In Focus: Apple
Happy New Year, I hope you had a great holiday! Thanks for checking out The Seville Report's In Focus. If you're checking us out weekly, once in a while, or this is your first time checking us out, thank you! We wish you a great 2020! Let's talk Apple and investing.
I'm a value investor. I look for deals in the markets. Chasing stocks and buying at the highs usually doest work out for me as quickly as buying at the lows, or at prices I deem to be value prices. Value investing gets such a bad rep on major investment related television shows, where many of the host and analysts believe investors should be chasing growth.
I have no problem investing in growth stocks, as long as they are at value prices. I've been able to secure Netflix and Amazon, at value prices in the past. Two companies that are still considered growth companies. But this isn't about me, this about the message to investors, new and old.
Last year at this time Apple's stock (AAPL) was trading under $160 per share. After hitting a trillion dollar market cap in the summer of 2018, Apple's stock took a hard fall to end the year in 2018. During that time however, people were down on Apple. We read stories that the iPhone is over, smartphone growth is slowing, Apple's stocks will drop to the $120s, etcetera, etcetera, etcetera. Analyst had written Apple off again, when in fact it was trading at a bargain.
Our last two recommendations of Apple have been spot on, kids now-a-days would call that a flex. We recommended Apple in March 2018 as the markets were going through a tech selloff, and we recommended it again in December 2018 as the markets were dropping rapidly. Any investor that reached out to us as Apple's stock price decreased after the release of our newsletter was given the same advice, "Buy more if you can!"
Our December 2018 recommendation of Apple was a no-brainer. The company had hit a trillion dollar market cap earlier in the year, and that was a very significant milestone. Apple had proven itself worthy of being valued at $1 trillion, so we thought any sell off that brought the stock below the trillion dollar mark would sooner or later be corrected.
The Reason to Buy Now
Oddly enough a few analysts have pointed to the impact 5G will have on the iPhone. These are some of the same analyst that thought the iPhone was dead a year ago. But I'm here to tell you 5G will have little to no impact.
The early days of the smartphone and millions of people upgrading phones every year are over. Consumers are holding onto their phones longer today than they were five or six years ago. Also, many consumers remember the 4G roll out, and from what I remember, it wasn't very spectacular. Living in Brooklyn and commuting to Long Island for work, I remember the same places where I had spotty service with 3G coverage remained when 4G rolled out.
5G isn't enough to entice millions to buy an iPhone. If Tim and company pull another rabbit out of the hat and couple it with a 5G iPhone, maybe they can get consumers to upgrade sooner than they normally would have.
When analyst over emphasize the impact of the next iPhone, it's because they are thinking with their own pockets and not those of the average man or woman. One percent of the population can buy an iPhone, any size and any configuration on a whim. The other 99% have to save, sacrifice and scrounge to get an iPhone. The iPhone 11 surpassed many expectations, but what are the odds that people save, sacrifice, and scrounge to get the 2020 model? We believe the odds are low unless there is a significant upgrade.
What They Get Wrong About Apple and are Still Getting Wrong
Apple is a luxury brand unlike any other. I first heard this from Scott Galloway, and he was spot on. If you trace back the prices on many of the electronics you've purchased through your lifetime, you'll see they've gotten cheaper over the years. In the late 2000s a Blu-Ray DVD player was going for several hundred dollars, but by 2014, 2015 consumers could grab one for $99 or less.The same thing with flat screen TVs, 4K TVs, and VCRs before that. Now think of a Louis Vuitton (LVMH) bag. You're still going to drop a few grand for an LV messenger bag or travel bag. Dom Perignon isn't getting cheaper as the years go by, neither are Mercedes, Rolls Royces, Ferraris or Rolexes. They're luxury, you pay what you pay for those products and deal with it. Those brands are in no rush to lower prices to reach everyone.
Analysts continue to miss this simple idea about Apple products. Apple's products aren't getting cheaper. The iPhone X broke the $1,000 threshold for smartphones, and it isn't going back. Apple will make their version of the Baby-Benz or the Submariner, but they aren't in the business of trying to get everyone an iPhone.
The other thing analyst miss with Apple is the other products. Many Wall Street analysts are so intensely focused on all things iPhone that they miss so many other things. In our March 2018 recommendation we cited that Apple is making a shift to services, which they did. But what we found most profitable was that Apple was beginning to remember that they are a computer company that professionals depend on. Apple's abandonment of the MacBook Pro after 2013 and the failure to upgrade the Mac Pro forced professionals to run to Window based devices. When Apple started to revamp the line up with new MacBook Pros, a new iMac, and now a new Mac Pro they gave professionals a reason to come back. Many analysts missed this all together.
In December 2018 we saw that the AirPods had become a status symbol, even though many tech reviewers bashed them upon their release. Watching AirPods go from ignored to a must have item was a big tell for the future of Apple. We've seen from the iPod and the iPhone that Apple is really good at upgrading from generation one to generation three. Apple released their third version of the AirPods, the AirPod Pro before the holiday season, and they became a must have item.
A Time to Buy
A Time to Wait
Apple's stock increased by 89% in 2019. It recently closed above $300 per share, and analysts from almost all corners of the earth have placed a buy rating on the stock. Some of these analysts were writing the company and the stock off this time last year, but at the stocks all time highs they feel it's worth a buy.
Stock analysis is hit or miss. The good analysts have more hits than misses, and the great ones have more hits and bigger hits than the good analysts, but the bad analysts usually leave the business richer than everyone else because they are better at talking and selling than they are at analysis. Questioning someone's analytics isn't typically my style, but come on, $300 per share is a buy?
This is why we started the Seville Report, to give people who want to invest in the markets another opinion and another voice from the value side of the room. To watch Apple's stock sit at the $160s and be written off by an analyst, who then turns around a year later and upgrades it to a buy at $280 with a $300 price target is head scratching.
Warren Buffett has stated, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Apple is a wonderful company, but I don't think this is a wonderful price. I think we'll see Apple revisit the $250 to $260 levels before we see it at $350. I'm always keeping an eye on Apple for a chance to accumulate more, but this doesn't feel like the right time.