Barron’s: Apple’s 12% rally has not erased concerns about the stock

From Erik Savitz’ “Apple Reports Earnings Tuesday. Why the Market May Already Be Looking Past Them.” posted Monday:

Apple shares recently surged to new all-time highs, amid heightened investor anticipation of June-quarter earnings, due after the closing bell on Tuesday. But it’s the launch of the next generation of iPhones, expected to be unveiled in September, that might be the real difference-maker.

Apple’s recent rally has not erased concerns about the stock. Growing regulatory scrutiny of Big Tech generally and Apple (ticker: AAPL) in particular, with a specific focus on the fees Apple charges developers who distribute applications on the company’s App Store for iPhones, iPads, and Macs, is the obvious one. There are also worries about tough year-over-year comparisons, and some investors fear that the recently robust growth in Mac and iPads sales will slow as the economy returns to more normal conditions. Others are nervous that the next set of iPhones will provide only incremental improvements, and that demand could disappoint.

But no one seems to be too worried about the earning themselves. The Wall Street consensus for the fiscal third quarter is for $72.9 billion in revenue and profits of $1 a share. Even analysts who are cautious about the stock think those numbers are too low.

My take: Looking past earnings? It was always thus.

17 Comments

  1. Gary Morton said:
    It feels like there is concern in the analyst community over how the market will react to what is likely to be a strong earnings report by Apple. Given the reaction to the latest two blowouts, this is entirely reasonable. Contrarians might note, however, that there was little speculation about a negative reaction to any blowout prior to the FQ1 2021 report. Then the blowout of all blowouts came and, incredibly, the stock price declined. All the human experts rushed to offer an explanation. It will be interesting to see what happens this week. What narratives will we attach to the stock price movement? Those invested for the long term may rest comfortably knowing that over the long arc of time stock prices tend to follow company earnings. Those in it for the shorter term will offer compelling, interesting, and engaging explanations for the market reaction.

    3
    July 26, 2021
    • Horace Dediu said:
      No blowout earnings will go unpunished.

      7
      July 26, 2021
  2. Bart Yee said:
    Whatever regulatory hurdles are put before it, Apple would deal with it appropriately. These issues would be small dips and speed bumps but would be absorbed by Apple. Sure, possibly hits to services and maybe hardware is slowed by some component shortages, but eventually Apple would find ways to overcome and continue upward trajectories.

    As for iPhone demand, well major parts of the world are still recovering and certainly the US and Europe are still ramping up economically. With Covid still being somewhat of a damper, economies should still have a ways to go. Combine this with better and better 5G services, the allure of 5G will continue to boost iPhone sales. If and when Apple introduces a midrange model iPhone SE 3 (slated for 2022) with 5G and an A15 chip at $400-450, it would be a huge seller for price sensitive markets. And of course, services revenue follows.

    2
    July 26, 2021
  3. Jerry Doyle said:
    Much of the trepidation for WS surrounding the stock could be assuage if Apple comes forth providing forward guidance. I believe those numbers would be robust, catapulting the stock forward.

    3
    July 26, 2021
    • David Emery said:
      The one concern expressed about AAPL the last two quarters that I find understandable is the absence of guidance. If Apple returns to providing guidance, that would remove the concern.

      1
      July 26, 2021
      • Horace Dediu said:
        There will not be guidance while there is a pandemic.

        5
        July 26, 2021
        • Bart Yee said:
          @Horace I agree, with multiple issues related to the ongoing, resurgent pandemic, Apple would be foolish to give specific guidance. Lockdowns could reoccur, case loads could cause store closures and even close factories and supply lines, Apple’s campuses could go back to full remote work, etc.

          It hasn’t worked out badly for Apple so far and it won’t be an issue if they don’t provide guidance again. If we are as patient as they are, we will arrive at the same conclusion as Apple management – Apple and AAPL will still relentlessly forge ahead, with or without the market understanding it well and how Apple runs its business. Last month’s smackdown showed just how poorly pro analysts were at understanding what has been happening in Apple’s markets. I expect more of the same with tomorrow’s estimates.

          Besides, Apple will still get buyback shares at undervalued prices.

          2
          July 26, 2021
        • David Emery said:
          That begs the question, “What defines the end of the epidemic?” Infections/100k people below a specific number? Hospitalization or mortality rate? Just a declaration from the government or the CDC? I dunno.

