Seeking Alpha

Justin Giles'  Instablog

Justin Giles
  • on Portfolio Strategy & Asset Allocation
Send Message
I have been investing in the stock market for a number of years now. I invest mostly in value and growth stocks. My financial goal in life is to always have my money working for me. Follow me on StockTwits -----> JustinGiles Follow me on Twitter -------> JustinGiles22
My blog:
Justin's Instablog
View Justin Giles' Instablogs on:
  • My SA Disclosure

    SA Disclosure: By viewing my material on Seeking Alpha, you understand that my due diligence and research is at your own risk.

    My articles and research is an expression of my opinion, which I base upon available public information, research, interviews and through my own due diligence and analytical process.

    To the best of my abilities and belief, all information contained in my articles are trustworthy, accurate, and correct. All information is presented as my opinions and may be subject to change without prior notice.

    In no event should you hold me liable for any direct or indirect trading losses caused by any information on this platform. You should always do your own due diligence and research before making any investment decisions.

    Have a wonderful day and as always, I look forward to your thoughts or questions that you might have about the stock market, particular companies and their respective stock prices.

    Jul 13 3:46 AM | Link | 7 Comments
  • Apple 2014 Q2 Earnings Preview: Should You Wait And Buy Shares After Earnings?

    Yep, it's that time again. The earnings season has started with Google (NASDAQ:GOOG) and International Business Machines (NYSE:IBM) getting off to rough starts as both companies posted results that did not meet analyst expectations. On the other hand, Netflix (NASDAQ:NFLX) and Goldman Sachs (NYSE:GS) showed off some impressive results as they topped expectations.

    So what tech giant is next up on deck? That my friends is Apple (NASDAQ:AAPL). The Company is slated to report its second-quarter results on April 23, 2014, after the close of the U.S. markets. Following the results, Apple's management team will hold an earnings conference call to discuss the Company's results and outlook at 2:00 p.m. PT / 5:00 p.m. ET. Investors who want to listen in on the call can click here.

    After beating analyst expectations on both the top and bottom lines the last four quarters, will Apple be able to beat expectations once again? Let's take a look at the numbers that Wall Street expects.

    Wall Street Expects:

    • Revenue: $43.5B
    • EPS: 10.15
    • 2014 Q3 Guidance: $38.3B

    So how has the company performed with its earning reports? The table below shows Apple's top line numbers over the past five quarters.

    Revenue HistoryJanuary 2013 Q1April 2013 Q2July 2013 Q3October 2013 Q4January 2014 Q1
    Revenue Estimates:$54.9B$42.4B$35.1B$37.1B$57.4B
    Actual Revenue:$54.5B$43.6B$35.3B$37.5B$57.6B
    Difference:-$400M+$1.2B+$200M+$400M+$200M
    Average:    +$320M

    As you can see, Apple has been able to beat expectations for the last couple of quarters. Of course this doesn't mean the Company will automatically beat expectations for the upcoming quarter, but it does show that management has been able to deliver and that history is on the side of the longs in this department.

    The table below will show what has taken place on the bottom line and how shares have fared on the overall results.

    Apple's earning results

    2013 Q22013 Q32013 Q42014 Q1
    EPS$10.09$7.47$8.26$14.50
    EPS Estimates$10.02$7.31$8.16$14.36
    Guidance$33.5B-$35.5B$34B-$37B$55B-$58B$42B-$44B
    Analyst Guidance$41B-$43B$37B-$38B$55B-$56B$44B-$46B
    How Shares Have Reacted-3%+4%-4%-8%

    Looking at the table above, it is not hard to see the trends and patterns that are taking place. While Apple manages to beat the top and bottom lines quarter after quarter, analysts and investors are still not impressed. Why is this so?

    The fact of the matter is, it doesn't matter so much if Apple beats on the top or bottom line anymore. The three most important things that are looked are:

    1) iPhone and iPad sales

    2) Gross margins

    3) The product pipeline / New gadgets

    Because of the lack of new products and gadgets over the years, Apple has fallen from the mighty growth stock stage, to more of a value play for investors. This is the reason why shares of Apple continue to stay flat and trade between the $500-$550 range.

    New Products

    Speculation runs rampant on Wall Street and Apple is usually at the forefront of most of those discussions. Quarter after quarter, analysts during every conference call ask about new and upcoming products. While Apple keeps things closed to its chest, the Company did reveal that new gadgets will be out in 2014. It remains to be seen just what those gadgets are.

