Daniel Ives: Apple’s Omicron selloff is a ‘clear buying opportunity’

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

The market/tech sell-off this morning on Covid variant fears found in South Africa we view as a clear buying opportunity given our bullish view of the tech sector set up into 2022.

Over the past 18 months our bullish tech playbook has been unchanged and any time we get 10-year yield spikes/variant fears/second wave worries we view this as a buying opportunity to own the tech secular winners. While we are seeing a return to normalcy, a semi-remote workforce environment we believe is here to stay which underscores our thesis that areas such as cloud, cyber security, 5G are robust tech spending areas into 2022.

We would own the secular winners in FAANG (Apple remains our favorite), cloud (MSFT, DOCU, NICE, PEGA favorites), cyber security (ZS, PANW, CYBR, SAIL, FTNT, TENB favorites), and 5G looking ahead. Our view is that while tech valuations appear stretched to many on the Street, importantly the growth prospects around cloud, cyber security, 5G, and the metaverse are unparalleled to any period of time we have experienced since covering tech stocks in 2000. We believe the chip shortage eases throughout 1H2022 which will further buoy the overall tech.

Maintains Outperform rating and $185 price target. 

My take: Apple closed down $8.89 (5.4%) from Monday’s intraday high and $5.56 (3.17%) from its pre-Thanksgiving close. I bet there’s money to be made there, but by the time the markets open Monday it will already have been made.

57 Comments

  1. Roger Schutte said:
    I did my Black Friday electronics and semiconductor shopping yesterday morning at Fidelity.

    6
    November 27, 2021
  2. Kirk DeBernardi said:
    “My take: Apple closed down $8.89 (5.4%) from Monday’s intraday high and $5.56 (3.17%) from its pre-Thanksgiving close. I bet there’s money to be made there, but by the time the markets open Monday it will already have been made.”

    Hey PED —

    I’m having a hard time discerning whether that’s the journalist in you or the shareholder in you making that comment.

    PS: I’m betting shareholder — 😉 Time to buy another share, yes?

    2
    November 27, 2021
  3. Tommo_UK said:
    As I commented in a thread earlier in the week, with supply chain, demand, and covid worries, the market and AAPL could “correct” 20-30% given the unprecedented run-up since the first COVID-collapse and still be on track, setting the stage for buying on the cheap.

    Throw in geopolitical storms brewing in China Russia and Europe and you’ve got the perfect winter storm to “climb a wall of worry.”

    I’m more comfortable seeing the market react to events in a steady way (ie +/- 5% over a week is nothing these days) than “rah rah” past them. To be honest I would have preferred to see a deeper correction to set the stage than this shallow dip which only takes us back a month or so but doesn’t factor in huge new threats. Maybe that’s to come?

    In short it’s a mug’s game trading this as its fear driven but on extremely justifiable fears. I can still see an easy recovery or decline of 20% from here without denting long term gains.

    However unlike Ives, I wouldn’t be adding here.

    Maybe at $150 or below but not still up here. The market has already wet its pants with excitement about AR headsets, satellite linked iPhones and Apple Cars – none of which have any likelihood of appearing anytime soon but are part of the current froth under the PPS.

    Back on the ground we know the iPad and iPhone 13 are generally unavailable with wait times up to 6 weeks, and will impact this quarter’s numbers just like the late launch of the 12 did last year (obviously giving a great boost to the traditionally weak – as Toni would say – Q2.

    The big upside this quarter will be in Mac sales and services IMO. Q2 will be a smash though.

    5
    November 27, 2021
    • Jerry Doyle said:
      @Tommo_UK: Your comments were interesting reading. They present reasons for pausing on investment reflection on how to go forward in this market, specifically with Apple for whom we all hold many shares. Here’s where I believe your thesis is fallible: the world is drowning in liquidity.

      There’s just too much liquidity sloshing everywhere and more to come. While there can be modest market pullbacks periodically predicated on the very fears of which you denote, my thesis is that with the world being inundated with humongous amounts of liquidity the markets are supported by the global economies buoyed by the dramatic infusion of capital and growth in technology.

      Anyone not invested in the markets these days are going to miss out making sizable sums of returns.

