Apple Inc (AAPL)

Up a little less than 40% for the year. Has done fabulously well because they’ve convinced consumers their product is the product to have. The concern is that there is nothing they make, that somebody else can’t make at half the price. The history of consumer electronic companies is not very good.

(Market Call Minute.) You are making a bet here on augmented future reality, which is what they have done with their phones.

His model price is $200.78, a 26% upside. They’ll be reporting next week and what you will get is more stock buyback. A lot of people are worried about the new iPhone, but all the iPhone addicts are going to have to upgrade. Dividend yield of 1.6%. (Analysts’ price target is $180.)

Attractively priced. Whether it comes out in November, December or whenever, they are going to sell a lot of iPhone 10s. Some analysts say they could sell as high as 270 million phones, which would be 20% more than their biggest phone sale. Has a ton of cash and are going to be a big beneficiary of tax repatriation, if that happens, with tax reform. At some point, he expects they will start putting that cash to work with either a massive buyback or massive dividend increase, etc. Dividend yield of 1.6%. (Analysts’ price target is $180.)

Focuses on larger companies that have sustainable earnings drive with good moats around their franchise. This company is definitely one of those. At the same time, there is a product cycle to this company. When that happens, it typically happens after a larger product launch. This one is in an interesting situation right now. What they’ve opened up has a real chance of being game changing with real legs to it. However, it is going to take time. The iPhone 10 is selling at $1000 and up, and getting to a price point that is prohibitive for the average consumer, and is likely going to be bifurcating the market into a high and low end. The company has lots of runway left in the longer-term. Right now, you need to give it a little time for what seems to be a pretty seismic shift.

From a valuation perspective, this is not expensive. Pays a nice dividend of 1.4%. Trading at 15X earnings. The stock ran up into their product announcement, and then pulled back. If you have a longer-term view, you look to buy the stock in this area. It very rarely pulls back substantially. They are coming into a very strong time because of Christmas.

This keeps you in the eco system, which is extremely profitable for them. The apps and the music side is keeping you in there. The iPhone 8 and iPhone X should be positive heading into the holiday season. Also, it is not trading at an outrageous multiple. Dividend yield of 1.6%. (Analysts’ price target is $180.)

(Market Call Minute.) It has moved up a little in terms of market multiple, but we have repatriation out there with the iPhone 8 and iPhone 10. It has a 93% loyalty rate and there are a billion installed devices.

Today is the launch of their new Iphone. It is possible there is a two-tiered approach happening. It is a very high price for a new phone, the A8+, and the X, which is new. If you set the price point of X at a higher level, there are a couple of things that can happen by splitting that market and fitting it into 2 pools. There is the classic trade of selling Apple once it reaches the product launch. How do they defend the new product. Maybe they are coming up with a strategy where this is early technology with augmented reality. If they can produce the X version at a very high price point by demonstrating the power of the technologies that they have, but ultimately they are probably going to work out a few kinks, needing more powerful processors to get it humming. They can then get that into a mass model, maybe at a later stage. If they can just show any number of different commercial applications, there is a big addressable market. If they can show that it may maintain the multiple, get the product launched at a more reasonable price point, it is possible they can skate along a pretty thin line.

This stock has really done well. It has been a great performer this year, relative to tech and relative to the market. It’s an easy one to look at and think they’ve got so much going for them. They’ve got the services they are building out and trying to get revenue to $50 billion by 2020, so they are diversifying. Has great momentum. He would be cautious. The multiple is getting pretty full. He would hold it into this product launch and then assess it in a day or 2, and see how they do.

The iPhone 10 is quite expensive. Carriers in the US and the UK will no longer subsidize the phones, and it is going to be a really hard sell to spend that kind of money. It doesn’t really address the issue of what is happening in China. They’ve been losing unit volume share there. In China, it is a substantial amount of money to pay for even the revamped iPhone 8, let alone the iPhone 10.

In many cases, this has become the iconic product “you have to have”. If you do, then you are paying a whole lot more digital connectivity than you are if you buy the Android. A fabulous company. However, don’t confuse a good company with a good investment. It’s the law of large numbers that are getting in the way of the company going substantially from here, at least until the next product. The opportunity for them to grow significantly for the next 4-5 years, is going to be a struggle. If you want, continue to hold.

Virtually every year, they announce new products which usually come out around the beginning of October. Historically, this moves higher prior to the announcement. Seasonality ends after they have made the announcement of new products. In this case, the announcement is going to be coming on September 12th. We are getting very close to the end of the seasonal strength. If you own it, you might want to take some money off the table at around September 12.

An amazing world leading company, and even more amazing since Steve Jobs is no longer there. This company meets all his criteria. Great free cash flow and not an overly expensive valuation. However, about half the profits are the iPhone. There is always a risk to that. Does the next product suddenly become the cool thing to own? That would cause this stock to take a big hit. He thinks there is too much risk. It is more of a consumer products company and less of a technology company. Prefers things that have not done very well, but which he thinks will do well.

Any particular FAANG stock you would buy? He would go with this one. It has a below market valuation, trading at about 15.5X earnings. They are on the cusp of releasing the latest edition of their iPhones, which could generate billions of dollars of new sales. They could be a huge beneficiary of tax reform out of Washington, because they have that hoard of cash overseas, which they could repatriate at perhaps a very low cost.