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Bill Maurer
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I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have... More
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  • Apple: Avoid The High Expectations Game

    With September being the month usually reserved for the launch of Apple's (NASDAQ:AAPL) newest iPhone, we recently received news of an event on September 9th for Apple. The location was a larger venue than in the past, which has fueled speculation for all sorts of new product announcements. However, I must remind investors that pumping up the hype for this event only increases the chance for disappointment. Today, I'll discuss how we should all look at this current situation.

    I think everyone is in agreement that the September 9th event will be heavily focused on the iPhone, with the biggest unknown perhaps being the smartphone's name. Will Apple go with the 6S and 6S Plus, or perhaps change its naming completely? MacRumors has a complete list of the rumored features, which include Force Touch, 2GB of RAM, a 12 megapixel camera, etc. While last year was about increasing the screen size of the phone, this year is about upgrading the hardware. If Apple wants sales of its to-be-launched phones to be strong, the specs need a substantial upgrade. Otherwise, a number of consumers may decide the to-be-discounted 6 and 6 Plus are more than sufficient for their daily needs.

    There is also heavy speculation that Apple will launch an updated version of the Apple TV on September 9th. As MacRumors points out, the new slimmer design is expected to feature Siri integration, an A8 processor, and more storage. This is really part one of two, because Apple is also looking to launch a web-based streaming television service. However, recent reports talk about delays in the company's ability to ink deals with content providers, so many now expect this service to be launched sometime in 2016.

    After these two expected announcements, the rumor mills are churning at full blast. The most popular item we've heard about is the larger screen iPad Pro. While I do expect Apple to unveil its large screen tablet this year, I don't think management will combine it with an iPhone unveiling. It is more likely that the iPad will have its own (or be part of another) event in October. Additionally, we've heard a lot about an electric car from Apple. The company has been rumored to be working on a vehicle, but it is likely years away from being released, if Apple ever does enter the space. Fellow SA contributor Mark Hibben also thinks Apple is planning on showing off something big at this event, perhaps in the field of virtual/augmented reality. This could perhaps be along the lines of Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Glass, and Apple is always looking for products it can integrate with the iPhone (like the Watch).

    This is where the problem comes in. By the time Apple's event actually occurs, I'm sure there will be dozens of potential products that people think Apple will unveil. Most likely, none of those will come to the stage, and thus we'll hear plenty of disappointment afterwards. Don't forget what happened last year, where Apple's rally fizzled after its major product launch. In fact, the next couple of weeks saw a number of negative notes. All dates are from 2014.

    • Sept. 10 - Pac Crest downgrades shares saying the new products lack profit drivers.
    • Sept. 12 - Nomura analyst was not impressed with Apple Pay, and also detailed how leaps forward were becoming difficult.
    • Sept. 17 - Bernstein believes that opening weekend sales of the iPhone 6 and 6 Plus will disappoint due to supply constraints.
    • Oct. 2 - Deutsche Bank downgrades Apple to Hold, citing high iPhone expectations and no near term catalysts.

    Apple proved the naysayers wrong, as fiscal 2015 revenue estimates have soared by $36 billion since the iPhone 6 launch and EPS estimates are up by more than $2.00. Even after the $20 pullback from their 52-week high, Apple shares are up about 17.6% (dividend adjusted) from the close the day the iPhone 6 was announced last year. In comparison, the S&P 500 is up less than 2%.

    In conclusion, investors need to avoid raising the Apple bar to an unrealistic level. The September 9th event should feature the newest iPhone and Apple TV. Perhaps we'll see something else, but we're not going to see the company announce dozens of new products. If there is a silver lining, it's that shares closed Friday at $113, so investor expectations won't be as high as they would be if shares were over $130. I still believe in Apple over the long term, and the recent pullback looks to have been a dramatic overreaction. The best way to avoid disappointment on September 9th is to not expect the moon from Apple. The more product rumors we get before then, the higher the number of product non-announcements will be.

    Tags: AAPL, long-ideas
    Aug 28 7:41 PM | Link | Comment!
  • Apple: 3 Important Items To Consider

    It's been a tough couple of weeks in the market, as fears over slowing growth in China have taken their toll. Technology giant Apple (NASDAQ:AAPL) has lost 20% of its value since reporting earnings last month, as China is the company's fastest growing market. While there's a lot of panic right now, there are some positive signs regarding Apple that investors should consider.

    Short interest did not soar after earnings:

    Apple shares fell after its Q3 earnings report as guidance was a little lighter than most had hoped. Shares continued to slide in early August, down into the $115 area. However, we didn't see a tremendous move in short interest. Between the middle of July and middle of August updates, the rise in short interest was just 2.87 million shares. That's basically a rounding error for a stock with around 5.7 billion shares outstanding.

