The performance of investors who add value is asymmetrical. The percentage of the markets gain they capture is higher than the percentage of loss they suffer...only skill can be counted on to add more propitious environments than it costs in hostile ones. This is the investment asymmetry we seek.”
From the man who brought you classics like, “Why You Should Sell Apple Now,” and “Make Money off Apple Skeptics,” has delivered a new show-stopping performance, some people are calling his finest work to date. Okay no one is calling it that (or even thinking that), but hey, a guy can dream! With a stroke of good luck, Apple’s (AAPL) precipitous fall from its highs came shortly after my initial piece was published, and almost made me appear to have mastered the art of “second level” thinking.
Not to disappoint, but while I did theorize and predict Apple would drop in price, timing the market is a fool's errand, and anyone caught doing so, should consider another profession - I hear fortune telling is a great fallback. For this piece, I’m going to lay out a few indicators that I would look for in determining the right time to initiate or add to your existing Apple position.
If I could avoid a single stock, it would be the hottest stock, in the hottest industry, the one that gets the most favorable publicity, the one that every investor hears about in the car pool or on the commuter train -- and succumbing to the social pressure often buys.”
If I could speak for Peter Lynch, I’d say he probably would try to avoid Apple at the moment, or he most likely would have bought it in ’97 when the stock was out of favor, and now nearing a 40 bagger (factoring in splits). So when would a Peter Lynch, or laymen investor buy up Apple shares again, once they have fallen to discount prices? Price should always be a factor in making an equity selection, but it should never be the factor.
Sometimes the best time to buy (or sell in certain situations) a stock is when there is little going on with the company and it has become somewhat boring. I’ll go out on a limb and say, if Elon Musk ever took his “Boring Company” public, it would probably do poorly through the IPO, but I’d buy boatloads on any dip, because boring companies are usually undervalued and underappreciated. Unfortunately, Apple will never be boring (at least not in any future I can see at the moment - maybe I should find a fortune teller to confirm this theory), so with all the press and headlines Apple creates, when is the right time to get back in?
A Market Pullback
As far as I’m concerned, the stock market doesn't exist. It is there only as a reference point to see if anybody is offering to do anything foolish.”
Good research in both markets and companies will always win out in the end, and even if you are predicting a decline in a particular equity or index, understanding the context and potential length of said decline, is just as important as if the decline were to take place at all. However, even assuming the drop in the Nasdaq or “tech selloff” will continue, isn't always the best advice when deciding to hold, sell, or buy. Of course, it will add to short-term price declines, as many investors see index/market declines as tea leaves spelling future doom, but it’s not the best in determining long-term asset strategies.
The tech sector was overcrowded, and finally enough people got claustrophobic, so they ghosted, leaving declines in their wake. The sell-off won't last forever, but as someone who personally has bought up a bunch of value equities in the recent months, there is still plenty of space for shareholders to jump in, which would make me think that the overvalued tech sector may still see further declines.
Bob Doll of Nuveen Asset Management said the selloff was long overdue, and sectors like Energy and Financials are now coming back nicely. No one will ever know the exact date a catalyst-like event will push the markets up or down, but as we are in the business of seeking alpha, I’d still push pause on Apple and tech at the moment.
iPhone 8 Sales
Some are forecasting the iPhone 8 to be the blockbuster necessary for Apple to regain the smartphone throne from Samsung (OTC:SSNLF) after losing it last year. Angelo Zino, an analyst at CFRA, believes Apple will sell 241.5 million units in the 12 months following the launch, shattering the previous sales record of the iPhone 6 at 231.22 million units. However, what will we do while we wait till the September release date, and proceeding sales numbers come in? Well that’s just it, wait.
It’s not hard to fathom, iPhone sales will continue to slow down preceding the new 8 launch, and therefore revenue and EPS will not be as rosy as some would like. Now I still personally think the iPhone 8 sales estimates are little high, but it’s with good reason that many people, myself included, bought the iPhone 6 and saw the 7 as an unnecessary upgrade. Therefore, many of those customers who opted out on the 7, may opt-in with the 8. I’ll probably wait for the iPhone 9 or 10 before purchasing a new one, as the smartphone I have, is already too smart for me to handle.
Apple Services Growth
The quick and somewhat dirty way I’d describe Apple’s fastest growing business segment is: Services = Sexy. Apple’s Services Segment includes fan favorites like: Apple Music, iCloud, iTunes, the App Store, Apple Pay, and more. It grossed over $7 billion last quarter, which cemented it as the highest revenue ever recorded in a 13-week cycle. The services unit currently doubles the already impressive AWS in terms of revenue, and could become quite the battle between Apple and Amazon (AMZN) in the services space.
The segment grew 18% YoY and represents almost half of Apple’s total revenue growth. The iPhone only accounted for $392 million. Apple also has mentioned it plans to double the services unit by 2020. The consistency in revenue that a service model has, should be music to any Apple shareholder’s ears, and I’d argue the only real segment Apple can innovate and own outside of the smartphone space, which has gotten way too crowded and competitive for the foreseeable future.
The services space also acts as Apple’s conduit to all their other products and businesses, and ensures continued customer loyalty and participation. If Apple can continue to expand this unit successfully, then the question isn't, should you initiate a position in Apple, but, if you can identify the perfect time to do so.
An Apple For Your Thoughts
While plenty of people will be satisfied to buy and hold and then buy some more of Apple’s stock, I’d still say there are more undervalued stocks out there to seek. I’d wait until the end of Q3 or mid to late winter to see where the dust settles and then look to initiate a position. Let us not forget we are in the performance game. Hedge Fund Managers to bloggers like myself, strive to generate and seek alpha at every turn, and are praised or criticized for doing so.
It is our duty, be it selfishly (we have skin in the game), or professionally (providing analysis and insight without a financial stake) to try and deliver the most optimal performance for our portfolios and any of those crazy enough to follow our advice. Happy investing and may the Alpha be with you!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.