Archive for the ‘AAPL’ Category

Apple announced earnings today… they beat on top and bottom lines… and even though iPhone unit sales missed by a tad, average sales price crushed expectations.

Sounds good, right?

Not so fast.  Apple is DOWN almost 6.5% in the after market.

Yikes!

Turns out guidance came in a bit light.

And, Apple said it was going to stop reporting on unit sales, which — supposedly — signals to analysts less volume going forward.

Here’s what I think:

WHAT IS EVERYONE CRAZY?!

Apple just reported 40% earnings growth.  That’s right — 40%.  That’s spectacular for any company… but a company Apple’s size?  That’s p-h-e-n-o-m-e-n-a-l.

To put valuation in perspective:  Usually your P/E matches your earnings growth.  So if you are growing at 10%, you have a 10 P/E.  So if you’ve grown earnings by 40%, you should have a P/E of 40.

But that’s not the case for AAPL.  Apple has a trailing 20 P/E… or, even more amazing, just a forward 14 P/E.  Which means there is a case to be made that AAPL is undervalued… it could be trading 100% higher… or even 200% higher in some circles.

Further, with a company like Apple — that is, consistent… steady… predictable — is light guidance really an issue?  Especially given that Apple usually gives lighter guidance… and has been doing so since the days Steve ran the company?

I think not sharing iPhone unit totals is the real issue… and it’s not with investors… but with analysts that are tasked to create projection models.

Fair enough, it will make their job harder.

But, seriously, Apple is consistent… steady… predictable… AND growing earnings at 40%… and, btw, growing revenues at a whopping 20%, too… their job is already pretty straightforward.

So here’s what I also think:  AAPL may initially go lower… but at some point the investment community is going to say, “It’s the #1 product in the world, produced by the #1 brand in the world.  40% earnings growth means they continue to knock the cover off the ball.  Most of the macro economic indicators are still intact.  Uhm, are we daft?!”

That’s when the momentum will shift… and we’ll see AAPL move higher.

And, despite what will seem like a stock-crushing open, I think it could happen sometime tomorrow.

UPDATE:  Well, uhm, maybe next week.  :)

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There’s a lot of noise in the market.

But there’s usually a lot of noise.

By definition — at any point in time — 50% of people think there’s enough bad in the market to sell their shares to the other 50% who thinks there’s good.

Can’t have a market otherwise.  That’s why I always scoff when someone refers to “easy” trading periods.  It’s never easy.

What helps guide you through the noise is whether your fundamental investment thesis is still intact.

Is mine?  I think the two biggest drivers of corporate profits — which drive the market — are the price of oil and interest rates.  Let’s see where they stand:

* While oil took a little run to the upside, I wouldn’t call it misbehaving.  In fact, it’s shed much of its 2018 gain

* Interest rates are spooking everyone… but 10-year is sneaking back down… and Trump’s on fire about the Fed messing things up — so much so that a few Fed governors have had to reiterate that they won’t, uhm, mess things up (i.e., “will still be accommodative for quite a while”)

* Sentiment is negative.  While that’s not comfortable, as a contrarian I prefer this

So, for me, at least right now, the noise is… just noise… and what we’re seeing is some healthy “letting some air out of the balloon”… which we like… so it doesn’t pop.

 

P.S.  A great example of “noise” was Caterpillar earnings.  They beat top & bottom line.  But everyone was fretting about China and tariffs… and the stock got pounded… even though if you read their commentary, you find CAT itself wasn’t so worried about the effect of China or tariffs on its business.  Here’s some commentary from their 10/23/18 earnings call:

* CATERPILLAR SAYS FEEL GOOD ABOUT EQUIPMENT DEMAND IN CHINA NEXT YEAR

* CATERPILLAR SAYS EXPECT BUSINESS TO CONTINUE TO IMPROVE IN 2019 VERSUS 2018

* CATERPILLAR SAYS CONTINUE TO EXPECT INDUSTRY SALES IN CHINA FOR 10-TON-AND-ABOVE EXCAVATORS TO BE UP ABOUT 40 PERCENT FOR THE FULL YEAR

* CATERPILLAR SAYS EXPECT IMPACT OF 25 PERCENT IMPORT TARIFF ON ADDITIONAL $200 BILLION CHINESE GOODS TO BE ‘QUITE MINOR’

These are all good things, right?!

I have to hurry this post because Microsoft is about to announce earnings.

For the first time in many years, Microsoft’s earnings are incredibly relevant again.

As many know, MSFT is in the process of successfully reinventing itself… to be a big-time cloud competitor.

