Archive for the ‘Apple’ Category

This is not a Reuters headline you want to wake up to… being put on a Chinese “unreliable entity list.”

Looks like we’re heading for a showdown between everyone’s favorite American president and everyone’s favorite Chinese Communist Party.

And, unfortunately, Apple (AAPL) may be caught in the middle.

Ouch.

Many years ago, someone termed the new leadership in NASDAQ “FANG”… Facebook, Amazon, Netflix, and Google.  Essentially the best of the new tech.

Over the last few years, that morphed into “FAAMG”… Apple and Microsoft got let into the group.  While elder statesmen, there is no doubt that they deserve to be part of tech’s elite.

So powerful is this group that just those five stocks represent 20% of NASDAQ movements.  That is incredible, if not incredibly unbalanced.

And it’s the performance of these five companies that have kept the NASDAQ index from falling like other popular indexes around the world.

For four out of the five companies, the performance has been merited.

We all have to stay at home and have things delivered to us?  Geez, could it get any better for Amazon (AMZN)?

We all have to stay at home and use the cloud to do pretty much everything in our lives… like work… school… socializing… entertainment?  That’s great news for cloud-based leaders like Facebook (FB), Microsoft (MSFT), and Google (GOOG).

So why am I separating Apple (AAPL) from the herd?  After all, our mobile device is absolutely indispensable, right?

Yes, but will people without jobswithout income… scared and uncertain when the crisis will be over… line up for new iPhones come this fall?

I don’t think so.

That is, if there’s even an Apple Store open to line up in front of.

But it’s not just me.  The other day I shared a KeyBanc’s report that iPhone sales in April have declined -77%.

-77%!

No other FAAMG’s business is taking a hit like this… to the contrary, all the other FAAMG’s businesses are being helped by the crisis.

It’s not Apple’s fault that the entire world just stopped.  But it is investors’ fault if they invest in Apple right now.  Because — right now — Apple is getting gutted.

So why is AAPL enjoying the same stock success as these others?  To borrow a phrase from a past crisis:  Irrational exuberance.  

Ultimately reality wins.

Another harsh Apple headline:

iPhone Sales Crash 77% In April, Hammered By COVID-19 Lockdowns

This is from a KeyBanc Capital Markets report, using internal credit card data, as reported by ZeroHedge.

Here’s the mind-boggling chart.  Notice there is no “black bar” for April 2020 store revenues.  Uh, oh.

Apple iPhone Sales Chart

Another uh, oh:  That light gray bar for April 2020 is the same size as March 2020 — meaning no growth in online sales month-to-month — and is noticeably smaller than April 2019 online sales.

So, so much for Apple’s online sales picking up the slack for their closed retail outlets.

There’s data, in no black or white!

So how in the world could Apple continue sprinting towards an already inflated all-time high?

That’s the real mind-boggling question.

Well, that’s not a good headline.  More evidence that, in the short term, AAPL may have too much of a premium built in.

Here’s the link to ZeroHedge’s take on the new IDC global smartphone report.

Everyone loves to talk about how much cash AAPL has…

… I wonder how many people realize how much debt Apple has to offset that cash?

Almost $120 billion worth.  Like 60% of their cash horde, which makes that cash pile quite a bit smaller than most think.

Commenting on Apple’s financials is like complaining after someone just bowled a 300.  They really are perfect.

So, now that I’ve made that disclaimer, I’m going to comment on Apple’s financials.  :)

Well, not so much their financials… as much as their valuation as determined by their financials.  Because I think they suggests Apple has overheated.

A long time ago, the rule was your P/E should be about your growth rate.  Primarily earnings, but people applied this to revenue growth, too, given that earnings was sometimes impacted by operating initiatives.

So, if you were growing earnings around 10% a year… or revenues around 10% a year… you should have about a 10 P/E.

Like everything these days, that’s also been inflated.  Or ignored.  Or convoluted due to a variety of “financial engineering” things.  People rationalize inflating via the term, “multiple expansion.”  But regardless of creative justification, it’s still a grounding rule-of-thumb that offers some perspective.

How does all this apply to Apple?

AAPL’s P/E is just over 23.

Over the last few years, AAPL’s average earnings growth was about 14.5%.  AAPL’s average revenue growth was about 7%.

