shaped, and the share price reached all-time highs again about 14 months later – for an enviable gain of 80%.

In 2016, the story was not much different. AAPL dropped to around $23 per share in February; climbed 17% fast; but U-turned and made a low in May of the same year. From that double-dip point, Apple stock roared back to an all-time high in a matter of 10 months, gaining 45% in the process.

In 2018, the bust and boom cycle was shorter: AAPL jumped some 45% from the year-end bottom in only 5 months. From there, an uncomfortable but short-lived pullback of 17% preceded a vicious rally that lasted from May 2019 to February 2020.

The COVID-19 bear was the most atypical of all. AAPL entered bear territory within only a few days in 2020, but the stock returned to all-time high a mere 10 weeks after finding the bottom of the well. The recovery was V-shaped through September of that year.

In conclusion: fear is probably overblown

History does not always have to repeat. But if it can serve as a guide, it is more likely that the recent recovery in AAPL share price is the beginning of a climb to peak levels and then past it, rather than a bear market rally that could crumble at any moment.

I continue to believe that now is a good time to own AAPL, despite the July and August rally that many market-timers have missed out. During periods of uncertainty and volatility, I think that holding quality (think AAPL, in this case) makes the most sense.

(Read more from Apple Maven: Apple Stock: It Could Benefit From Higher Interest Rates)

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Apple Stock: It Could Benefit From Higher Interest Rates

Daniel Martins — Fri, 12 Aug 2022 11:03:03 GMT

The Apple Maven digs deeper and explains why, given Apple’s balance sheet profile, rising rates can have a positive impact on the company’s P&L.

Last week, I wrote about Apple stock (AAPL) - Get Free Report in the context of the recent interest rate hikes. Among the reasons why the share price has risen lately despite monetary tightening was the Cupertino company’s balance sheet. Here is the quote:

“In a high interest rate environment, companies that are more heavily leveraged can suffer from the higher cost of servicing their debt. Higher interest paid means lower net income and EPS. But Apple does not have this problem. The company has [much] more cash and equivalents on its balance sheet than debt.”

The article triggered a few questions: wouldn’t high interest rates still have a disproportionally negative impact on Apple’s large debt balance vs. its cash holdings? I decided to dig deeper into this topic today.

To be clear, I will only focus on the impact of higher interest rates on Apple’s balance sheet here. The broader effect of rising rates on the company’s core business and the global economy at large is the subject of a different conversation.

Figure 1: Apple Stock: It Could Benefit From Higher Interest Rates

Getty

(Read more from Apple Maven: Why Apple Stock Rallied After The Recent Interest Rate Hike)

Apple: a look at the company’s debt

Let’s start from the top: as of fiscal Q3 of the current year, Apple had about $59 billion in net cash broken down as follows:

$179 billion in cash, equivalents, and marketable securities
$120 billion in term debt and commercial paper

Think about personal finances for a moment. Apple’s mix of cash and debt would be akin to someone having money in a checking and savings account, but also carry a credit card balance or have personal loans. This makes sense for Apple, although not so much for individuals, largely because of the complexity of the company’s global operations.

Back to personal finances, it is reasonable to assume that the interest that someone pays on loans would be substantially higher than the interest earned on cash. Think of credit card vs. savings account rates, and how the former tends to be way richer than the latter.

But this is not quite the case for Apple. According to the latest annual filing, the company’s weighted average interest rate on its commercial paper in 2021 was a meager 0.06%!

Of course, the rock-bottom rate is associated with short-term borrowings. Apple has debt maturing in 2061 that was issued last year and that has a higher effective interest rate of 2.9%. Still, this number is impressively low compared to treasury rates that currently hover just short of 3% (granted, they were lower in 2021, when the debt was issued).

Apple is probably able to borrow at such low rates because of the company’s credit quality and lower perceived risk.

The majority of Apple’s term debt matures in 2027 or beyond – that is, no sooner than 5 years from now. Because the interest rate on nearly all of Apple’s debt is fixed (i.e., not floating), rising rates are actually good news for the company’s balance sheet. This is true because the debt is fixed at the generally lower interest rate and most of it does not need to be rolled over for a few years.

Apple: a look at the company’s cash

On the cash and equivalents side, Apple owns the following, among other instruments:

$13 billion in cash, $11 billion in money market funds, and $3 billion in CDs
$10 billion in treasuries and $9 billion in corporate debt of short duration
$74 billion in corporate debt, $35 billion in treasuries and agency, and $21 billion in asset-backed securities, all of long duration

As Apple refreshes its portfolio above in a higher rate environment, interest income should improve.