    While it has become the norm to have an upgraded iPhone every year, shares are not going to jump on that anymore. If Apple does announce that a new iPhone(s) will be coming out soon, there is a great chance that iPhone sales will drop in the meantime because of it. I mean why would somebody buy the 5S now when the iPhone 6 is just around the corner?

    Toni Sacconaghi, an analyst Bernstein Research, see's more risk than reward over the next two quarters. Don't worry Apple fans, Sacconaghi still has an Outperform rating and a $575 price target on shares. So what does Sacconaghi suggest to investors?

    "...with more downside than upside risk to both FY Q2 results and Q3 guidance, it is hard to get excited about buying AAPL stock in advance of the quarter. That said, expectations appear to be for largely tepid results and guidance, and Apple is likely to aggressively repurchase its shares under any sizeable pullback towards $500/share. Given that Apple is an anticipatory stock, and historically outperforms in advance of new product and iPhone offerings, we would encourage investors to use any pullback following numbers to look to play a trade in Apple shares." -Toni Sacconaghi

    Conclusion

    Last quarter, shares of Apple dropped more than 8% after "disappointing" results. While the drop wasn't based on top and bottom line results (since Apple beat estimates), investors should take somewhat of a cautious approach with Apple. Even with another beat, shares will most likely fall, unless Apple announces the release of one of its new and upcoming products.

    This presents investors with another great opportunity. That is to buy where the Company is currently buying back shares. That of course is at the $500 level where the Company looks to aggressively buyback shares. With an average drop of around 3% an earnings day the last couple of quarters, shares would fall perfectly to the $500 level for investors.

    Because Apple is an anticipatory stock, and historically outperforms in advance of new products and offerings, I would encourage investors to use any earnings pullback as a great opportunity to get in before shares look to climb higher. With Apple trading at a forward to price to earnings ratio of 11 (below the market average), investors are getting a great bargain already and could be getting any even greater bargain on earnings day.

    On a final note, I am expecting Apple to bring in revenues of 43.9B, with an EPS of 10.26. I believe guidance will come in around $36B - $38B.

    As always, I'm providing you with my track record and other stocks that I recommend. The link provided will show you all of my picks, how they have fared, and where I think they will be going in the near future. I think you will find my track record to be very impressive and useful.

    Disclaimer: Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.

    Tags: AAPL
    Apr 22 7:31 PM | Link | 1 Comment
  • Apple: Forget About Analyst Expectations, Look Under The Hood At These Astonishing Numbers

    On January 27, 2014, Apple posted record quarterly revenue of more than $57B, with a net profit of more than $13B. Clearly shares were trading higher after the announcement right? In the words of Lee Corso, "Not so fast my friend!"

    Shares of Apple (NASDAQ:AAPL) were in a free fall as investors ran for the hills after the Company announced record first quarter results. During after-hours trading, shares closed down more than 8%. So what happened to cause such a sell-off? Two words; analyst expectations.

    Even though Apple beat on both the top ($57.5B vs $57.4B) and bottom lines ($14.50 vs $14.07), analysts expected bigger iPhone sales over the holiday season.

    Apple said it sold 51M iPhones, an all-time quarterly record. This comes out to more than 17M a month, or 16% of the entire U.S population. Let's not forget either that this is just one quarter of sales. Nevertheless, because of high expectations from analysts and investors, even record breaking results left many feeling a bit unimpressed.

    Hedge fund billionaire Carl Icahn seemed to be one of the few that were impressed as he continued his Apple spending spree buying another $500M worth of stock.

    Icahns latest investment in Apple makes his stake valued at more than $4B. In a telephone interview with Reuters, Icahn stated that the decline in Apple shares presented "a great opportunity" to add to his position.

    "Apple shares are very cheap. They are going at six to seven times earning. ...It's not like we are holding something that is trading at 100 times earnings." - Carl Icahn

    Analyst Upgrades & Downgrades

    Gene Munster, an analyst at Piper Jaffray, reiterated his Overweight rating on the stock and stuck with his $640 price target.

    Analyst Brian Marshall of ISI Group reiterated a Strong Buy rating on Apple with a $600 price target. Marshall noted that Apple's problem was more to do with a slowdown in China, rather than in North America. Marshall went to say that he thinks the China Mobile deal still stands to add a lot to Apple's results that aren't yet baked in.

    Not all analysts were praising Apple though as several firms such as J.P. Morgan, Goldman Sachs, and Credit Suisse among others, cut Apple's price target after guidance came in lower that most expected.

