Apple (AAPL) Is Riding On FAAMG’s Coattails

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 jobs… without 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.

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Letting Some Air Out Of The Balloon

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?!

Microsoft Earnings Are Back To Being Incredibly Relevant

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.)

Facebook (FB): When Bad News Is Really Good News

After trading sideway for a few weeks — while the rest of the market was going up — Facebook (FB) started its end-of-quarter / ramp-to-earnings run last week… hitting a high of almost 172 just a few days ago.

Things tried to knock the stock backwards.  Earlier in the week some key execs left the company and FB open sharply down, only to rally back even stronger.

And on Friday news of a data breech hit, again hitting the stock hard.  While it hasn’t rallied back yet, it did close nicely off its lows.

My take on these seemingly bad news events?

Zuckerberg and Sandberg don’t lose people they don’t want to lose.  If some execs exited, there was probably a good business reason for it.

And, while a data breach is always concerning, it was only a small % of actual Facebook users and dealt with demographic-type of info — available in lots of places — nothing even close to sensitive passwords or credit card-type info.

The breach was so benign, security experts say there is no need to even change your password (about 1:30 into the linked video).  THAT’S about as benign as it gets.

On the flip side, Facebook says they think they jumped on it fast enough to stop anything from even happening… so in a race between companies and hackers, FB’s response time — including disclosing the problem — seems to have been outstanding… exactly the kind of response the government has been looking for.

So, this is the kind of bad news that I think presents a good buying opportunity.

With this said, I do think there’s a good chance FB will see some more weakness based on bad news circulating in the press this weekend.  However, I’m less worried about that downside risk than I am about missing the next leg up… because I believe there’s a better chance big money investors will find FB’s suppressed stock price irresistible going into earnings over the next few weeks.  In fact, the action over the last few weeks suggests they’ve already started to pile in.

Please remember that it was just a scarce few months ago FB was trading at 218 on its way to the 240 level.  At Friday’s close of 164 and change, FB is now trading at crashed levels.  And this is for a company that thoroughly dominates their space… with about the best financials on the planet.

Also, please remember that FB’s earnings last quarter were actually pretty good… they beat MONSTER expectations, which was no easy feat.

What tanked the stock was ultra, ultra conservative guidance… which is the way Wall Street says a big earnings beat could be in the making… which sounds like a good news thing to me.

Who Would Have Thunk? Trade War With China Could Be Great For Facebook Stock

Facebook has a lot going for it.  But one of its glaring weakness over the years is ZERO penetration into China.

Turns out dictatorships don’t like things like free speech.

Ironically, as much as FB gets slammed for privacy concerns, Facebook defiantly stood up to the Chinese government in 2009 when the Chinese demanded the release of private information from the company.

This was no small act:  For their privacy stance, the Chinese government blocked Facebook into the world’s most populous country… essentially halving their business opportunity.

THAT’S putting your money where your mouth is.

But, in a weird twist of fate, when many companies are getting slammed for the earnings impact of a US-China trade war, this isn’t an investment risk for Facebook… because they have no Chinese exposure.

And — it gets better — one of the expected outcomes of the trade war is a more level playing field, which (you guessed it) may mean Facebook becomes unblocked. 

If that happens, that could be a massive growth driver for FB earnings over the next few years.

Yet another reason why this trade war isn’t all bad.