Ben Bajarin: Apple stock nowhere near its peak

There may be some correcting ahead, says Tech.Pinions’ principal analyst, but not a big hit.

From “Apple in 2020,” ($) sent to Think.Tank subscribers Wednesday:

While I don’t do the whole financial model thing, I do read way too many buy-side notes from some of the notable large banks. Many of those notes I read are on Apple. Most analysts had Apple’s end of year price target in the $220-$230 range. If you follow Apple stock, you know it is now hovering in the $310-$315 range. So the question is, why is confidence rising?

It feels as though confidence in Apple stock is rising the same way it did right after the launch of the iPhone 6 and 6 Plus. A time when Apple was adapting its iPhone strategy to cater to larger bases of customers. Apple saw several stellar quarters, particularly in China, and sentiment around the stock was as strong as ever.

Interestingly, the stock stayed relatively solid until Apple’s first revenue warning in late 2018. Now, while the current uptick in Apple’s stock is a bit steeper than past ones, and there may be some correcting, I don’t think the stock will take a dramatic hit due to returned confidence in Apple’s fundamentals as a business and the upside in adjacent business growth areas.

Dips in Apple’s stock have generally been followed by a continued and sustained growth streak. The question I get from investors now is along the lines of how high can it go? Can Apple get to a $2T market cap? I don’t have the answers to these questions, but if the growth areas continue to ramp, then I don’t think Apple stock is anywhere near its peak at the moment.

My take: I also read way too many buy-side notes. And his take-away is mine, too.

16 Comments

  1. Jerry Doyle said:
    We are getting validation from analysts of growing confidence in Apple as a company deserving of a higher P/E ratio that currently stands at 26. Folk who always have understood Apple’s business model and the fundamentals of the company driving that business model already had confidence in continuing growth of Apple’s stock price. Apple now has an ever more diversified business model with signs of ramping up revenues going forward. Apple consumers clearly are moving in the direction described by Kirk DeBernardi’s excellent comment written on a previous blog. Kirk stated,

    “…. I’d like to add one more solid dynamic for Apple’s future. It’s what I think is best referred to as the “Apple Trifecta” — iPhone/ WATCH/AirPods. While already mentioned on this blog as a force to be reckoned with, most observers don’t adequately consider the full momentum this carries for Apple’s future. Three devices holding hands in a unified and harmonious system that’s utilized for most things, most anywhere, most anytime. A big chunk of a life can fit into these three. Who has a more used, more appreciated, more convenient and more personal life-systems implementation than this?”

    Kirk hit the target’s bullseye. The wearable industry is poised to explode in more ways than one. And Apple is positioned better than anyone else to take full advantage of this whopping growth industry. So, the hardware side of Apple’s business line has strong legs to run revenues higher in the coming years.

    I agree fully with Ben Bajarin when he denotes “…. And while I do think Apple will get some lift for iPhone sales from 5G devices later in this year, I think the 5G iPhone story gets dramatically stronger in 2021/2022….”.

    While cutting edge tech enthusiasts living in urban megalopolis will rush forward to buy the new 5G models, the wave will not come until 2021/2022 when the infrastructure fully is in place to benefit the majority of users. Wearables, though, will continue their growth trend during this period.

    Bajarin covers Apple services but omits inadvertently “Apple Pay.” I believe many are underestimating how Apple Pay is eating into other major credit card companies’ revenues. I see evidence every day in the field of growing Apple Pay users and I see evidence through the mail from my other credit card companies sending materials on special promotions to keep and retain customers from moving over to Apple Pay.

    In summary, Apple will become a two trillion dollar company sooner than later, and the new normal stock price target soon will be $400, not $350.

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    January 16, 2020
    • John Blackburn said:
      Apple Pay generates only 0.15%—nice but modest—and works with other major credit cards. If you’re instead referring to Apple Card, yes, that has more potential, but for my part, I’ve stopped using mine until it offers downloadable reports beyond opaque PDFs.

