Just weeks after setting a new all-time high above $232 per share,
Crista Huff, Cabot Undervalued Stocks Advisor
I’m bringing Apple back into the fold, adding the stock to my “Buy Low Opportunities” model portfolio. This is the kind of stock that I would personally add to during market corrections, or simply when negative market sentiment pushes the share price down. And guess what? Both of those situations are occurring right now. Ding! Ding! Ding! It’s time to buy.
Apple’s recent fourth-quarter earnings report brought the unsettling news that the company is going to stop reporting quarterly iPhone sales volume.
CEO Tim Cook thought that investors were too focused on that number, missing the forest for the trees, and I wholeheartedly agree with him.
I personally thought the market’s fixation on sales volume was a rookie mistake, when average selling prices (ASPs) and Apple Services revenue (Apple Pay, iCloud, AppleCare and the App Store) seemed to be far more relevant numbers with which to assess quarterly successes.
Analysts are currently expecting 2019 EPS to rise 14.3%. That number will invariably be tweaked in the coming weeks. I’m not expecting a rapid rebound in the share price, and we could easily see the stock bounce at $195 a few times before it begins to recover. But all in all, I like the current price, and I’m certainly willing to wait a few short months for the rebound toward $230 per share.
Meanwhile, investors should remember Apple’s $100 billion share repurchase authorization that they announced in May 2018. I’m relatively certain that Tim Cook and Apple management see the same buying opportunity that you and I are staring at today. I rate the stock a Strong Buy for growth & income investors.
Rob DeFrancesco, Tech-Stock Prospector
Apple no longer wants to be tied to quarterly hardware sales. That definitely makes sense for multiple reasons, including the fact that hardware companies usually trade at a steep valuation discount to software vendors. Plus, the big thing these days across the tech sector is the build-out of lucrative subscription businesses; Apple will be a major part of that trend.
Exiting calendar 2018, Apple will have an impressive iPhone installed base of 700 million+ units. Services revenue in FQ4 accounted for less than 16% of total revenue, so there’s clearly a lot of growth potential in selling more monthly subscriptions tied to devices.
John Buckingham, The Prudent Speculator
We like that Apple continues to expand around the world while maintaining the quality and customer rapport for which the company is known. Apple sits on $237.1 billion of cash and marketable securities, and when debt is considered, has $122.6 billion of net cash.
CEO Tim Cook said, “This year, we shipped our 2 billionth iOS device, celebrated the 10th anniversary of the App Store, and achieved the strongest revenue and earnings in Apple’s history. In fiscal year 2018, our revenue grew by $36.4 billion. That’s the equivalent of a Fortune 100 company in a single year, and we’re capping all that off with our best September quarter ever.”
We continue to be happy with Tim Cook’s leadership, and with the stock’s performance since Steve Jobs’ passing. We are fans of Apple’s strong product line, its diversified geographic revenue, its fortress balance sheet and the solid dividend yield of 1.4%. Our target price has been increased to $242 and we note that Apple trades for just 15.5 times the next 12-month consensus earnings projection.
Richard Moroney, Dow Theory Forecasts
For the moment, investor sentiment has soured on Apple. Recent concerns center on disappointing sales guidance for the current quarter, combined with a report of building inventories of the cheaper iPhone XR in stores and cautious comments made by key suppliers. Its move to no longer disclose unit sales combined with Apple’s recent iPhone price hikes suggests the company may be bracing for lower volumes as the replacement cycle for smartphones continues to slow.
Meanwhile, Apple unveiled its latest roster of iPads and Macs. The new iPad Pro features facial-recognition technology, a faster processor, and a $200 bump in starting price to $999. Software made by Adobe and
These moves echo Apple’s push to raise iPhone prices in the past year. Apple said it has sold more than 400 million iPads since launching the tablet in 2010. It sold 44.2 million iPads in the 12 months ended September, outpacing notebook sales by rivals
In my view, Apple offers an impressive track record for operating growth and a reasonable valuation. For the 12 months ended September, per-share profits, revenue, operating cash flow, and free cash flow all grew more than 15%. The stock’s trailing P/E ratio of 16 lingers below the average of 21.5 for S&P 500 technology stocks. Apple remains a Focus List Buy.
We’re realists. Our vision of Apple always anticipated a quieter 2019 than the huge growth we saw in 2018. After all, the company is transitioning toward higher price points that squeeze more dollars out of every phone or tablet it sells into a world that’s already swimming in cheap devices.
Meanwhile, the rest of the company is doing well. Tablet sales keep declining but old-fashioned Mac computer sales are up 3% and now account for nearly double the $4 billion the iPad brings in on a quarter-to-quarter basis. The Apple Watch and other miscellaneous devices are accounting for 30% bigger sales than last year; the category is now bigger than the iPad so deserves closer attention as a growth center.
And the Services business just hit $10 billion a quarter, up 17% from last year’s level. This is where the real action is these days: Once someone buys any Apple device, incremental software sales and service charges boost the total pool of revenue that relationship represents. It’s always been about the App Store, the iTunes media center, Apple Pay.
All in all, the company booked $63 billion in revenue, up 20%, and turned it into a staggering $14 billion in profit. That bottom line expanded 40% over the year-ago quarter. So if the business is still a behemoth moving fast, why did the stock sink?
We suspect the biggest challenge here is that investors are jaded. We all know this is a great company, so in order to raise any constructive reaction at all the results need to be spectacular. These results didn’t quite hit that lofty bar, so says the Street while guidance for the critical holiday quarter came in a tiny bit lower than many expected.
For the coming quarter, Apple is shooting for $91 billion in the quarter and may ultimately turn $21 billion of it into profit. That’s what we anticipated. As we mentioned above, management loves to aim low and deliver high, just like they did recently.
But we were already braced to see top-line growth slow here as that same management team chases higher-margin products and services throughout the year and not just the old holiday boost. Apple is a year-round company now. With that in mind, we’re more interested in what guidance for 1Q19 will look like in three months. That’s the sweet spot.
In the meantime, Apple presents extraordinary value. The giant is a value play now. Any growth we see in the near term is a bonus. We're not trying to be a Pollyanna here. But look at the numbers. We think it was a stellar quarter. And with the stock down significantly off its all-time high of $233 set early last month, we feel that if you don’t own enough shares of this great company, the stock lords are giving you a chance to pick some up for a discount.
Finally, never forget how eager management is to buy back its own stock. Last quarter the average buyback price was close to $210. The company bought 92.5 million shares at a cost of $19.4 billion at that average price. The people who know Apple best (management) believe it’s a bargain 8% up from here and they have $240 billion to spend when the market gives them an opportunity, which might just be today!
