This week’s Apple trading strategies (7/8-7/12)

With tariffs averted—for now—is Apple poised to take off?

To get things rolling, here’s Auerus Asset Management’s Kari Firestone and Hightower Treasury Partners’ Richard Saperstein on whether Apple can go to new highs following Jony Ive’s departure.

Apple is a cash cow that should be a core holding in everyone’s portfolio, says Richard Saperstein from CNBC.

Disclaimer: Having never owned or traded Apple, I have nothing to add. Don’t blame me if you drain your IRA doing something you read about here.

See also: This week’s Apple trading strategies (7/1-7/5)

10 Comments

  1. Gregg Thurman said:

    Equity valuation is the result of so many factors that focusing on any one factor is, at best, an incomplete picture of true valuation. Unfortunately that is the model of way too many analysts.

    Who cares if Services revenue doesn’t generate the same revenue per user that a hardware sale does, if the gross margin percent is more than double that of hardware, is growing at 3X the rate of hardware revenue, doesn’t require more manufacturing infrastructure, and is immune to geopolitical conflicts?

    WS’s obsession with hardware (yes, iPhone) revenue shows an incomplete understanding of Apple’s business model.

    Obsessing over EPS ignores net income and free cash flows. I dislike anything and everything about the use of EPS as a valuation metric.

    Obsessing over market multiples is succumbing to the inconsistent (and mostly erroneous) understanding, by institutional and retail investors alike, of Apple’s businesses.

    Unfortunately that is the world we live in, so we get irrationally bearish and irrationally bullish commentary about Apple’s/AAPL’s valuation.

    I am comfortable with the fact that over time Apple’s business model will evolve, as it has for several decades, and that AAPL will go up ~20% per annum (on average), as it has for the last couple of decades.

    The key to exploiting Apple’s/AAPL’s growth potential is two fold: buy and forget and, shorter term options plays.

    I’m going to be 73 later this year and don’t have the time, or resources, to buy and forget. That leaves me with options (or some other short term strategies) to meet my wealth requirements.

    The “sage” advice of the talking heads ignores Apple’s business models and investor needs, making only those that understand Apple’s business model (very few) AND the needs of those they are advising worth anything.

    The likelihood you’ll see both needed attributes coming from a CNBC interview is virtually nil. That said Saperstein’s recognition of the evolution of Apple’s s business model is excellent.

    4
    July 7, 2019
    • Jamie McDaniel said:

      “Unfortunately that is the world we live in, so we get irrationally bearish and irrationally bullish commentary about Apple’s/AAPL’s valuation.”

      I kinda would like to hear a bit of irrationally bullish commentary for a change. There seems to be a dearth of it since Carl Icahn wrote on May 18, 2015, “After reflecting upon Apple’s tremendous success, we now believe Apple shares are worth $240 today.” At the time AAPL was $128.77.

      Who is pushing that shares should be $380 – not in a year – but today?

      Carl’s conviction as an Apple shareholder was fleeting so maybe I shouldn’t hold it up. Still…

      0
      July 7, 2019
  2. Gregg Thurman said:

    Apple’s success in evolving its business has been the culture that Jobs embedded at Apple: an accurate understanding of who it’s customer truly are, then developing insanely great products for that customer. It is not reliant on best first to market, it is reliant on being best to market.

    That culture is only dependent on the whole of the Company, not individual cogs, the whole will overcome deficiencies of any one cog (until that cog is upgraded), as seen by Anderson being replaced by Oppenheimer, Jobs being replaced by Cook, by Cook being replaced by Williams, by Oppenheimer being replaced by Maestri, by Johnson being replaced by Ahrendts, by Tevanian being replaced by… and so on.

    2
    July 7, 2019
  3. Gregg Thurman said:

    Firestone’s belief that AAPL is set up to expand based on an expectation that management will provide positive guidance, now that the China overhang has been reduced, is somewhat correct, except that Apple is going to guide based on what it has already ordered for the September quarter. Those orders were placed several months ago, probably before the Sino/USA trade tiff began in early May.

    I see AAPL expanding based on historical trading patterns (eight-year average) following the summer (July 4 week) selloff. The historical trend shows AAPL expanding (on average) ~6.5% in the next 2 to 3 weeks, declining a bit just before earnings report then resuming its expansion another 6% post-earnings through to Labor Day week.

    In the three years I have been tracking AAPL’s daily prints against its historical trend, AAPL has tracked that trend with remarkable accuracy, excepting black swan events.

    Am I saying AAPL will be trading at $224 by Labor Day week? No, I’m saying that given the channel AAPL has been trading in for the past several years, the probable elimination of the Sino/USA overhang, expected Services revenue growth with >2X margin rate over Apple’s core hardware business, and greater gross revenue stability and predictability, it is possible that market sentiment will drive AAPL to $224 by as early as Labor Day week (new iPhone launch), then declining slightly through to October earnings.

    2
    July 7, 2019
  4. Gregg Thurman said:

    I should have pointed out that Ive’s continued employment by Apple has nothing to do with how AAPL will perform in the next year to two years. Products released in that time frame are essentially already (to use a Hollywood phrase) ‘in-the-can’.

    1
    July 7, 2019

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