      0
      January 16, 2020
      • John Konopka said:
        I use Automator to extract the text from the PDFs then I do a little text wrangling to convert that to tab delimited text and then copy these into columns in a Numbers document. It is a bit of work, but it is only once a month. Not hard.

        By the way, in the Wallet you can select the Apple Card then choose the option to text with someone to ask questions. The response is fairly quick. I suggested to the responder that Apple should give us an option to download the statement as a Numbers document. They asked: What’s a Number’s document? Doh! Geezo Peezo!

        One thing I’ve suggested to Apple is that I’d like to have a way to add a modifier to the charge at the time of purchase. Even something simple like a letter code (A, B or C) would be good enough. At the end of the month I want to sort out the charges and pay from two different sources. Now I have to do that by memory.

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        January 16, 2020
    • Fred Stein said:
      Agree on all. Great catch re Apple Pay. The long term potential for Apple as a financial services provider is big – too big to forecast. Same for Health, where we can only guess what Apple will provide.

      Also the demand for AAPL has diversified to include international and ETF (passive investors, primarily mid-career professionals investing on monthly automatic systems), and the divi-growth funds.

      In summary:
      Diversified and growing product lines, and investor cash sources.

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      January 16, 2020
    • David Emery said:
      “Three devices holding hands in a unified and harmonious system that’s utilized for most things, most anywhere, most anytime.”

      Bfffftttt! I -know- I’m not the only person who can’t stand earbuds, and who doesn’t wear a watch.

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      January 16, 2020
  2. Mordechai Beizer said:
    @John Blackburn, couldn’t agree with you more. My usage of Apple Card is on hold until they get their act together vis-a-vis exporting the data.

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    January 16, 2020
  3. Gregg Thurman said:
    I’m watching to see if Apple buys MasterCard. MA is trading at its 52 week high at $317 with a market cap of $320 Billion. Even with a 20% premium MA is eminently affordable.

    Imagine all those MA holders and retail outlets being converted to AppleCard. How many of those MA holders now using MSFT and Android would become Apple hardware/services consumers, with the takeover?

    Apple’s creative use of the cloud would reduce MA’s operating expenses. The security behind the AppleCard would reduce losses from fraud. Add a few features like downloaded data and Apple would have the credit world by the gonads.

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    January 16, 2020
    • Gregg Thurman said:
      I should add that as AppleCard usage increases, negatively impacting VISA, MasterCard, et al, Apple most likely would not have to pay much, if any, premium from today’s market cap to get MA.

      Five years?

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      January 16, 2020
    • David Emery said:
      I’d be worried about antitrust concerns with that merger. It’s not so much the technical aspects of formal antitrust law, but rather the political aspects of “too much control going to a FAANG stock” in Congress, state legislatures, etc.

      Look at how quickly opposition lined up against Facebook’s proposed cryptocurrency. Much of that opposition was not based on any technical position, but rather just on opposition to FB getting too big.

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      January 16, 2020
  4. Jerry Doyle said:
    @Gregg Thurman: “…. I’m watching to see if Apple buys MasterCard.” (Market Cap $320B).

    Respectfully Gregg, I don’t see that acquisition (MA) happening. Correct me if I am wrong, but the largest acquisition Apple ever made is $3B for “Beats.” Outside of Beats, I believe all of Apple’s acquisitions are in the millions; the tens of millions and hundreds of millions.

    It seems to me that if Apple would target MA @ $320B, then Apple would have gone after Tesla early on, or after NetFlix with a ready streaming media service business with a humongous library of content. I always have gotten the feeling that it just isn’t in Apple’s DNA to do these humongous acquisitions. Apple finds ways of getting the requisite skills and talents and then scaling up the business themselves inculcating fully Apple’s DNA into the new organizational entity. Apple could have scooped up both Tesla and Netflix for half of the $320B market capitalization of MA.