Their earnings after the market closes today are important because the market is in desperate need of some kind of clear signal… either that things are still ok in tech land… or they’re not.

It just so happens MSFT is announcing before Apple, Amazon, Google, and Facebook… which means all eyes will be on their report.

Now, Microsoft has a reasonable stage set.  Adobe reaffirmed guidance last week… which I believe single-handled stopped the market from another 5-10% slide… since everyone was/is feeling like we’ve driven off a cliff… given tariffs… and global tensions… and interest rate hikes… and Trump acting decidedly unpresidential most of the time.

And Netflix killed their earnings, too, which even though it doesn’t seem like it, also helped provide some footing in this decidedly negative market.

But some disturbing things are still happening.  iRobot (IRBT), makers of my favorite electronic device in the world (Roomba!), killed their numbers, too… and the stock was still hammered today… simply because they cited some potential tariff impact… even though they still raised guidance.

What the market wants — craves — now is more assurance… that the consumer is still spending… that interest rates, while increasing, will increase in a slow and measured pace… that oil isn’t going to spike… that tariffs are having a positive effect somewhere in the food chain…

… essentially that the foundation for investment is still sound.

A good report from the once most dominate and influential tech company in the world… that has clawed its way back into relevance… could turn everything on a dime.  Stay tuned!

UPDATE:  Earnings were solid.  Beat on both top and bottom lines.  Stock was up almost 5% at one point in the after-hours market.  (BTW, Tesla TSLA also reported and nailed it… it’s up over 10% in after hours… and ironically they mentioned tariffs and it doesn’t seem to be impacting the pop.)

[This is an Apple iPhone Tech Support post.  Totally skip it unless two-step activation has locked you out of your iPhone… and if it has, this may be one of the most valuable posts you ever read!]

I’m writing this after about 10 hours of the most horrible customer services experiences I’ve ever had.  EVER.

I’m telling my story in hopes that Apple fix this… and to save others from the horror I went through.

Background:

I lost the ability to make or receive calls.  WIFI still worked so I was able to get text and email, which actually masked the problem for the first day or so.

Verizon said it had to do with upgrading to 10.3.3, that it could be mucking with the digital antennae or something, and that the solutions was to backup, wipe the phone, reinstall, then restore the backup.

So, I called Apple Support.  They concurred with Verizon and started walking me through the process.

What Apple Support did NOT do, however, was ask me if I was using two-step authentication AND whether I had a second trusted device.

Turns out when I turned on two-step authentication, I thought it was only naturally to designate my iPhone as my trusted device.  Sounds reasonable, right?

WRONG!

This turns out to be DEATH.  And incredibly irresponsible of the Apple Support folks that helped me!

Because when I wiped my phone and reinstalled from scratch, it meant I had to reactivate my iPhone with Verizon… but Verizon requires that I enter in my Apple ID and password and, as the second step of the two-step authentication, the six-digit code that Apple would send to my — you guessed it — inactive device!

I went down Apple’s recovery path… and the automated Apple process told me it would take a few days to add a second trusted device… “for my protection.”  When a few days came, it said it would take a few more.  Then a few more.  Then it said a WEEK!

Before I continue, I want to say that these time estimates were a BIG FAT LIE.  It just kept pushing the date out on me.

And, I want to say it doesn’t matter that Apple was doing all of this “for my protection”… I use my phone for work… and it can’t be non-functional for even a few days!

I literally almost gave up and just bought a new phone… because, after TEN (10) hours of Apple Support help, I wasn’t any closer to a solution.  And — please listen to this, Apple — I was damn close to considering an android, too.

I have no idea why I called Apple Support one more time.  Maybe because I was bleary eyed and wasn’t really thinking.  Maybe because I just wanted to yell at someone.  Maybe because I own Apple stock and just couldn’t believe I was really hung out to dry here.  But I did call one more time, and spoke to Ginger L… and — TO MY INCREDIBLE SURPRISE — she actually had heard of a clever work around for this situation.

And, what do you know, IT WORKED!

Bless Ginger L., she should be CEO of Apple!

Apple, PLEASE FIX THIS.  No customer should ever, ever, ever endure what I had to go through.  PLEASE!
The Ginger L. Solution:  How to activate an inactive device when Apple two-step authentication insists on sending the activation code to the inactive device

*  Plug your iPhone into a computer that has iTunes on it.

*  Log into iTunes and back up iPhone to the cloud or your computer.

*  Restore iPhone to a new phone… initialize phone just like it’s a new one (i.e., chose language, what time zone, WIFI, etc.)… BUT — AND THIS IS KEY — do NOT enter your Apple ID, keep choosing options that bypass Apple ID.