See the problem?

On either measure, AAPL is overvalued by a good chunk.  Sticking with just earnings (the higher percentage), that suggests AAPL should be trading around $200 per share.

But it gets worse.

Pre-pandemic, Apple’s Q1 earnings were up 19% comparing like quarters.  (Revs were up 9%.)  Still below P/E, but at least you can see that earnings growth was within spitting distance of it.

Post-pandemic, Apple’s Q2 earnings were up 4%.  (Revs essentially flat.)  Now that’s way below P/E.

But here’s the bottomline:  The combined earnings growth of 14% for the first half of the fiscal year doesn’t account for the fact the next few quarters are going to look more like Q2 than Q1.  Due to the pandemic, earnings and revenue growth at Apple HAVE SLOWED.  For real.

And my point?  The shares are priced like nothing’s happened… for an immediate snapback… but the numbers are already saying this isn’t happening.

Heck, even the company said this isn’t happening on their conference call.

Using my old P/E guideline, AAPL could theoretically be valued around $100 per share.

Now, before anyone thinks I’m a stock-hating crazy or something, I don’t believe that will happen.  Apple is one of the most phenomenal businesses on the planet.  They are so big — and so well managed — and have so many levers — that of course they would make adjustments to their business before that happened.

For example, they could cut a lot of costs.  Duh.

Or, if their hardware business ever sucks too much wind, they could just spin-out their services businesses, which continues to grow impressively through this crisis.

You might say that they would never break up their eco-system… but, believe me, it’s a lot more common in business than you might think.  Usually goes under the term “monopoly.”

You might also say that Apple is just too big to have such a puny valuation.  But there are lots of HUGE companies with puny valuations.  For example, massive distributors with tiny earnings.

So, while I’m not saying AAPL is going to $100, the thought that it theoretically could gives me comfort saying AAPL — in the short term — should be trading closer to $200 than $300.

Apple reporting earnings yesterday.

They beat significantly lowered expectations on top & bottom line.

How excited were analysts?  Not very.  Only a few upgraded price targets (a bearish sign), and then only by small amounts (also a bearish sign).

AAPL tried to rally… but couldn’t make it over $300… and fell back for a loss on the day.

There’s a reason why 80% of analysts CUT price targets going into earnings… because the virus has really bashed Apple. 

Here is the perspective:

Apple’s guidance for this quarter was a revenue range of $63b to $67b.

From Apple’s conference call yesterday, Tim Cook said:

Based on Apple’s performance during the first five weeks of the quarter, we were confident we were headed toward a record second quarter. At the very high end of our expectations.

That means they were on track for $67b.  But actually it probably means they were on track for $68b to $70b… since Apple is notorious for sandbagging guidance.

But, with the virus, they only logged $58b in revenues.  (Still a huge number, btw.)

Assuming even revenue distribution through the quarter, the $67b would have been about $22.3b per month… so theoretically the $58b was $22.3b + $22.3b + $13.4b, since the bulk of the virus problems hit in March.

So… if we take $13.4b as what they did in March… and assume an “uptick” for April (as Cook called it in the earnings call)… and assume things don’t really open up in U.S. or Europe until June… and assume a “normal” June… we could guess revenues might be $14b + $14b + $22.3b or about $50b…

… that’s if everything opens up in June and things go back to the “happy go lucky!” good times of Janurary.

Hello?  Are any of the Apple fanboys bidding up AAPL listening?  That’s still a big-ass revenue contraction… like 30% below a ballpark of what their pre-virus performance might have been… when the stock was hitting an all-time high of $327.85.

So why is AAPL currently trading just 10% below that now?

Because the reality of the next 1-2 quarters hasn’t sunk in for Apple investors yet.

Seems to me my simple, back-of-the-envelope hack calculations suggest AAPL should be down another 20%… or <$240.

And that’s not even including what happens if we see a second wave of infections… or if the market, which shot up in April, naturally cycles down 5-10% in May.

My 2 cents.

I’m a contrarian. It’s my observation that when everyone thinks one thing, the real, outsized opportunity is the other.

But what happens when everyone thinks one thing… but the market is thinking quite another?