    5
    January 16, 2020
    • Gregg Thurman said:
      Jerry, I hear you.

      Anti-trust is certainly an issue that would have to be addressed, and I have no special knowledge about any possible acquisition of that size.

      My reasoning comes down to this: Apple is currently using MasterCard’s backbone to complete AppleCard transactions. From paying fees to MasterCard vs owning the whole enchilada isn’t that big a leap.

      The benefit to Apple would be very significant. Outside of gaining several tens (hundreds?) of million card users, Apple would also have a significant presence (on par with VISA?) worldwide in retail outlets. Then there would be the exposure to a ton of non-Apple product users to Apple’s technology (aka ease of use, security, and privacy).

      Yes, concern about Apple’s control over huge swaths of the global economy could engage anti-trust opposition to such an acquisition, but if that were to be the case what would those same regulators be thinking when AppleCard becomes the #3 or #4 card issuer worldwide?

      As a side note: VISA trades with a 37 multiple, MA trades with a 42 multiple. How would the acquisition of MA impact AAPL’s multiple? Very positively I think.

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      January 16, 2020
    • Gregg Thurman said:
      Apple could have scooped up both Tesla and Netflix for half of the $320B market capitalization of MA.

      I’ve never been a fan of acquiring Tesla or Netflix. Tesla was still a work in progress that when complete will generate GM% of about 8%. Not exactly Apple’s business model.

      Then there is Netflix. At the time of my opposition, Netflix was not producing its own content, it had nothing proprietary in its business model. Now that Netflix is producing its own content (some very good stuff too) it isn’t doing anything that Apple can’t create for a whole lot less than acquisition costs. Same thing for Spotify and probably MA as well.

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      January 16, 2020
  5. John Konopka said:
    One way to parse Apple valuation is by what we see now and what might happen.

    On Seeking Alpha I sometimes see guys trying to estimate Apple’s value based on extrapolation of the current business. This is OK and interesting, but it misses the part of Apple we can’t see, the future.

    Go back a few years. Who would have expected that Apple Watch would appear, let alone turn into a monster business. Even when AW came out the pundits roundly dismissed it.

    Similarly, AirPods and then AirPods Pro were not expected and certainly not expected to be such hits.

    Even though they produce good revenue on their own they all work together to create the Apple experience. Apple Card is like that as well. It may not be a lot of revenue but it is one more reason to use an iPhone. I’m starting to see Apple Pay used quite often now. No one is surprised anymore to see me pay by Watch.

    We have to expect that in the next two or three years that one or more new products will appear like these. Actually, they might not be separate products, they might be features built into the iPhone. Compare today’s iPhone with the original and it is a vastly different device. Lots of things that might have come out as stand alone devices are now part of iPhone.

    The big thing that Tim Cook talks about that we haven’t seen yet is something in the area of health. Tim has said that in the future looking back Apple’s biggest contribution will have been in the area of health. We have seen lots of small steps, but not a giant step yet. Maybe that is how it will be? An accumulation of many, many small steps?

    0
    January 16, 2020
    • Aaron Belich said:
      Data, data, data… in regards to health, follow Apple’s public outreach and work with Universities to get an inkling of where they are going.

      First it was heart related, now we have heart/movement, hearing research and women’s health studies. Where do you those taking Apple devices and their increasing count of sensors and feedback systems?

      0
      January 16, 2020
      • Aaron Belich said:
        Ugh, apparently communicating a cohesive thought is difficult. My apologies.

        Edited for grammar and readability (AITOO, or has auto-correct has been wonky recently?)
        First it was heart related. Now we have heart/movement, hearing research and women’s health studies.

        Where do see the data from such research taking Apple devices and there increasing count of sensors and feedback systems?

        1
        January 16, 2020
        • David Drinkwater said:
          That got much, much clearer! 😉

          1
          January 16, 2020

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