Apple Inc (AAPL)

Trim, if you hold a large position. The big risk is that Samsung or someone comes out with the next hot phone. He likes the company, but the iPhone IS Apple, a one-product company. That's risky. Will Apple come out with the next hot product that consumers will buy?

It has several issues. For example, he thinks Siri is terrible and Alexa is incredible instead; and Apple Music doesn't stand a chance against Spotify. What really bothers him is that they hold so much cash and they've let these developments happen. He used to be a raving fan of Apple, but he's lukewarm now. He hasn't given up hope, though.

IS Apple high Beta? It's 1.78 He doesn't think so. As one of FAANG, Apple has growth, value and pays dividends--basically everything you want. But can the iPhone be the growth engine forever, and if not, then what's the next
great product? Still has a good balance sheet, and repatriation of cash is happening. Short-term Apple looks good, but long-term is up for debate.

He thinks it has done well, but it is over-extended. If you have a position, watch out. There is a double-bottom that could be a problem if it is taken out. Consider a trailing stop about 10% below current prices.

It has been a great growth story. People underestimate the IOS installed base of over 600 million users. They cross sell it through iTunes. It has recurring earnings. The risk is selling more iPhones and the pressure on the margins. In the end there is still growth ahead but it is recurring revenues from streams of online software services on an existing IOS base. There is also the $40 Billion to bring back into the US and then to spend. Given the run it has had he would not be adding to it.

Would you get into this company at these levels? Fantastic company. A lot of good stuff and bad stuff. On the good side it is trading at a low multiple and they are doing a very good job at increasing their service business (like iCloud and music). On the bad side is that over 60% of their sales are coming from iPhones and that is a little lumpy and they are having stronger competition. He would be cautious.

AAPL-Q vs. CAT-N. CAT-N is machinery and has been a hero. They both really pulled back. CAT-N had a 22% earnings beat last quarter. AAPL-Q is really the iPhone X or 10 story. They missed on units. It is not a lost leader but the concept applies. This will be used like the iPad with augmented reality. You are in a very expensive period of time – an air pocket. AAPL-Q is a great company, however.

(A Top Pick August 26, 2016. Up 46.65%.) He continues to like the business. Sold it late last year because it appreciated so much and wants to get back in. It is starting to give an entry point with the recent selloff. This was a surprise because sales were pretty good, but he thinks investors are taking profits. Does not believe that Apple’s admission that it was slowing down phones will drive customers away because customers are integrated into the Apple ecosystem, owning many interdependent devices.

His least favourite FANG. Prefers Amazon and Facebook. ROIC was 29% in 2012 at peak, but now 13%. How long can they milk the iPhone? Victim of their own success. They have so much cash sitting overseas. Will they invest it? Repurchase shares and pay a dividend would be his suggestion.

This has over 1 billion installed devices around the world, with a 93% loyalty rate. That means 93% of people would buy another Apple product. That’s a pretty good business plan. They also have a $30 billion services business that would be a top 50 company on its own. This company has lots of legs.

He recommended it two years ago. It had a bit of a sell off this week. They are about to report. He has no doubt there will be a positive surprise. They knew the number of phones they would make and they sold them all. 15 times earnings. Analysts always get cautious right before earnings. (Analysts’ target: $195.00).

He took profits on this, mainly on the concern that over 61% of its overall sales are attributed to one product. The iPhone is a great product and has done very, very well, but we are seeing a slowing growth of the overall smart phone global market. This is why you are seeing Apple trying to grow its service sales in the iCloud, Apple Music and App Store. They are a little behind Alphabet (GOOGL-Q) and Amazon (AMZ-Q) in terms of artificial intelligence, which is something you really want to look at 5 years out.

This won't be a 25% grower any more, but it should still get 5%-15% over the next couple of years. You have the tax rate which will flow through them, they're bringing back a lot of foreign money which will allow for share buybacks and possibly dividends. There is the continuous upgrade of the iPhone. This company is a fine hold for the next 5 years.

Closed at $175.28, and his model price is $217.08, a 23% upside. Trump is only going to tax 11% to bring all their foreign cash back. Dividend yield of 1.4%. (Analysts' price target is $192.50.)

Long-term this is definitely a stock you want to own. Its ecosystem is so massive, it touches 3 generations. You have 75-year-olds getting on iPads, and then they are brought into the ecosystem. That’s very powerful when they have that many users. Right now, there is a little noise on the market with a lot of tech stocks. There could be a pullback on this, but he could see it being a $200 stock in a year. Also, they’ll be repatriating cash back from overseas.