Take AAPL. From a low of around $212 a month ago, it’s powered its way to almost $290. More impressively, just about 12% from its all-time high.

Heck, if you went way out on a limb, you could probably say that’s even within a normal trading range.  “Has the whole world stopped?  We didn’t notice!”

But all through this romp upwards, most Apple analysts have been decidedly negative.

Out of about 30 analyst moves in the last two months, a whopping 80% of them were downgrades.

To put this in context, Intel analysts were split 50/50 between upgrades and downgrades going into their earnings last Thursday.  So, relatively speaking, 80/20 to the negative side is a big spread.

 

 

As important, some of the AAPL downgrades were double downgrades… that is, a second price-target cut within just a few weeks.

So what’s the contrarian play here? Go against analysts and buy?  Or go against the market and short?

I think you go against the market. That’s the bigger “everyone” in this case.

Going against the market also seems, well, more rational to me.  I love Apple but I think the current market enthusiasm seems excessive given our uncertain environment:  Uncertain when lock-downs will end… uncertain that people will want to congregate at Apple Stores when they do… uncertain when we’ll see a vaccine… uncertain that a 2nd, or even 3rd, inflection wave may hit… and so on.

This uncertain environment is awesome for a select number of businesses… say Amazon and Netflix… but could be less kind to a (mostly) consumer hardware company like Apple.  Not that I’m not saying people can live without their iPhones — they can’t — but I am saying they may be less quick to buy $1,000 upgrades.

No doubt, what makes going against Apple scary is it’s one of a handful of companies that has the business levers to manage its way around a crisis like this.  And they are notorious for pulling rabbits-out-of-hats.

Still, a V-shaped recovery?  THE ENTIRE WORLD HAS SHUT DOWN.  Does a (mostly) consumer hardware company merit trading anywhere near an all-time high?  Does the market merit trading anywhere near an all-time high?  Somewhere in this equation there has to be some p-a-i-n.

I’m not the first person to say there’s a good chance we’ll see another downdraft.  So if Apple does surprise to the upside, AAPL could still take a tumble along with the rest of the market.  Nice to have a backup scenario in this situation.

P.S. A couple of other quick AAPL trading comments:

  • While Apple has done a terrific job moving into services, these are still only about 20% of company’s revenues. Meaning, Apple is still mostly a hardware company.
  • Intel, also a hardware company, has had a similar run-up as AAPL. Last Thursday INTC blew away their numbers, benefitting from the Coronavirus “work at home” situation. Apparently, with mobile being such a huge focus the last few years, home desktop machines have been ignored and needed updating.
  • In contrast, you don’t need to upgrade your iPhone to work at home.
  • One last data point: Even though Intel blew out numbers, INTC finished flat for the day.

Dow is a hair away from 24,000 as I write this.  Nasdaq a shade over 8,500.  We’re back to being closer to the top than the recent bottom.

Today’s action felt like it’s really, truly going to be a V-shaped recovery… that we should be back at our old highs in no time at all.

But… b-e-w-a-r-e.

Because it was just a few weeks ago that it felt like the crashing would really, truly never end.

And that’s what happens during a crisis… the mania swings in both directions.

Don’t get me wrong:  We have a lot going for us in this crash.  Oil is really low… and that’s my #1 requirement for an advancing economy.  Companies headed into this crisis with a lot more going for them, too (i.e., real growth, real revenues, and real profits).  And lots of technology companies are going to absolutely thrive in this crisis, for example, Amazon, Netflix, DoorDash… anything to do with the cloud… and so on.

And, critically, the government has backstopped everything with TRILLIONS in bailout money.  (“Oh, yeah, that.”)

But let’s call a few spades spades here:  THE ENTIRE WORLD JUST STOPPED!  That’s going to affect many, many more companies than will benefit.  Stocks ran up waaay too much before the crash, too, so even without a crash, they needed a 10-20% correction just to whack them back in line.  And — most significantly — no one really knows when we go back to normal.

This last point is the key.

This V-shaped rally — where stocks go straight down, then go straight back up, forming a “V” pattern — is almost entirely predicated on us getting back to normal soon.

As in, investors already know this quarter is going to be a disaster, but they think they might have the next one in the bag.