          0
          July 26, 2021
    • Robert Stack said:
      I agree with much of the above – I do not believe it would be prudent for Apple to issue guidance for next quarter. With rising case loads of covid popping up all over the globe – esp the Delta variant – they have every reason to be extra cautious in predicting the future because a class action lawsuit often follows a disappointing earnings report. Plus, to the extent that failure to make an earnings prediction for next quarter keeps the stock price mildly depressed over the next quarter, Apple’s buyback purchases go much further. In short, they have nothing to gain in making a prediction for next quarter’s earnings, and a solid basis NOT to make such a prediction.

      1
      July 26, 2021
      • Jerry Doyle said:
        @Robert Stack, Horace Dediu, & Bart Yee: I suspect ya’ll are correct in your prediction. If Apple does not provide forward guidance (and I suspect they will not do so) then I also suspect we may see another successive action where folk take profits and the stock languishes or pulls back a little. If that happens, it will be a short lived response. Apple is “firing-on-all-cylinders” and at some point the stock price will mirror such excellence in performance and WS will be force to acknowledge that fact. Brother Gene Munster is flat-out mistaken that Apple’s $200 PT is up to 24 months off. Apple should be at $200 sometime next year.

        1
        July 26, 2021
  4. Fred Stein said:
    Investors were also concerned about inflation until recently. OPEC raised output, lowering a key global driver of inflation, oil prices. That may influence stock price more than rumor du jour.

    Expectation about a great report tomorrow helps, and rightly so. The rest of Eric’s concerns are just rehash.

    0
    July 26, 2021
    • Gregg Thurman said:
      Concerns?

      I’m not seeing it in the options market. Normally a contract sells at the mid-point between Bid and Ask. Today the Sellers are holding out for their Ask, and getting it.

      So far this session I have watched AAPL decline until my contract offer exceeded the mid-point but 2c, and still it wasn’t executed.

      July 30 highest Open Interest is the $150 Call carrying an implied break even of $152.60 price.

      Savitz’ article is hogwash filler because he’s paid to write SOMETHING, evidence notwithstanding.

      2
      July 26, 2021
  5. OK, I won’t consider the future or even the not-so distant past, just this quarter’s performance, when they reveal the numbers, tomorrow.
    Wait, I can’t forget Apple’s up 60% over the past 12 months (with viral headwind) or 14% YTD or 456%/5 years. Phenomenal growth rates in certain lines such as App Store, Wearables and iPad are real. Those numbers & products/services delivered speak volumes that cannot be ignored. It’s impossible for me to stop thinking long. Short-term perspectives only introduce illogical dissonance used to sell opinions. Unreal.
    $150 now. 200 1Q 2022. Bumpy in—between.
    Intuition + Research + Demand

    2
    July 26, 2021
  6. Gregg Thurman said:
    Bought less than half the number indicated by my strategy. If the market responds positively Wednesday morning I’ll buy more of these (fleshing out the balance of my weekly investment budget) but I’ll have to pay a higher price. That’s very much ok with me.

    If the market responds as before I have less than half my investment budget at risk, thereby limiting my downside, with the possibility of re-investing at a much lower Strike. I may even make a profit for the week.

    July 30 $149/$150 @ 49c

    Ordinarily I would tried to purchased July 30 $145/$146 (based on intraday low) @ ~65c, but AAPL rose way to fast to get my order in.

    2
    July 26, 2021
  7. Aaron Belich said:
    lol

    Apple has successfully navigated dark clouds and prepped for darker clouds.

    The forever doom and gloom crowd will hang over $AAPL in perpetuity as Apple slowly open the floodgates in India to a rising middle class over the next two decades, potentially +750 million new AppleID’s. And Toni-Sacconaghi-styled-analysts will be shocked when the next super-cycle is upon us all. It doesn’t matter if it’s iPhone 13 or 16 or somewhere in between. And that’s just with current personal computing tech. Wait till Apple simplifies the next big leap in tech that the next MSFT, Qualcomm, Sony, Facebook, or whoever, releases over-complicated and bloated with excess. Or perhaps it’s right in front of us and we don’t even realize it, looking at the pros and cons of social media and what Apple is doing to dismantle it for just the best parts.

    Apple’s future is so much brighter than many realize.

    2
    July 26, 2021
  8. Kirk DeBernardi said:
    “…has not erased concerns about the stock.”

    PED’s quip, “It was always thus.”

    Kinda sums up the bane of investing in AAPL, doesn’t it?

    (…he said, heaving a huge sigh.)

    1
    July 27, 2021

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