In fact, 10-year treasury yields (a proxy for interest rates) began to rise more decisively in the second half of last year. Since then, Apple’s interest income bottomed at $650 million in the last quarter of the year and has been growing since then to $722 million in the last period – despite the gross cash balance having declined due to an aggressive share repurchase program.

It is hard to tell for sure how much more Apple can earn in net interest income as rates rise. But a clue can be found in the following statement from the company’s most recent 10-K form:

“A 100 basis point increase in market interest rates would cause interest expense on the Company’s debt as of September 25, 2021 [...] to increase by $186 million [...] on an annualized basis.”

I believe that the dollar figure above is small compared to Apple’s $24 billion in “level 1” cash and money market balances alone. A 100 basis point increase in rates applied to $24 billion would add up to around $240 million – more than offsetting the extra cost of debt. And that is assuming that Apple’s other cash-like securities would not generate a P&L benefit as well.

Could Apple stock benefit?

Another interesting question to answer is whether Apple stock price could rise as interest rates increase and net interest income climbs. In my view, the impact to the bottom line could be noticeable, although likely not sizable. Every $160 million in extra net income is enough to drive a 1-cent increase in Apple’s EPS.

However, I wonder if investors would ever give Apple enough credit for the income that it can generate from its financial assets vs. what the company produces from operations. The latter is much more likely to drive investor sentiment and, as a result, share price movements.

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Why Apple Stock Rallied After The Recent Interest Rate Hike

Daniel Martins — Wed, 03 Aug 2022 11:03:09 GMT

The feared, usually bearish interest rate increase in the US had the opposite effect on Apple shares in July, as bulls took over. Here’s why.

Apple stock (AAPL) - Get Free Report had an outstanding run in July 2022: up 18%. Much of the rally came in the last week, after the US Central Bank increased short-term interest rates by 75 basis points to 2.5%.

But wait a second: isn’t monetary tightening supposed to be bad for stocks? Below, I explain why AAPL has been a beneficiary of the last round of interest rate hikes.

Figure 1: Why Apple Stock Rallied After The Recent Interest Rate Hike

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(Read more from Apple Maven: Apple Q3 Review: Delivering in Good and Bad Times)

Rising rates: when bad news is good news

There is a primary reason why the Federal Reserve has been raising rates in the US: to fight inflation. As much as high rates can hurt economic growth, rising consumer prices may be even worse for the economy and the markets.

One hypothesis is that investors have started to celebrate the Federal Reserve’s intervention to curb inflation. Chairman Jerome Powell himself said that he sees some signs of slowly stabilizing prices.

On the other hand, especially if inflation does come under control in the foreseeable future, investors may appreciate that this round of interest rate hikes may be closer to the end than to its beginning. Because the equities market looks ahead several months when pricing stocks, the tone could be finally shifting to modestly bullish in the second half of 2022.

Lastly, Apple has been executing superbly recently, even though global economic growth has been decelerating this year. In the company’s fiscal Q3 earnings call, CEO Tim Cook said that the iPhone at least, if not also the iPad and Mac, have not been suffering from reduced demand.

Investors may understand that, even in an unfavorable macroeconomic scenario, Apple is still likely to deliver the goods. This may explain why the S&P 500 has been down around 15% so far this year, but Apple stock has pulled back less than 10%.

Apple and its pile of cash

Then, there is Apple’s balance sheet. In a high interest rate environment, companies that are more heavily leveraged can suffer from the higher cost of servicing their debt. Higher interest paid means lower net income and EPS.

But Apple does not have this problem. The company has more cash and equivalents in its balance sheet than debt: about $70 billion more.

So, let’s do the math: short-term interest rates have risen 2.5 percentage point so far this year. Apply this rate to $70 billion, and the positive pretax impact to Apple adds up to $1.75 billion, or nearly 10 cents per shares in net earnings, assuming a tax rate of 15%.

Because Apple owns this pile of cash, rising rates can actually be good for the interest that the company earns on its financial assets. Not only is Apple still performing very well at its core operations, now the Cupertino giant can even make more money off its envious balance sheet.

Apple Q3 Review: Delivering in Good and Bad Times

Daniel Martins — Fri, 29 Jul 2022 10:37:53 GMT

Whether the economy is firing on all cylinders or facing challenges, Apple continues to execute flawlessly. Here’s what happened in fiscal Q3.