*  Activate your account (in my case, I had to call Verizon).

*  Test that your phone can send & receive calls and text messages.

*  From a computer, log into AppleID.Apple.com.

*  Enter Apple ID and password.

*  Apple will try to send you your second-step authorization code to Message but that won’t work yet.  Click the “I didn’t receive my code” link and choose the “Send text message” option.

*  IMPORTANT NOTE:  Respond to any other text messages you see… because once you restore your backup, you will lose those newly downloaded text messages.

*  Enter code and from your computer and follow the links/instructions to turn OFF two-step notification.

*  Plug your iPhone into your computer and from iTunes restore your backup.

*  Activate your iPhone again (again, for me  with a call to Verizon)… which may require you to enter your Apple ID and password… but WON’T require Apple sending you an second-step auth code to an inactive phone!

There, I just saved you 10 hours of customer support misery!

Apple (AAPL) reports after the bell today.

Everyone expects a miss.  Lots of people have already significantly cut iPhone and rev estimates.  The stock has already fallen about 10% (correction territory) in just the last two weeks… so a lot of negativity is already priced in.

On the other hand, what’s NOT priced in are two biggies:

(1)  Apple is going to talk about what it’s going to do with its MASSIVE repatriated cash horde.

I think this is going to be stunning… since I believe it may be the LARGEST cash repatriation EVER for a corporation.

All kinds of stock-positive things will be discussed… like significantly raising the dividend… or massively increasing buy backs… and so on.

So this will be a positive.

(2)  The market is so totally fixated on iPhone that it sometimes forgets that Apple has other massive businesses, too… like services… like Mac… like iPad… and so on.  And like the rest of tech this quarter, I think those will surprise to the upside as well.

So, my thoughts are these:

The bad news about iPhone is already mostly priced in, which I think minimizes or eliminates the downside.

The good news about repatriated cash usage and all the other Apple businesses are NOT priced in.

So I tend to think they’ll be more of an upside surprise than not.  Which is counter to the way everyone’s going into this earnings call.  As a contrarian, that’s scary but what I like as an investor.

I remember the first Gulf War back in 1991.  The entire world was freaked out, including — especially — the financial markets.

Yet, the day we attacked, the Dow had one of its best days ever.

I remember hearing the phrase, “flight to quality.”  That is, when the going gets scary, the smart move to safe and trustworthy investments.

On that January 18th day back in 1991, it was IBM that people flocked to… IBM being, back then, the most important tech company on the planet.

Over the last few days, it’s been AAPL.

I think this puts a lot of the nitpicking criticisms of AAPL in appropriate perspective:  When the going is tough, the tough don’t hesitate to flock to Apple.

Lots of downgrades for Apple over the last few weeks.  The stock was spooked from a $180 level just two weeks ago to around $166 today.

It has nothing to do with the holiday quarter that Apple is going to report on tomorrow after the market’s close… that, people believe, will come in at record levels.

No, it has to do with how the iPhone X is selling this quarter.  Channel checks with suppliers indicate Apple is slashing its expectations of iPhone X sales this quarter… by as much as half

… which certainly seems like a huge let down given that the iPhone X is supposed to be the flagship product and the first iPhone to crack the $1,000 price barrier.

But… come on, people… did you really think a $1,000 iPhone X should sell in consumer numbers?  It’s not supposed to be a volume leader… rather, it’s supposed to be something exclusive and, quite frankly, unattainable for many.

That’s the whole point… to have a high-end iPhone entrant that (1) makes the device/technology more desirable, and (2) contributes in some way to an even higher overall iPhone family “ASP” or Average Selling Price (which is already the highest in the industry).

My guess is — since there are no negative reports on the iPhone 8 — that it’s not only selling well, but making up for any short-fall from the iPhone X… after all, if they’re not buying an iPhone X, they’re buying one of the other not-so-cheap models.

Additionally, don’t be surprised if some of Apple’s “smaller” businesses — like cloud & other services — make meaningful contributions, too.  Even the analysts that have raised flags on the iPhone X agree that last quarter should be pretty spectacular for the company.

And, finally, I always have to throw in the irrationality of the market:  Apple, one of the most stellar tech companies in the world according to any measure (even growth), has a P/E of 14.2 forward earnings… while the average company in the S&P 500 has 18.6.  If you’re looking at tech leaders, Google has a forward P/E of 28… and Amazon has — wait for it — 168.  Go figure.

AAPL has been beaten down so much by negative sentiment in the last few weeks that I think we might have a nice setup for a pop after earnings tomorrow.

At least, that’s what the contrarian in me thinks.