      6
      November 27, 2021
      • David Drinkwater said:
        What is the basis for this liquidity theory?

        I may personally be lucky with AAPL, but I spend a fair bit of time among the dust of the world (there is a philosophical and spiritual reason for that). The upshot that I see is, a lot of customer service businesses are suffering. This does not speak to liquidity.

        I know that *my* portfolio is up 30% YoY, but I do not believe that that experience applies to 90+% of Americans.

        So, please, Jerry, offer some data or a cite-able link to confirm your supposition.

        0
        November 27, 2021
        • Jerry Doyle said:
          @David Drinkwater: I initially started not to respond to your comment David as I felt you were being glib. Then I realized that you may not be cognizant fully of the social science of economics associated with government stimulus and central banks’ monetary stimulus actions.

          Let’s circumvent what the FED is doing to stimulate the economy and just focus on direct government stimulus to corporations and individuals. We will use one industry as an example: the airline industry.

          Friday was the single busiest air travel day since the pandemic began. The TSA expects the trend to continue as it screens approximately 20 million passengers. If it weren’t for the government stimulus given to the airline industry, not a single one of those passengers would have flown this week. Why? A consensus exists among economists that in the absence of government stimulus awarded to airlines during Covid that not a single major airline would have survived, not even Delta. All would have gone under.

          The aviation industry (consisting of the majors) comprises an extensive air transportation network with some of the world’s busiest airports serving an aviation fleet over a quarter million aircraft and close to ½ billion passengers. The combined airlines employ over 1,000,000 personnel. All would have lost their jobs without a government bail-out to their Employers.

          Airports serving those airliners getting government bail-outs would have closed if the airline industry went under, resulting in airport personnel losing “their” jobs along with all the businesses operating inside the airport terminals also closing their operations with their personnel losing “their” jobs. Impacted negatively, but perhaps able to survive, would have been service industries supporting airline terminals. The trickle-down impact would have been formidable in cities and local communities across the nation. I am giving you the example of only one affected industry, the airline industry. Other industries could be enumerated easily, from large to mid-size businesses and even small businesses employing 500 workers that were able to continue operations because of government stimulus money.

          Continue….

          0
          November 27, 2021
          • Jerry Doyle said:
            @David Drinkwater:

            Continued….

            Personal savings in the US averaged 9% from 1959 until 2020. By 2021 personal savings in the US reached an all-time high of 34%. Many folk are flushed with cash, and we are beginning to see the effects of such in recent earnings reports.

            While there is a problem in America relative to income “inequality,” the most vulnerable social-economic groups would have starved in the absence of government checks, rent abatement, increased unemployment compensation and extension of government program subsidies along with other government stimulus efforts during the pandemic.

            Government stimulus along with the FED’s monetary actions have dumped huge amounts of “liquidity” into the global economy. This liquidity only is good, if done judiciously and if the government stimulus is “targeted.”

            I trust the above is helpful information. You can do further review of literature to understand government stimulus, how it works and how it impacts nations’ economies.

            0
            November 27, 2021
            • Robert Paul Leitao said:
              Jerry: I enjoyed reading through your analysis. I do expect the record levels of savings in this country to be worked down rapidly through the holiday season and in 2022. How do you see the extraordinary stimulus and temporarily high savings rate to positively impact Apple in particular over the next 12 months? Stimulus is done and the benefits of the two major spending bills (one passed, one still in the hopper) will take years to impact the economy and spending may be curtailed when the 118th Congress is seated in January 2023.

              0
              November 28, 2021
      • Tommo_UK said:
        @Jerry Huge pools of liquidity have already been “all in” and increasingly more so since the recovery from the dip in early 2020. Banks are indeed bursting with cash, but so are traders and investors eyes on the simply gargantuan profits they’ve made and may want to book for now given the uncertainty. Huge liquidity at play means a small withdrawal from the game can have an outsized impact especially given how trader-driven the market is at the moment.

        Strong tides work both ways.