But what about the next quarter?

If I’m the CEO or CFO responsible for offering public company forward guidance… in this environment… there’s no way I’m touching that with a 10-foot pole.  That’s a guaranteed lawsuit just waiting to happen.

So, unless I’m one of the handful of companies that are crushing it during this crisis, there’s no way I’m going to be even the slightest bit optimistic about the future.  Because everything is uncertain.  How long this will last.  What the 2nd wave looks like.  Or the 3rd.  Or if people really are developing immunity.  And so on.

So I either give the biggest low-ball guidance in history — or what is happening more and more — I simply refuse to offer any forward guidance.

That’s when the next shoe drops.

When analysts and investors see this negativity… then try to understand this negativity… then realize they’re now really, truly flying blind… that’s when the rug gets pulled out from under them…

… and the market, too.

Because that’s not going to feel like “soon.”  That will, for a period, feel just like FUD (Fear, Uncertainty, and Doubt).

It’s inevitable.

Because mania is inevitable.

Everyone is weighing in on Coronavirus prognostications.

I will try to keep mine to just the ones I feel are fairly unique.

My theme?  We couldn’t be better prepared for exactly the crisis we’re going to be going through.

*  This isn’t like the last two great crashes.

The 2001 “Dotcom Crash” was based on massive valuations with zero profits — and in many cases, zero revenues.

The 2008 “Great Recession” crash was based on artificially pumped up real estate prices, not real productivity gains.  (It was also exacerbated by skyrocketing oil prices, due to political, not fundamental, issues… and had twice the unemployment we have now.)

Whatever we’re calling 2020 — The Corona Crash? — we’re starting with real businesses, with real revenue growth, making real profits, involved in real productivity gains, historically low unemployment, and extraordinarily low oil prices.

In other words, we’re already starting with a much stronger hand.

*  Ironically, many of the productivity gains of the last decade involve remote technologies, i.e., letting employees work from home, ordering pretty much anything online, and, as important, socializing from a far.

So, in many ways, the last decade or two has been great practice for this exact situation:  Remote working, remote living, and social distancing.

*  Not only are the remote technologies in place, but the entire millennial generation prefers to socially distance.

Half the time millennials have their heads buried in their phones — even when they’re sitting right next to each other.  So do you really think they care whether they’re in the same room or a different state?  Not at all.

*  While older generations panic about bailouts and handouts and such, the entire millennial generation knows nothing but bailouts and handouts.

So do millennials think we’re in a crisis?  Absolutely not.  Feels pretty normal to them, like it’s just something we go through every once in a while.  What’s the fuss?

*  And finally:  The market needed to be popped.  Markets aren’t supposed to go straight up, like they did almost the entire month of February.

So we’re down 20%?  I can easily make the case we were 30% overvalued.  Because markets aren’t supposed to go straight up.

I’m not saying it’s not going to be rough, but I am saying we seem to be particularly prepared for this crisis.  It’s like a lot of what we need to do is already done.

We’ll see.

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.  :)

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!

Everyone seems to HATE the fact that Trump is pulling the world into a tariff war.

I think it’s great… and long overdue.

The current tariff infrastructure has its roots after WWII when the U.S., the dominant economic might in the world, was magnanimous enough to give the war-torn countries in Europe and around the world economic advantages as a way to help them get back on their feet.

Similarly, the U.S. was magnanimous enough to give developing nations — like China — an economic leg-up in their quest to transform from rural to modern economies.

But come on people, all of that was decades ago!

Trump is absolutely correct:  It’s time to have a level playing field.  Why do we impose a skinny 2.5% tariff on cars imported from China, only to see China impose a stiff 25% tariff — 10 times larger! — on cars they import from the United States?

And why can Chinese companies own 100% of a factory in the U.S., but American companies can’t even own 50% of their factories in China?

And on and on!

I’m calling B.S. along with Trump and I have no clue why EVERYONE isn’t doing the same.  China is no longer a developing nation… it has the second largest economy in the world.  It’s time China stopped taking advantage of our good will.

While not as bad as the Chinese, there certainly can be more parity with the rest of the world, too.

