Apple Inc (AAPL)

This has a product cycle coming up in September. Ahead of that, you are likely to see some kind of pre-positioning. Also, there has been a pretty sharp break, and you have to fill that gap before you can make new headway. It might be time to move on to something else. Healthcare has been pretty good right now. There are a lot of good drivers, but he would be a bit careful.

Sold his holdings a few weeks ago. June was a pretty volatile month. Expects technology is going to come back to its trend.

A good example of a growth stock, but also a “value” stock. He looks at valuation, price momentum and volatility, and the stock has it all. It still has really good valuation.

A stock that, subject to your view of the market and your price parameters, you could own. You know for certain that this company is going to continue to be an innovator in a number of different areas.

People have been saying that the Apple phone is going to fail for as long as he can remember. This has done very, very well for his clients. He has trimmed his holdings 8 times. A 3^rd of their market capitalization is in cash. The iPhone 8 is the 10^th anniversary of the iPhone. They are putting a lot of money behind R&D, and he thinks there are some good things that are going to come out. There is a 93% loyalty rate amongst Apple buyers.

He owned it on and off over the last couple of years but it had a good run. What is their next trick? The question is what’s next and he does not have a good handle on what that is. They have this huge loyal user base and he thinks there is a huge opportunity with APPs. They need to be better at capturing services revenue. He prefers GOOG-Q. If AAPL-Q pulled back 10-15%, it would be a lot more palatable.

The next iPhone is part of the run up as part of their off shore cash that may be repatriated if Trump comes through. It would be a one-time boost to the balance sheet. She would prefer to see more avenues of growth. Basically phones are just replacement demand. She is not sold as a growth story.

About to go through a huge, huge upgrade cycle. Trading at about 16X forward earnings, which he feels is too low. They continue to be very innovative. The company’s strength is also its weakness. Its biggest weakness right now is Siri and the artificial intelligence. It’s very advanced artificial intelligence, but its ability to learn through machine learning is being retarded by having a closed ecosystem. Dividend yield of 1.7%. (Analysts’ price target is $161.50.)

He would not be a buyer here. It is right at the top of its range. A lot has been priced into them being able to repatriate cash from overseas if there is tax reform, but as the administration continues to get distracted, he thinks this gets pushed out. He also has questions about their innovation. A lot has been priced into their next version of the iPhone, and they are going to have to sell a lot of iPhones very quickly to justify it. In other areas, they seem to be falling flat.

The stock is up about 55% or so over the last 52 weeks. We have to accept that this is a different company than what it was. Growth is going to become more challenging, which means it is going to go through periods where the stock doesn’t do much. He really likes their recent move. They are back to innovating. They continue to trap you into their ecosystem every time they come out with a new service or product. The stock is only trading at 17X.

AAPL-Q vs. GOOGL-Q vs. AMZN-Q. He likes these two as well as AMZN-Q. You could make a case for all three. He owns all three. These guys are changing the world. AAPL has not had an announcement for a while, but will have announcements in the next year. They could pull back a bit, but he would own all three.

(A Top Pick March 9/16. Up 56%.) Closed at $153.18, and his model price is $182.71, a 20% upside. A year from now, he is expecting it to be $198, a 30% upside.

This has confounded him for this last year. The Apple ecosystem is phenomenally strong, but found it interesting in the last quarter that Chinese sales are actually declining in their ecosystem. His photos are confusing, he can’t find them, and sometimes they’re on somebody else’s phone. He is in a real neutral position right now.

The stock has been doing quite well even though their revenues are only growing at single digits. They have always traded at a low multiple because of a narrow product line. In the last quarter they said 20% of their profits are from Apple app store, Apple music and Apple iCloud, which are all high margin. They think it can double in the next three years. That would justify a higher multiple that you are seeing now.

He still likes this despite its run up. It has a 4% position in the S&P 500 and is up 25%, and probably a 15% position in the NASDAQ. Has been a major driver of indices and performance year-to-date. The story is still attractive. You are getting the 10^th anniversary of the iPhone in September, which should be a blockbuster product. By this time next year, with the new iPhone coming out, it has very low hurdle rates to jump over. Also, starting to ramp up their services business, which is very important for future growth. If and when Trump and the Republicans are able to pass through tax reform, this company has $250 billion of cash, whereby 95% of that is sitting overseas. If they were able to repatriate that cash and give it to shareholders, that would be a good thing.