        0
        November 28, 2021
    • Robert Paul Leitao said:
      Tommo: While Apple reports quarterly, iPhones sales cycles are really semi-annual in nature. I’m also expecting very strong March quarter results. Back to your main point, we should all have at least contingency plans for a 20% to 25% market pullback. In other words, keep enough assets reserved or otherwise available to ride out a pullback and/or to invest at lower prices. Forced selling to meet personal obligations during a pullback or market trough is not a desired outcome. For those using margin aggressively at this time, please be careful. That could result in really unfortunate forced selling situations.

      7
      November 27, 2021
      • Tommo_UK said:
        @Robert yes wise words. As they say, “been there, done that, had the margin call.” It’s not funny and seriously harmful to one’s wealth. This is a time to HODL if you’re an investor and see what happens not speculate or double down on just a 5% dip. I think Ive’s comments to buy this are a bit reckless considering the public consumption of analysts notes converts so quickly into meme trading (let’s just call it what it is, gambling) and follow-the-leader reactions.

        He would have done better to have said any dip is no cause for concern for investors and that AAPL represents a great purchasing opportunity on further declines.

        Yelling BUY right at the start of the spread of another deadly variant which is being tracked globally over the weekend, with country after country announcing new lockdown and enforced vaccination policies is just.. odd.

        @Bart In the UK, we’ve now re-mandated mask wearing as of our PM’S announcement Saturday afternoon in an emergency press briefing from Downing Street, and we’ve also seen the new variant here too, as has Europe and much of the world.

        Footfall in retail stores has been lower than expected and for once, Black Friday seems to have missed the mark which has been accompanied by widespread mocking of the phenomena in the media. While spending remains strong, people aren’t shopping like fools any longer, and are being careful where and how they choose to spend.

        The Chinese have certainly ensured we live in interesting times.

        0
        November 28, 2021
  4. Bart Yee said:
    As I mentioned in my previous Omicron posts, by the time you detect spread, it’s already trying to seed elsewhere. This Reuters’ report just out is going to fan further volatility come Monday. Just think of all the passengers traveling to/from Africa that have landed in Europe and the US in the last 2 weeks. Remember, it only takes a few to begin exponential case growth.

    “AMSTERDAM (Reuters) -Dutch health authorities said on Saturday they had detected 61 COVID-19 cases among people who flew from South Africa on Friday and were now doing further tests to see whether any are infected with the new Omicron variant.

    The cases were discovered among around 600 passengers who arrived at Amsterdam’s Schiphol Airport on two flights on Friday before the Dutch government halted air traffic from southern Africa due to concerns over the variant.“

    “Paula Zimmerman, a Dutch photographer who returned from a family visit in South Africa on Friday morning, said the situation for the passengers on the planes was chaotic, as they were kept waiting on the tarmac and in the terminal for hours.

    Zimmerman was told she had tested negative at 4 a.m., almost 18 hours after landing in Amsterdam, but said she then found out she was standing right next to a man who knew he had tested positive for an infection.”

    “Having spent hours on a flight that likely had many infected passengers made Zimmerman anxious for the days to come, she said.

    “I’ve been told that they expect that a lot more people will test positive after five days. It’s a little scary the idea that you’ve been in a plane with a lot of people who tested positive.””

    Remember, the virus doesn’t care one whit about you, it’s just looking for suitable and susceptible hosts to infect, replicate, spread and repeat. If you get sick or worse, it doesn’t care at all.

    7
    November 27, 2021
      • Bart Yee said:
        I would expect reports like the above to ramp up quickly as testing at end destinations and contact tracing gets rapidly implemented. Same for African nations if they can do it for travelers as well as general population so follow the African CDC website.

        IMO, clearly if it’s already in the EU, it’s already here in the US, silent but spreading. Not a paranoid or pessimistic view, just reality of infectious viral replication and spread plus the nature of reactively testing instead of proactively testing and characterizing.

        I would suggest the markets aren’t going to like this at all and may experience a sharp pullback like another 5-10% over a week or two. IMO, Apple will not be immune and will get pulled down by the lowering tide. At some point, Apple will be buoyed by positive sales info and speculation that if we are going to encounter another winter Covid PLUS a new variant to contend with,

        1) the economic recovery may slow or pause

        2) inflation fears will vacillate but not dissipate

        3) potential for regional and global lockdowns to spread

        4) tech will be hit but recover and rebound as people may retreat back to the safety of home.