Similarly, Trump is absolutely correct about stolen intellectual property… because in the modern world, economic might is not just measured in current service or manufacturing ability… but in the ability to use innovation and technology to dramatically improve old industries — or completely invent new ones — and reap the rewards that go along with that.

So who cares if China can manufacture complicated devices like iPhones better than the U.S. today?  Maybe the U.S. will invent a new way to build an iPhone that doesn’t require any manufacturing?

After all, that’s what we Americans do… we innovate… that’s our strength.

Eliminating the complicated manufacturing process for iPhones would be unbelievable… and the rewards would be immense… unless, of course, China simply STEALS the new technology to do this.

And THAT’S the situation we have today… China forcing intellectual property transfer as a condition to setting up shop in their country… or, worse, flat-out stealing our IP… and the Chinese government — literally — encouraging all of this.

Fuck that.  I’m all for taking our ball and going home if other countries won’t play fairly… because at the end of the day, WE’RE the world’s biggest market…

… and I think it’s awesome that Trump is reminding the world of this.

With that said, Trump may have one thing wrong about trade:  Who cares if there are trade deficits?

To me, a trade deficit benefits us… it means our costs are lower than they would have been… which means our profits will be higher… and our stocks will perform better… and that will enrich every American that does any investing or has a 401K plan or that even gets a paycheck.

That’s pretty much the vast majority of the country.

Trump, you’re a business person, you know artificially forcing a higher cost structure on businesses and consumers is exactly the opposite of how a free market should work.  Anything artificial always ends in disaster.

I know the counter-argument that Trump loves to tout:  If we “export” all of industries overseas, we can hurt ourselves strategically… maybe even get held over a barrel in the future.  Case in point, the decline of our steel industry.  If we can’t produce our own steel, we’ll be at the mercy of foreigners for such a strategic commodity.

Poppycock.

If the U.S. steel industry can’t compete with foreign competition, then go invent a new way to make steel 10x faster and cheaper.  Don’t tell me this can’t be done, Britain did it with glass.  Stop crying and get inventing — go create new jobs in new and re-invented industries where the United States can once again be the de facto leader.

There is one exception to this “pro deficit” position, however:  While we don’t want the U.S. government to force us to buy local stuff at artificially higher prices, we also don’t want the Chinese government to force their businesses to buy from their local suppliers at higher prices, either.

Which is what the Chinese do today… things that should get bought from U.S. companies aren’t… which artificially increases our deficit because we’re not getting business we should.  That part of Trump’s deficit thinking is right on the money.

So, in summary…

… I WELCOME a trade war — short term pain and all — if the end result is a fair global playing field (especially with China!)… and a kick-in-the-butt for our industries at risk to GO RE-INVENT THEMSELVES.

That can only be good for U.S. workers and companies.  And, ultimately, for the stock market, too.

 

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.

Long-time marketing/sales/tech guy Bill Campbell passed yesterday.

Not a lot of people outside Silicon Valley knew him… but everyone inside did.  Among his many business feats, he somehow managed to play significant roles at arguably the two most important — and competitive — technology companies in the world, Apple and Google… at the same time!  If ever there was a testament to how good Bill was — or how much influence he had in Silicon Valley — that’s it.

As significant, Bill was very active in the Sacred Heart community (where my daughter goes to school)… not just donating (which he did a LOT of), but participating, too… indeed, he coached a generation of “powder puff” girl football players.  Sadly my daughter will have missed the coaching-experience-of-a-lifetime by just a year.

I always chuckle when I think how I met Bill.  It was at a big Macworld party.  At the urinal.  Just two guys having a simple chat.  No stranger to a locker room, Bill was absolutely a guy’s guy.

I met with Bill in (ahem) a more professional environment when he took over the Claris division of Apple.  My T/Maker business partner Heidi Roizen and I pitched Bill on making our award-winning word processor, WriteNow For Macintosh, the upgrade to MacWrite.  At one point during the conversation Bill took us on a tour of Claris’ new headquarters… mostly empty because the spin-out was brand new… and mostly there were just IT and facilities folks walking around.  What impressed me about Bill was he knew everyone by name… essentially the “little” people… and true to his coaching reputation, high-fived several of them as we walked by.

He just seemed like someone you wanted to play for… err, I mean, work for.

