Analyst Rod Hall makes a small concession to the market. Plus: My updated before-and-after Q2 2020 earnings chart.
From last Friday’s note to clients, which landed on my desktop Monday:
Apple reported solid numbers but then pulled guidance for the June quarter.
We believe bulls had been hoping for a June guide above expectations driven by inventory restocking. However, management stated that inventory levels were within the normal range exiting March which reduces the chance that inventory rebuild acts as a tailwind in the June quarter.
In terms of capital return, Apple repurchased $18.6bn in the quarter, within its typical buyback range, and raised the dividend by 6.5%. The amount of new buyback authorization was just $50bn compared to $75bn last year but we don’t believe this signals any change to Apple’s buyback intentions looking forward.
As for the TV+ free trial, we now believe that our 45% take rate assumption is too optimistic and we reduce this to 25%. This negatively impacts our Services growth by ~3% but then should act as a slight tailwind to iPhone revenue relative to our prior model. Apple is executing well but we continue to believe consensus expectations are materially high in 2021 and our own EPS estimate for the year is 16% below consensus heading into these earnings; reiterate Sell with 17% downside to our revised target price.
Maintains Sell rating, raises price target to $243 from $236.
Cue the chart:
My take: Hall’s target must be intended for the buy-side. In other words, he’s telling Goldman Sachs’ investment clients to wait until the stock hits $243 before buying Apple again.
In that respect, Rod’s a teaching tool for how not to think. No other value.
“…. Interesting seeing so many people trash (Warren) Buffett because he’s not bullish. He’s not the the fourth-wealthiest person in the world because he doesn’t know what he’s doing.”
The above quote that I saw this morning may be a presage for Mr. Rod Hall’s “sell rating.”
I’ve grappled with selling some Apple shares believing we are witnessing a W shape recovery.
This market is on a “sugar” high. While all CEOs say how confident they are with the economy going forward, none are giving guidance except Amazon. The old cliché, “… watch my action, not listen to my words,” is apropos here.
There is going to be a cascading level of munificent bankruptcies to come. There is so much bad news out there on the economic landscape.
While I have confidence in Apple going forward, I do believe the stock will take a hit (as with all other company stocks) when the markets react one day to this approaching ominous economic storm. Apple “initially,” follow the markets, then usually recovers before other companies.
I seriously am thinking about selling some Apple shares, take my profits, and hold the cash in abeyance until such time as the markets retreat again and then go back in and buy more Apple shares at lower price.
While I sometimes critique Buffett constructively (such as his bad IBM, Wells Fargo investments and his foray into the airline industry – all debacles), I respect him highly. The man did not get to where he is, being a market dummy.
Buffett sounded an extremely cautious investment siren this weekend. His behavior shows a bone chilling response to this market. Everything he is doing and saying reeks eminently his circumspection about the overall markets in the short term.
So, I assume this is from where Rod Hall is coming.
I too, didn’t hear Warren Buffett say sell Apple and wait till it’s cheaper later and buy more. Go back and read my post George. You will see that I did not make that statement, nor did I imply that Warren Buffett made that statement.
What Warren Buffett was referencing Saturday was the overall market conditions and his sounding an extremely cautious investment siren. Go back and read my post.
Warren Buffett isn’t buying, he is selling in this market and that speaks volumes. What also speaks volumes is Warren Buffett’s cautious investment caveat.
No one can predict the market, but there will be a pull back once all the ominous news across the economic landscape begin to roll in as the tide does in the wee hours of the day.
I have tapped my dry powder twice as Apple descended to $225 in March. I am unwilling to create debt to buy more Apple and I have strong aversions to options. So, I am considering selling a very small stake of my Apple holdings, one percent (1%), to purchase more Apple shares later.
I initially purchased Apple shares in the summer of 1997 when the governing board fired Gil Amelio. The talking heads on CNBC all were predicting Apple would go into bankruptcy. My reaction on hearing that prediction was my belief that someone would swoop-in to buy Apple for its brand name and then I would sell my shares for a quick profit. The governing board, though, talked Steve Jobs into coming back to Apple; and, the rest is economic history.
Concomitantly, with my purchase of Apple that summer in 1997, I also purchased $3,500 in Apple stock for my young daughter. Her $3,500 investment today is $2,688,259.45, as I write.
The only possible downside to my decision is if the markets do not pull back sufficiently for me to re-enter to cover the capital gains tax I will need to pay on that 1%. I am betting, though, that the markets will do so.
Our family always has retained our Apple shares. Even as I consider selling the 1 percent stake in my Apple holdings, I plan to plowed the proceeds from the sale of that 1% back into Apple when the market downturn comes.
I am an Apple investor brother George, not an Apple trader. 🙂
“You will see that I did not make that statement, nor did I imply that Warren Buffett made that statement.”
You didn’t explicitly make that statement, but IMHO you implicitly did. I took it the same way as George. Glad to see you clarify your position, and thanks, George, for putting what I was thinking better and more succinctly than I would have!
“…there will be a pull back once all the ominous news across the economic landscape begin to roll in…”
That’s an opinion, Jerry. Frankly, I’m surprised to see Apple return to $300/share this quickly. But it actually reinforces exactly why your negative scenario may not happen.
Consider that the reason Big Tech is actually regaining valuation is that, especially after the last earning reports, it is clear that no real damage has been done to Big Tech’s value proposition, which strongly suggests it is pretty darned bullet-proof, no matter what comes along. That makes Big Tech a “lifeboat” for investors, which in turn increases Big Tech’s valuations, which makes it even more attractive, etcetera.
I have no doubt that, eventually, a pullback will happen. But it’s a question not only of when, but to what degree. It’s quite likely that, looking at the history of AAPL since the Great Recession, the next pullback will not go as deep as the last one, which didn’t go as deep as the previous one, and so forth, all the way back to when the iPhone was first sold.
In fact, I’d say that, contrary to your expectation, it’s entirely possible that we will see another new AAPL all time high before the next pullback.
BTW, I think you did very well to tap your dry powder when you did. That AAPL investment will stand you in very good stead, IMHO. And I see nothing wrong with keeping a fair supply of dry powder, going forward. Donna and I are doing the same (although she’s more “conservative” than I in that respect). And frankly, your insights and concerns may well be accurate.
But whether you intend to or not, you come across as inferring in your phrasing that a pullback to March prices is inevitable, and I think it’s important to throw some doubt on that inevitability.
We literally don’t know what the future holds, but I like what I’m seeing from Apple, and they’ve never let me down. And that makes me confident that their star is still in the ascendancy.