Bernstein: 'The FAAMG blues... or is it just Apple?'

It's just Apple, says analyst Toni Sacconaghi.

From a note to clients Friday that landed on my desktop Sunday:

Following an extraordinary year in 2020, AAPL has underperformed the S&P year to date by 980 bps. While there has been a broader market rotation to value from growth, AAPL has underperformed both the value and growth indices, as well as the NASDAQ and other FAAMG stocks. By contrast, several IT HW stocks within our coverage have notably outperformed.

All of AAPL's underperformance has occurred since Apple reported earnings on Jan 27th, despite the fact that Apple reported a very strong quarter – in fact, among FAAMG stocks, Apple's recently reported Q1 had the strongest revenue beat, and forward 12-month revisions were largely in line with other FAAMG stocks.

Several investors have suggested that Apple's weakness is attributable to increased short interest in large cap tech names and indices following the Reddit/GameStop short squeeze. The disparate performance in FAAMG stocks since then suggests to us this is not the case, and that Apple's move has been driven by largely stock-specific factors.

So why has AAPL's stock been so weak year-to-date? We believe it is being driven by two considerations: (1) Significant relative multiple expansion (51%) in 2020 which has left the stock at very elevated valuation levels vs. its recent history; and (2) a perceived lack of catalysts/more limited likelihood of significant revisions going forward.

Should investors look to go overweight in the coming months? Over the last year, AAPL has followed its traditional historical seasonal pattern of outperforming meaningfully in advance of iPhone product releases, and not outperforming thereafter. Accordingly, should investors look to follow the pattern, and go overweight in the coming months? We think not yet – AAPL's multiple is still rich vs. history, Apple will be facing very strong iPad & Mac comps in 2H, and next year's iPhone cycle will likely not offer compelling new functionality.

Maintains Market Perform rating and $132 price target. 

Cue Exhibit 1:

apple bernstein faamg sacconaghi

My take: Relatively even-handed, I'd day. For the CNBC version, click here.

13 Comments

  1. Gary Morton said:
    Humans excel at creating what seems a reasonable narrative around what could just be random events. Tony Sacconaghi is very talented in this regard and may seem to get closer to the objective truth than many of his compatriots. However, the Apple specific narrative could change next week, next month, or next quarter with no real changes in the long term outlook for the company. Let’s be honest, no one is sure where Apple will trade in the next few months or quarters for that matter. Market whims are like the weather. However with their great hardware products that will benefit from 5G expansion, their powerfully innovative culture, the continued relentless growth of services, the repurchase of about 8% of the outstanding stock every year for the next several years, the huge leap in performance over competitive hardware that the M1 and successive chips will bring, coming new product categories in EVs, and/or, AR, and/or VR, and/or health monitoring, or something else; it seems likely that 5 years from now the stock will be trading at a much higher price than it is trading today. For the long term investor, those are some alternative narratives to consider.

    7
    March 7, 2021
  2. Gregg Thurman said:
    Significant relative multiple expansion (51%) in 2020 which has left the stock at very elevated valuation levels

    Multiple expansion was relatively strong because, historically, AAPL’s multiple was abnormally low relative to its many and varied peers.

    8
    March 7, 2021
  3. Robert Paul Leitao said:
    There’s nothing “wrong” with Apple. At present Apple is not a momentum play and the market most recently has been hunting for gains in perceived COVID recovery equities – those equities that have been beaten down during the pandemic and are likely to rebound as the economy reopens. Working in Apple’s favor are the strongest product and services offerings in the company’s history, the massive and ongoing share repurchase program and a dividend that is likely to be increased annually. Please perform your own due diligence. I’m likely to be a buyer for the long-term as shares trade in the current range.

    2
    March 7, 2021
    • John Butt said:
      Very much agree Paul, in fact we have started buying back our sold at $142 shares.

      Their own chips have been massively undervalued. I used the gains to buy an iPad, MacBook Air and AirPod Max. These products all overperform, if that word exists. I am a heavy spreadsheet user who has found Numbers capable of great stuff and it’s very quick on all Apple computers incl iPhone in that.

      2
      March 7, 2021
  4. Michael Goldfeder said:
    Tony is very adept at quantifying his opinions. However, his best interview was done well before Covid ever hit when he fell on his sword and said he was wrong about Apple going back to 2019.

    Anyone can throw darts, flip coins, or make up any multitude of reasons for the drop in share price since the record earnings were announced on January 27, 2021. Regardless of which excuse bag is utilized, this much is certain: Luca is buying back as many shares possible under the current buyback plan at these prices. That works just fine for me as I’m holding my shares while the % of ownership in the company increases with the ever shrinking float.

    3
    March 7, 2021
  5. Jerry Doyle said:
    Nothing about Apple has changed in the past couple of months. The Super Cycle still is underway. Apple is as much a post Covid-19 play as it was a Covid-19 play. The world-of-work is not going to revert back to pre Covid pandemic days. Work from anywhere continues going forward with employees finally breaking their companies’ IT umbilical cords from Windows to MacOS. The travel & entertainment industry PR machines is pushing the scenario that everyone is going to rush out getting on planes flying to far-away destinations not sure of continuing Covid-19 variants spreading. Travel & mass entertainment engagements will come back eventually, but it will not be tomorrow, next month or even this year; 2022 the earliest. Besides, Apple is no more a post Covid-19 play as it was a Covid-19 play. Apple is Apple. Consumers desire premium tech products & services. $1400 stimulus checks are going out this month into the hands of many who will use those checks for continuing technology upgrades. Toni should know by now that Apple never has been a short-term play, but a long term play. Apple never has been better positioned for continued stock price growth going forward.

    4
    March 7, 2021
  6. David Emery said:
    The only ‘underperformance’ has been on the part of Wall St valuation. NOTHING APPLE HAS DONE HAS CHANGED in the last 3 months.

    The one risk to Apple has to be the legal concerns. Otherwise, Apple continues to hit ‘on all cylinders’ with the chance of a boost from M-x chips in the Mac line.

    1
    March 7, 2021
  7. Horace Dediu said:
    It’s nice to see cheap shares for this years’s expanded buyback.

    “They’re in a billion pockets, y’all!” – Oprah

    4
    March 8, 2021
  8. Peter Kropf said:
    Interesting:

    The link below estimates in the next 3 years Apple’s buyback will be
    $80B annually. Today’s Market Cap is close to $2T. $80B over $2T gives us a 4% buyback at today’s market cap.

    If we add that untaxed 4% buyback yield to the taxed dividend yield of .9%, Apple’s current yield would be 5%+ as most of it’s untaxed.

    Looks like a bank, except for the possibility of a huge collapse in revenue.

    https://www.forbes.com/sites/chuckjones/2021/02/28/apple-will-have-to-buyback-250-billion-in-stock-to-become-cash-neutral/?sh=94285507d7d5
    Thanks

    0
    March 8, 2021
  9. Ralph McDarmont said:
    Anybody betting against AAPL is insane and probably headed toward poverty. Serious investors have known and studied this for decades. I wish I had more cash to buy AAPL on today’s senseless dip. I suggest the big Wall Street traders abandon their martini lunch this morning/afternoon and get wisdom. The dip in tech is an open gate for invesruookk’

    0
    March 8, 2021
    • Ralph McDarmont said:
      I have no idea what invesruookk means. Bad typing I imagine. I might have meant investors. Sorry ped and everyone. Rough day today

      0
      March 8, 2021
  10. Michael Goldfeder said:
    @Ralph: I thought it was another word much like “covfefe” invented by Donald Trump.

    1
    March 8, 2021

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