Apple stock (AAPL) - Get Free Report spiked in after-hours trading to briefly exit correction territory when the Cupertino company delivered yet another of its impressive quarters. In fiscal Q3, Apple topped EPS expectations by a nickel in a showcase of near-flawless execution.

Below are the highlights of the quarter. I then explain the key reason why holding AAPL today even at rich valuations continues to make sense, in my view.

Figure 1: Apple Q3 Review: Delivering in Good and Bad Times

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(Read more from Apple Maven: Apple Stock: Should Investors Worry About Price Target Cuts?)

The iPhone is on fire

Total company revenues of $82.96 billion were very much in line with expectations. Under the hood, the iPhone proved again to be the workhorse of Apple’s product portfolio: growth of 3% and sales that accounted for 49% of the company’s top line.

In my preview, I discussed how the iPhone had stolen market share away from its key competitors ex-Samsung in the June period, particularly China-based Xiaomi. That way, Apple was able to grow iPhone shipments despite the overall smartphone industry having shrunk around 9% YOY, according to Canalys. This is a testament to Apple’s brand appeal amid a period of high inflation and softening discretionary spending.

The Mac and the iPad, on the other hand, saw revenues decline compared to 2021. On the PC side, Apple was probably hit by lack of newness in the quarter, as the new versions of the MacBook Pro and Air were only launched in June and July. To me, this is largely a temporary issue that should correct itself in fiscal Q4.

Apple’s tablet business seems to be hurting more from COVID-related supply chain disruptions. This has been the case not only in fiscal Q3, but through the past few quarters. Expect this business, which accounts for less than 10% of Apple’s total revenues, to still struggle a bit in the immediate future.

In my view, Greater China was a pleasant surprise yet again. While the country faces sharp economic slowdown, Apple still managed to keep revenues afloat, as it did in fiscal Q2. Sales barely dipped YOY this time.

Is AAPL a buy after earnings?

Make no mistake: AAPL is not a cheap stock. Priced at an earnings ratio of 25 times, most value investors will feel uncomfortable paying $160 on shares, especially those who expect the global economies to slow down or even enter a recession this year or in 2023.

But in my view, Apple stock remains a buy because the Cupertino company has been consistent at delivering the goods to investors. In tough market periods like the current one, quality matters. For this reason, I think that AAPL will continue to be rewarded with strong market demand, which should bode well for the share price in the foreseeable future.

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How Apple Could Shine On Q3 Earnings Day

Daniel Martins — Thu, 28 Jul 2022 11:22:12 GMT

Apple’s fiscal Q3 report will be the most closely watched this Thursday. Here’s how the Cupertino company could impress investors.

Cupertino-based Apple (AAPL) - Get Free Report reports fiscal Q3 earnings on Thursday, July 28 — and Wall Street will be paying very close attention. The most valuable company in the US is expected to deliver modest revenue growth of 2% and an EPS decline of 11% to $1.16.

Below, the Apple Maven discusses why Apple could impress investors on earnings day, and what could send AAPL stock higher still as it continues to recover well from its mid-June 2022 low of $130 per share.

Figure 1: How Apple Could Shine On Q3 Earnings Day

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(Read more from Apple Maven: Apple Stock: Should Investors Worry About Price Target Cuts?)

Bar is set low

Apple’s performance in Q3 will be measured against a bar that the company itself has set low three months ago. Fiscal Q2 results were not bad at all, but the management team warned about revenues being substantially hurt by COVID-19: from $4 billion to $8 billion. At the high end of this range, the impact to top-line growth reaches nearly 10%.

Analysts seem to have adjusted expectations accordingly. The noticeable year-over-year drop in expected earnings per share reflects not only the revenue challenges, but also lower gross margins and some loss of operating leverage.

But there is little evidence suggesting that demand for Apple products and services has taken much of a hit recently. According to Canalys, the iPhone expanded its market share in Q2 by a healthy 3 percentage points to reach 17%.

While the research company reports a discouraging 9% drop in smartphone shipments across the globe in the most recent period, Apple’s gain of market share suggests that the iPhone saw shipments rise by 10% instead. This is crucial for a segment that still accounts for roughly half of Apple’s total revenues today.

Not a bed of roses

To be clear, Apple will have certainly faced challenges in the most recent quarter. Research company IDC, for example, speaks of a sharp YOY decline of over 20% in Mac shipments in the period. This could be the result of lack of newness in fiscal Q3, since the most recent MacBook Pro and Air were unveiled between late June and mid-July — a timing issue in product launches that should work itself out next quarter.