    As seen below, short interest continues to remain near its lowest split-adjusted point in the last 3+ years. This leads me to believe that the fall in the stock was more due to profit taking. If investors were so concerned about the company's future, we would have seen a massive rise in short interest. Even with the stock falling further recently, I don't see a ton of investors shorting a stock below $104 at Tuesday's close when last month we were over $130.

    (Source: NASDAQ Apple short interest page)

    The dollar has recently weakened:

    One thing that has hurt Apple's results in recent periods, like many other multinationals, is the stronger dollar. Apple reportedly raised prices in certain markets earlier this year to combat this issue. The one item many have missed in this market craziness is the weakening dollar, seen below. Since Apple's earnings report, the dollar currency index has weakened by about 3.5%. This will actually help the company's reported revenues for its fiscal Q4 period, since guidance was based on a stronger dollar. Apple could see a $1 billion to $2 billion positive impact from currencies, which could offset some potential China weakness.


    Analysts are positive and so is Tim Cook:

    On Monday, we received news of an e-mail from Apple CEO Tim Cook to Jim Cramer that was quite reassuring. Cook stated that Apple has experienced strong growth in China during July and August, and that iPhone activations have actually accelerated in recent weeks. Cook continues to believe that China represents a tremendous opportunity for Apple over the long term.

    If things were so bad, you would expect analysts to be issuing negative notes and cutting estimates. The average revenue and EPS estimates have not changed in a number of weeks. In fact, a number of analysts have been quite positive on the stock recently and reiterated Cook's comments:

    • Cantor Fitzgerald - Reiterates Buy rating, states that recent panic has created an "irrational valuation". Even if calendar 2016 EPS came in at 50% of current projection, stock would still be trading in-line with S&P 500 valuation at current levels.
    • FBR Capital - Reiterates Outperform, cites catalysts such as iPhone 6S upgrade cycle and new products/services contributing to fiscal 2015/2016 results.
    • Stifel - Details export data showing huge production increases where a majority of Apple phones are produced. Buy rating.

    Those are just three analyst notes released this week, and you can see a number of other positive ones here. Most of the analysts suggest that Apple stock is at a very reasonable valuation currently, even if some China weakness occurs. Most data points still show Apple doing very well in the country, and Tim Cook's note was reassuring. The median price target on Apple currently is $150, but investors don't need shares to get there to do well. Even if the stock only gets back to its pre-Q3 earnings report level (~$130) in the next year or two, you're still talking about 25% upside from Tuesday's close.

    Final thoughts:

    Apple shares have been a big loser thanks to markets worrying about China, but I don't see a lot of major warning signs. Short interest barely moved after earnings, suggesting investors were not that worried about the future. With the dollar weakening in recent weeks, Apple's results get a much needed tailwind. Tim Cook says that things are still looking good in China, and analysts have been quite positive recently. While I wouldn't be surprised if shares drop below $100 again on any short-term market weakness, I think those looking at the long-term picture should use this opportunity to their advantage.

    Tags: AAPL, long-ideas
    Aug 25 11:38 PM | Link | Comment!
  • Apple: Massive US IPhone Opportunity Exists

    Recently, digital media analytics firm comScore reported on June 2015 US smartphone market share. The headline from this report is that Apple (NASDAQ:AAPL) ranked as the top smartphone manufacturer, with the company gaining share from March 2015. While it may not be a surprise that Apple is in the top spot, there is still a massive opportunity that exists here when it comes to non-Apple users. Today, I'll examine the comScore data and detail why investors should remain positive in regards to the iPhone.

    In terms of 3 month average US smartphone subscribers, ending with June 2015, Apple had a 44.1% share. This was up from 42.6% in the March 2015 ending period, and 42.1% in the year ago period. Of the top 5 smartphone OEMs (original equipment manufacturers), Apple was the only one to gain market share in the period. The chart below shows Apple's market share growth since December 2009.

    (Source: Fortune article linked here)

    What interested me the most here is not that Apple was number one, but the number of subscribers that the company did not have. For the June 2015 ending period, comScore stated that there were about 190.3 million US smartphone subscribers. With Apple having a little over 44% of that, roughly 56% or 106.4 million subscribers did not belong to Apple.

    For this period, comScore stated that the 190.3 million US smartphone subscribers represented 76.7% mobile market penetration. This meant that almost one-quarter of the market does not have a smartphone. That equals roughly 58 million mobile subscribers in the US without a smartphone. The number of non-smartphone users is down about 11 million in the past year, as smartphone penetration is up about 5%.

    For the June 2015 period, comScore put Apple at about 84 million US smartphone users. While that gives the company the top spot, there are still another 106 million non-Apple subscribers out there, and another 58 million mobile subscribers that don't have a smartphone. Apple is in the top spot at the moment, but there is still a giant market opportunity for the company to seize in this growing market. The latest report states that we're about a month away from the next iPhone reveal, Apple's chance to further increase its US market share.

    Tags: AAPL, long-ideas
    Aug 10 10:46 AM | Link | Comment!
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