Nothing came of the conversations, but we stayed in touch.  Bill asked me to serve on the board of Great Plains Software (eventually acquired by Microsoft) and, unfortunately, I was in the process of taking a company public and felt I couldn’t short-change my shareholders, things were so incredibly, incredibly hectic.  On top of that Laurie’s dad was in the process of passing away.  Reluctantly, and hesitantly, I explained all of this to him… and to my great relief he couldn’t have been more gracious — and supportive — in his understanding… it was easy to see why he was a true elder statesman.

Our paths would cross from time to time.  Ironically, about 25 years after my Claris meeting, I was cleaning out my basement and found an old WriteNow t-shirt… to which I proudly wore to the next sporting event at Sacred Heart.  As luck would have it, I ran into Bill… and without skipping a beat, he pointed at my t-shirt and laughed, saying something like, “it’s still going strong after all these years!”  Goodness knows he’s had a lot more important things on his mind between then and now… but it brought such a smile to my face that he remembered.

Here’s to someone who went strong for 75 years.  Rest in peace, Coach.

A report out from Drexel Hamilton this morning about AAPL… his rationale sounds familar!

===============================================

Drexel Hamilton analyst Brian White (formerly at Cantor Fitzgerald) initiates coverage on Apple (NASDAQ: AAPL) with a Buy rating and a price target of $200.00 (Street High)

White highlighted:

  • The sharp correction in Apple’s stock this summer represents an attractive entry point as we believe fears surrounding China are overblown, concerns around difficult iPhone comparisons are short-sighted and the appreciation for the implications of this transformational super cycle is surprisingly muted.
  • Trading at just 8.2x our CY:16 EPS projection (ex-cash) and well below the 14.7x for the S&P 500 Index, Apple remains one of the most undervalued technology stocks in the world.
  • In our view, Apple’s successful transition to a larger form factor iPhone with the iPhone 6/6 Plus is the start of a sustainable upgrade cycle that has already catapulted the company to the #1 position in China’s smartphone market for the first time ever during 1Q:15 and we estimate the company will gain share in the global smartphone market in 2015.
  • Despite a slowing economic backdrop, our recent trip to China further supports our view that Apple fever is alive and well across the country. For example, we believe Apple is planning a bigger push into Tier 3-5 cities (80-90% of China’s households) across Mainland China over the next 12-24 months and the country’s 4G network is only 12% penetrated.
  • We expect the next big iPhone market that could open up for Apple is India and we view the country at a similar stage as China was for Apple in 2010. With a population of 1.25 billion, India is similar in size to China’s 1.36 billion and enjoys a wireless subscriber base of 980.8 million users as of the end of June (source: Telecom Regulatory Authority of India).
  • For the first time in five years, Apple entered into a new product category this year with the launch of Apple Watch in April, marking company’s initial push into the wearable technology market. We believe Apple Watch will be a major hit this holiday season.
  • In our view, Apple is innovating like never before with entry into the first new product category in five years with Apple Watch, the launch of new services such as Apple Pay, an expanded effort in the TV market with the all-new Apple TV and investment in big, new industries such as the auto market that we believe could eventually lead to an “Apple Car”.

Readers know I think Apple unleashing 11 million programmers onto TV is going to turn TV as we know it on its head… similar to what Apple did to the cell phone industry.

But I was stunned how surprised — excited — I was to see the new Apple TV Remote.

Why?

Because Apple just figured out how to unlock using the next generation of TV.

The last time they did that was with the gesture interface in the tablet category (iPad).

The time before they did that with the gesture interface in the cell category (iPhone).

And the time before that with the “thumb” interface in the digital “MP3” music player category (iPod).

So, the new Apple TV remote is a big deal.

While there is no doubt that Apple’s iOS development platform — and the legions of loyal Apple programmers creating zillions of phenomenal, mind-blowing, and ultimately incredibly useful apps — is the heart & soul behind Apple’s device success…

… in each case there had to be a simple, elegant interface to be able to use all of that goodness.

Today TV remotes absolutely suck.

Do I really need to prove that?  Just look at what’s sitting next to your TV.  Probably at least three remotes… all necessary at various points… and all with dozens of buttons that are impossible to use during nighttime viewing.