        5) viral vaccine developers will be tasked with reconfiguring mRNA info to account for Omicron mutations. Moderna and Pfizer have said once the mutations are confirmed, they can sequence the spike proteins and develop new mRNA vaccine mods within 6 weeks to a few months, then testing, production, and deployment as primary and booster shots.

        6) unfortunately, as usual, the rich nations will benefit from this rapid medical effort while poorer nations and continents like Africa continue to struggle with current and future vaccination program for their people.

        How all this affects Apple and AAPL AOA is quite unknown in the short term although long term the trend is still upwards IMO.

        5
        November 27, 2021
  5. Fred Stein said:
    Buying opt? sure. Since timing is always tricky, let’s take Bart’s and Tommo’s comments seriously.

    Soon enough, Jerry’s points point about liquidity kicks in. There’s so much sloshing around. AAPL remains “anti-bear” in addition to Apple being anti-fragile, because the market still undervalues AAPL. When / if there is a sell-off, money flows back to AAPL.

    3
    November 27, 2021
  6. Jerry Doyle said:
    What we are seeing this time around is quick, appropriate government response to limit the spread of the new variant. That quick and appropriate government response should have a calming effect on world-wide markets that matters are being addressed expeditiously & competently. Hopefully, the markets will quickly settled down as not to put a crimp into the Santa Claus rally. I’m optimistic that scenario will play out. A little turbulence at first Monday morning and then back to our $170-175 climb into the New Year.

    3
    November 27, 2021
    • Bart Yee said:
      @Jerry
      While I appreciate and applaud your optimism, governments are chasing the Omicron variant and hoping to catch up and then limit it. But like Covid alpha did, the virus always has an unseen head start.

      Meanwhile, Omicron’s infectious vectors, namely unsuspecting (or rapidly suspecting if they have any shred of dot connecting) travelers and now any and all of their contacts are unknowingly spreading Omicron to others. Currently we don’t know if the vaccinated have a lesser chance of infection or illness but I think it likely the unvaccinated and less cautious US population is squarely at higher infection risk. Within 2-4 weeks, we will begin to receive illness and potential hospitalization reports.

      By Christmas we will know if Omicron is similar or worse than Delta has been. So recent and upcoming people gatherings and holidays could be risky again, although many folks will blithely continue with their plans.

      I hope people worldwide pay attention to real science, epidemiology, virology, public health, and medical technologies response at work (again) for everyone’s benefit. The hundreds of thousands, nay, millions of people fighting for evolving knowledge and response worldwide IMO deserve our respect, support and gratitude.

      This pandemic unfortunately is far from over.

      4
      November 27, 2021
    • Robert Paul Leitao said:
      Jerry: People invest in “the markets” but not everyone invests in Apple. Also, institutions have limits on the percentage of assets that can be committed to one equity, industry and asset class. There isn’t a legitimate and licensed financial advisor that would recommend a high concentration of investor dollars in any one equity. Mutual funds have similar restrictions. Additionally, with literally millions of Baby Boomers retiring early along with those reaching more traditional retirement ages, they will begin drawing on their invested assets for living expenses. Besides, there are more than 11,000 equities available for investment on the major markets in the US alone. On a long-term basis, equities tend to be an effective inflation hedge. I think Apple’s an amazing company and an attractive equity to own. That doesn’t mean it’s the only equity I own or the one name that looks most attractive to own at this time. As a matter of fact, it doesn’t appear on any of the screeners I actively use at this time.

      2
      November 27, 2021
  7. Gregg Thurman said:
    I added to my long position with lower Strikes than was possible on Wednesday. Haven’t sold anything against them free as yet, expecting a dead cat bounce on Monday.

    2
    November 27, 2021
  8. Bart Yee said:
    While liquidity is indeed sloshing around, and may be added to if more Covid waves ripple though, the people who control the liquidity, mainly large institutional investors, IMO are not going to place bets anytime soon due to uncertainty. I think significant money is going to flow out of the market, particularly tech, as profits are booked and taken and will sit on the sidelines for awhile as the shakeout commences vs gaining any visibility fighting this new Covid wave and variant.