Greater China is also likely to be a soft spot for Apple. The country has been at the center of the COVID-19 debate recently, with a zero-tolerance policy on the pandemic causing disruptions to businesses and consumer spending. It is worth noting that, in China, Apple performed particularly well in fiscal Q2 despite the same fears faced today, as revenues in that geographic segment grew 3% against the odds.

Is AAPL a buy on earnings day?

I believe that Apple will impress investors once again on fiscal Q3 results. The company has proven to be a world class executor lately, even in the face of challenges that have hit tech and consumer discretionary peers hard.

The tougher question to answer is whether Apple stock is a buy on earnings day. While the S&P 500 has been down 16% for the year so far, AAPL has lost only 12% of its value. The stock remains richly priced at a 2022 earnings multiple of 25x.

I prefer not to make bets on AAPL’s share price movements in the very near term. However, I believe that the Cupertino company has been doing a superb job in the past many quarters. Holding the stock for the long haul continues to make sense to me.

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How Apple Stock Could Top A $3 Trillion Market Cap, According To This Expert

Bernard Zambonin — Mon, 25 Jul 2022 11:26:21 GMT

Morgan Stanley analysts see Apple’s shift towards a more subscription-like approach as helping the company reach $3 trillion in market cap.

Morgan Stanley’s analyst team believes that Apple (AAPL) - Get Free Report is on a potential path towards a $3 trillion market capitalization as the company considers a shift to a subscription-like model. The team sees big upside in Apple's super sticky user base and says markets will need to reassess how they value Apple as it alters its core business..

Here's a deeper look at Morgan Stanley's thesis regarding how Apple can reach nearly $3 trillion in market cap by exploiting some of its key assets.

Figure 1: How Apple Stock Could Top A $3 Trillion Market Cap, According To This Expert

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(Read more from Apple Maven: Apple Stock: Should Investors Worry About Price Target Cuts?)

A Shift To A Subscription-like Model

According to the Morgan Stanley analyst team (which will now have Erik Woodring assuming lead coverage, in place of long-time Apple analyst Katy Huberty) a sharp shift to a subscription-like model could add about $1 trillion to Apple's market cap.

This value jump is driven by the high retention rates that Apple boasts thanks to its industry-leading position and its ecosystem of hardware and services.

The team sees Apple Services as becoming one of the most valuable technology platforms in the world, engaging everything from traditional communication to entertainment and beyond.

Apple Is Currently Valued As A Traditional Hardware Platform

Woodring believes that the market today is pricing Apple shares as if the company is a hardware technology platform. He points to the fact that AAPL trades at an enterprise value to free cash flow (EV/FCF) ratio of 22x - that’s compared to a 31x average for SaaS companies and a 44x average for subscription-driven streaming platforms.

As Apple's install base matures and retention rates increase, though, the Morgan Stanley team argues investors will finally start to utilize a lifetime value (LTV) based valuation approach for Apple.

When such an interactive LTV model with discounted cash flow is used, it suggests a long-term valuation of $200+ per share, which would put Apple comfortably over a $3 trillion market cap.

Apple's Efficiency In Acquiring New Users Is Gold

Erik Woodring also points out how effective Apple can be in acquiring new users. Seeing this quality as key to a strong subscription business, Apple's lifetime value to customer acquisition cost (LTV/CAC) ratio is estimated by the Morgan Stanley team to be at 16x, which implies an impressive 16x return on customer acquisition cost.

Apple's LTV/CAC ratio is well ahead of other giant streaming companies, such as Netflix and Spotify - these companies generally target an LTV/CAC of 5x.

Still, Morgan Stanley Trimmed AAPL's Price Target

The latest rating comes from Katy Huberty, who offered a minor price trim before stepping away from her lead Apple analyst role. Huberty lowered her price on Apple shares to $180 from $185, saying that she won't be "pounding the table" this time heading into the June quarter. She also warned that Apple could miss estimates.

According to Huberty, the reason for the slight target decrease is that high-income consumer sentiment is flashing caution signs. Plus, Huberty sees the foreign exchange market (FX) causing Apple to hike prices in some international markets.

Thus, the analyst believes that the consensus for FY23 revenues at $414.6B and EPS numbers at $6.51 remain too high. Huberty has set her targets for Apple at 1% and 4% below the FY23 consensus ($408.8B revenue and $6.22 EPS, respectively).

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