That is, unless you get one of the many universal remotes… which I swear are all harder to use than flying a small airplane.

It’s like using a PC… when all you really want is a Mac.

So from what I can tell from the announcement yesterday, Apple — once again — cracked the code on a huge new market.

They didn’t do it with some weird, “Minority Report” in-the-air, be-careful-if-you-sneeze-because-you’ll-change-channels interface.

They did it the Apple way:  Simple.  Elegant.  Useful.

As Tim Cook said, “The future of TV… is apps”… which is true…

… but what’s going to unlock that future is the new interface Apple just created, the new Apple TV Remote.

No one is really talking about what could potentially be MIND BLOWING at tomorrow’s big Apple announcement.

Sure, lots of talk about the next rev of iPhones.  And bigger iPads.  But Apple TV is relegated to back-of-the-bus stuff.

Why?  Because everyone had been expecting either (1) an actual Apple TV set, or (2) that whole “skinny” bundle cord-cutting thing… so they’re all somewhat disappointed.

But I think — rather, I’m hoping — everyone has it wrong.

And that is that Apple has created a product that will let Apple do to the TV experience that they did to the cell phone experience… and that is completely redefine what we expect from TV.

How will they do this?  By announcing “iOS TV”… essentially unleashing their 11 million or so iOS programmers on TV.

That would change the face of TV as we know it.

It’s been a really long time coming (here and here).  But, in about 24 hours, we could be saying once again, “Do you want to do this with your TV set?  Yep, there’s an app for that!”

Another oblivion morning… first five minutes were hell… I think the largest interday drop for the Dow ever.

To the point I was making in my, “Investing Is Easy, eh?” post this weekend… about it not being as bad for Chinese consumers as the headlines say… which means it’s not as bad for AAPL as the headlines infer:

Tim Cook made a rare statement about his business in China this morning.

“As you know, we don’t give mid-quarter updates and we rarely comment on moves in Apple stock,” Cook wrote. “But I know your question is on the minds of many investors.”

“I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks.”

“Obviously I can’t predict the future, but our performance so far this quarter is reassuring. Additionally, I continue to believe that China represents an unprecedented opportunity over the long term as LTE penetration is very low and most importantly the growth of the middle class over the next several years will be huge,” Cook added.

However, I think Tim Cook did more than put the China situation into perspective for AAPL investors…

… I believe he may have single-handedly stabilized a global meltdown.

Wow.

People are weirded out because the iPhone “lost” its marketshare leadership position in China.  (Here.)

But are high-end products really supposed to be marketshare leaders?

I think not.

There’s not a business school prof or business textbook in the world that thinks so, either.

What investors should be focusing on is not that Apple “lost” their #1 marketshare ranking…

… but rather how utterly amazing it is that the high-end supplier in the market is anywhere close to the #1 ranking…

… especially during their OFF-CYCLE!

Now that speaks to the phenomenal momentum Apple has in China.

I can’t understand why AAPL recently touched $110 and isn’t instead cruisin’ up to the $140’s by now.

I mean, I intellectually understand why people might be worried about China…

…. but not really…

… the China stock market “crash” happened so fast I can’t believe anyone actually noticed.  Even with the crash, the market is still up about a third year-over-year, so most investors (as opposed to traders) are still holding on to nice gains.  But to further minimize any effect on the Chinese consumer, 90% of Chinese households don’t even own stock.

On the other hand, there are some pretty irresistible AAPL drivers right now, including:

  •  AAPL has a consensus P/E of 12.7 vs. 17.7 for the S&P… however, Apple is increasing EPS a whopping 45% vs. a paltry 7.9% for the S&P… hardly seems fair, eh?
  • AAPL has upgraded only 27% of their existing iPhone installed base… which gives them a lot of room for continued organic growth
  • AAPL still has very large external targets, though… for example, India… and a bunch of unhappy Android users
  • Oh, yeah, AAPL has other billion dollar products, too
  • AAPL may be set to release iOS TV… which could do to the TV biz what the iPhone did to the cell biz… which is, of course, completely turn a huge, massive industry on its ear
  • AAPL has more money in the bank than, well, everyone

.

All of which is why — with full disclosure! — I’m back on the AAPL bandwagon.  <smile>