    Are we better equipped after alpha and delta experiences, sure. Are pandemic fatigued people going to respond better this time? I hope so, I think a majority will but that still leaves a sizable proportion who won’t and they are the ones still and will remain at higher risk, and IMO delay the pandemic’s ultimate end, at least in the US.

    Other large and struggling countries and continents may remain hotspots and mutation incubators, the US included. The virus doesn’t care about borders either.

    So market volatility may roil around for some time until a new equilibrium and direction becomes more apparent.

    2
    November 27, 2021
    • Robert Paul Leitao said:
      Bart: We should all have at least contingency plans for a market pullback in the 20% to 25% range. The cause today might be the new variant, next month it could be the gradual reduction in the liquid flow, six months from now it might be rising interest rates. Stimulus has mostly come to an end and even recent government spending increases will take years to work their way into the economy. I’m not suggesting doom and gloom. I am suggesting investors prepare responsibly for different market conditions and position themselves to take advantage of a major market pullback when it happens.

      1
      November 27, 2021
  9. Bart Yee said:
    I’m hoping to continue to hear from Apple 3.0 members regarding local Apple sales conditions, especially Bas as his store experience and sales gives us a great EU perspective, especially given the current Covid situation and rapidly evolving Omicron story. I wonder though if his foot traffic will slide while any online presence his store may have increases? I’m particularly interested in relative sales %’s of the different iPhone 13 models and if, as many suggest, unit sales are decidedly in favor of the Pro and Pro Max Models. Most suggest ASP’s increasing as many choose higher memory configurations which raise prices without much difficulty for Apple. I think Apple consumers who had to hold back over the past 18 months are going to spend while they can, and in fact (or speculation) there might be a FOMO element pushing Apple sales while product is still reasonably available and lockdowns not yet fully reimposed in major Apple markets.

    0
    November 28, 2021
    • Bob Goldstein said:
      Bart, I recently bought the AirPod Max from the Apple store, I am going back today to buy a four pack of Airtags with the keychains for Hanukkah presents to my family. Good deal with the $25 gift card

      1
      November 28, 2021
      • Robert Paul Leitao said:
        @Bob Happy Hanukkah! Did you pick up a nifty genuine Apple Polishing Cloth during your shopping spree? I want to hear firsthand from someone who has one. Yikes!!! Hanukkah begins tonight! Best wishes with the shopping!

        0
        November 28, 2021
        • Bob Goldstein said:
          Thanks for the Happy Hanukkah! No cloth but my wife and daughter love the Airtags. I have one for my son when I see him. Still doing my part for Apple. By the way, I highly recommend the Airpod Max. Expensive but worth the money

          0
          November 28, 2021
  10. Bart Yee said:
    I went back to Costco to purchase a pair of new AirPods Pro w/MagSafe charging case. The new electronic kiosk ordering system confirmed in-store availability (I had also called ahead to check) and printed out a thermal barcoded slip for my model (vs the original AirPods Pro or new 2021 AirPods) and for AppleCare+ should I desire. I went straight to self checkout, scanned both barcodes and paid via Watch activated ApplePay. Easy peasy! Took both slips to merchandise pickup and they gave me the product and helped me register the AppleCare and connect it to the AirPods serial number and my account.

    While there, I perused from the door the Apple Product inventory. AirPods Pro were selling very very well. Since small boxes, plenty of product had been available (probably space for ~100 (4x6x4) and 40% gone). The employee there commented that in her 6 hours she had given out 15 pairs, with additional hot iPad & AirPod sales. She confirmed Apple products selling briskly into the Black Friday early sales and continuing to get inventory regularly. iPhone sales were again handled by a separate kiosk but they did store the iPhones inside in two very large standing safes about 5 feet high mounted in the wall – sensible precautions for high value products.

    I feel Costco represents the middle and upper middle class consumer and entrepreneur groups. Plenty of people with very full carts, food, liquor, staples, gifts, etc. Costco encourages early shopping to avoid inventory depletion so Costco shoppers are quite used to this. I expect Costco online to do very well also.

    1
    November 28, 2021
    • Robert Paul Leitao said:
      Bart: Thanks for the firsthand report! Congratulations on acquiring the desired Apple products so quickly!

      0
      November 28, 2021

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