This past Wednesday, while most on Wall Street were thinking more about the Thanksgiving Holiday just ahead (turkey and football) than about the markets, two sell-side firms came out with notes on Apple that probably left most investors scratching their heads in confusion.
First was a pretty negative note from Rosenblatt Securities in which the analyst said that, according to his research, Apple is cutting orders for assembly of iPhones for the March quarter after having already cut orders for the December quarter last week (according to him and his research).
He said that he believed, in the two days prior (which would be Monday and Tuesday just gone of this week), Apple began trimming its March quarter component order forecast following what he thinks were production cuts for the December quarter made last week.
He said he now expects component orders to be in the 40-43 million range versus his prior estimate of 45-46 million units. Consequently, he said that he thinks that the March quarter consensus of 53 million units in iPhone shipments could be at risk.
Finally, the Rosenblatt analyst said that his "supply-chain checks" (since Monday) in Asia have confirmed iPhone 7 sales weakness in China which resonates on par with his retail data tracking system in China.
On the flip side, another sell-side firm, Cleveland Research, was out with a note that said that it's near-term analysis showed that iPhone 7 demand and mix was encouraging and that its checks showed that supply of iPhone 7 seemed to be normalizing in most channels, however supplies of the iPhone 7 Plus were still constrained. In addition, the analyst said that there was growing optimism for the next iPhone refresh (iPhone 8 or whatever Apple will call it)cycle based on his discussions/analysis. Finally, the firm said that it was seeing mixed tailwinds in 2017. (a tailwind is better than a headwind)
Most interestingly, both firms rate Apple shares at a Neutral despite the throwaway valuation at present.
The dark-side (shorts) will say that the current valuation is fair given that Apple is currently a low growth company at best and a no growth company at worst.
However, if that argument is to be believed, how does one reconcile to the almost 19x earnings for next year investors are paying for Microsoft which has an even lower growth rate than does Apple?
Factor out Apple's net cash per share (just under $30/share net of debt), and the company is currently valued at less than 8x next year's earnings of slightly over $10 per share.
So, after reading those two seemingly divergent sell-side notes issued by two analysts who are both agnostic (relatively bearish in Wall Street gibberish) on Apple as an investment in the first place, what should investors do?
If an investor is in Apple for the long run, then pretty much ignoring both the analysts would make the most sense. Both notes are what I have been calling commission generating research which is designed just to give the firm's brokers a reason too call their clients and nothing more.
Of course, like I have shown here, Apple has not even been able to beat the returns in the Nasdaq since Tim Cook took over as CEO.
However, maybe that is about to change soon with the 2017 product refresh cycle and that's how I am looking at my investment in the company. In addition, I am sticking with Tim Cook when he said that data points from these "channel-checks/supply checks/Asia chain checks" (or whatever else these sellsiders and headline desperate market researchers are calling it lately) are just not enough to predict the state of Apple at any given time.
In the short-term, Apple shares are at the mercy of the overall markets, more or less, given the fact that the only innovation seemingly happening at Cupertino lately is the (excellent) new book.
(Long aapl, long and short aapl options)