    Forget Expectations, Look Under The Hood

    Have you ever invested in a stock because analysts had price targets that were going to give you great returns? While analysts have a lot of tools and resources at their disposal that many investors do not, basing your entire investment decisions on them isn't always the right way to go.

    You see it all the time during the earnings season. A company will report its earnings and analysts will come out with new recommendations (Buy, Sell or Hold), accompanied by new price targets.

    One stock I was following a couple of years ago had a price target well into the $100's by certain analysts. A couple of months later they came out with multiple revised reports. Soon those $100 targets were a thing of the past as $30 became the new norm. Certainly some analysts had there head in the sand which is why investors need to do their due diligence and not rely solely on analyst recommendations among other things.

    One of the most basic principles that all investors can do is look at the fundamentals of a company. So how do Apple's fundamentals look and are there any red flags for investors?

    Apple's FundamentalsAppleApple's Peers
    Cash$159BN/A
    Debt$16.9BN/A
    Trailing P/E13.3215.20
    Forward P/E11.5915.01
    PEG Ratio0.631.06
    Profit Margin21.28%19.94%
    Operating Margin28.31%23.72%
    Return on Assets17.58%11.61%
    Return on Equity28.81%19.27%
    Sales Growth (5yrs)35.45%10.39%
    Cash Per Share$178.25N/A

    Looking at the table above, it becomes quite obvious that shares are trading at a nice bargain right now as the Company's fundamentals clearly outshine its "peers".

    Looking at the current valuation right now, Apple is selling just under 12x this year's expected earnings, a nice discount to the overall market multiple of 15x. If Apple traded at a multiple of 15X, shares would trade for $642.15, representing upside of more than 20%.

    If we subtract Apple's stack of cash from the equation along with its debt, Apple would be trading at approximately 9.18x FY2014's and 8.49x FY 2015's projected earnings. Talk about shares being a bargain. This is a bargain of all bargains as the Company continues to reduce the float by buying back its shares at a fast rate.

    On top of that, how can investors pass up on the nice dividend yield that Apple offers its shareholders. Certainly with all of this, Apple makes a fantastic case as to why investors should own or seriously consider holding this stock this year and going forward.

    Another thing that jumps out to me is that Apple's cash per share stands just under $180. This means that Apple, with a market capitalization of 478B, would have 33.2% of its value explained just by its cash on hand. Meanwhile its users, stores, warehouses, software, patents, trademarks, partnerships among many other things, are currently being valued at just 66.8%. So how does Apple stack up to some of its peers? Just take a look at the table below.

     AppleGoogleMicrosoftCiscoNokiaHewlett-Packard
    Cash Per Share$178.25$174.84$10.00$9.00$3.23$6.36
    Cash to Market Capitalization33.2%14.7%26.6%39%45%21.6%
    Cash to Market Capitalization Accounting For Debt26.4%13.0%19.0%26.1%12.6%N/A

    As you can see, Apple once again comes away with the gold medal. So why have shares struggled to climb higher if Apple is so superior to its peers? Yup, you got it, it all comes back to analyst expectations once again.

    For some reason expectations for Apple tend to always be sky high for the Company. This often translates to poor results for the stock price during the earnings season as investors run for the hills because Apple "came in below" analyst expectations.

    Conclusion

    Have you ever tried to impress somebody but no matter what you did they never seemed to be impressed? This is exactly what Apple is going through right now.

    Unfortunately for Apple and its shareholders, the company's biggest problem isn't innovating or making high quality products, but rather something the company cannot relatively solve, and that my friends is analyst expectations. Clearly the bar has been set too high as even Apple's record breaking results quarter after quarter are unimpressive to Wall Street. That is why it is very important for investors to do their own due diligence and not rely on analyst recommendations as the sole purpose for getting into a particular stock.

    Just looking at Apple's share price right now ($544), we can see that Apple is making a roaring comeback as it looks that investors are starting to realize that they should focus on Apple's core fundamentals rather then what analysts are projecting for the Company.

    Apple has proven and continued to deliver strong results over time and I believe investors should continue to focus on that, rather than the expectations of analysts. With new and upgraded products coming in 2014, I expect shares to give investors great returns over the coming years.

    As always, I'm providing you with my track record and other particular stocks that I recommend. The link provided will show you all of my picks, how they have fared, and where I think they will be going in the near future. I think you will find my track record to be very impressive as well as useful.

    Disclaimer: Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: AAPL, long-ideas
    Feb 14 2:54 PM | Link | 3 Comments
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.