Apple Inc (AAPL)

The verdict on the watch is still out. He does not see people wearing it. He wonders where the innovation is now with Steve Jobs gone. The iPod has peaked, as has the tablet. So he does not have an interest in the stock.

(Market Call Minute.) A pretty cheap stock, but the difficulty is that it is the biggest stock in the world, and how much bigger does it get.

It struggled over the last year. The main challenge is that for the first quarter since ’03 they forecast a decline in revenues. Will growth if iPhone picks up in Asia and new products gain traction. He feels that with the cash they have it is a buy. They are in a position to grow their dividend. Don’t get scared of recent volatility. The strategy is that they can create excitement with their new releases of iPhone.

They have a lot of cash and trade at a pretty low multiple. They are a technology company and have to continue to innovate. There is still a lot of replacement demand for the iPhone in the US, but in China there are a lot of substitutes and the Chinese have to buy their phone outright. She wants more visibility going forward on earnings growth.

This has had a nice pullback. Trading at $101.03, and his model price is $146.06, a 44% upside. This is the #1 weighted stock in the S&P 500. Dividend yield of 2.06%.

A tale of 2 time periods. Short-term they are running into competition. They put up some truly phenomenal comps, and they are heavily reliant on the product cycle. IPhone 7 is coming out in September, which is a period where you have not only lapped challenging comparison sales numbers, but at the same time you have a new product launch coming. Until then, it is a bit of a tough story. Likes the company and likes management. Doesn’t feel you need to rush into this, but likes the stock long-term.

She is curious about what is going to happen and is watching from the sidelines. We are now getting into a replacement cycle, where everybody already has the product, so instead of growing into new demand, you are essentially replacing what you had. She doesn’t like betting on the consumer.

Has been painted with a brush of being a hardware company that might disappear because some kid in a garage might come up with something better. This is basically why hardware companies tend to be assigned lower valuations. They are working hard towards building a services business with recurring revenue where there is more certainty. About 10% of their business now is Apple Music, Apple pay, etc. and these are applications that he thinks will have more traction in the future. The one thing that has hurt is the success of the iPhone. About a 3^rd of their total market capitalization is in cash.

A great company and the largest company in the world. People are questioning how they can possibly do any better than they have. There are probably around 600 million iPhones out there, about 2 million 6’s, which means there is about 4 million odd 3’s, 4’s and 5’s. If you upgrade 50% of those every 2-2.5 years, that is 100 million of demand from just upgrades, taking out growth in the marketplace and China, which is growing by leaps and bounds. They are just getting involved in India. Trading at 10X earnings.

At this price, it has probably found a bottom. There is not a lot of visible growth. Trading at a pretty low multiple and have tons of cash. They are buying back stock and paying a dividend, so she thinks you are pretty safe with this.

44% upside. They missed on their iPhone volumes. It is not devastating. His model price is still $138. He does not think you can get hurt here. The 2% dividend will probably go higher.

Not a good time to add. When Steve Jobs died, he wondered what Apple was going to bring in the future. For the first 2-3 years, we had what was in the pipeline. After that it was what is new and innovative and what is going to drive the company in the future. Hasn’t seen a lot of evidence of “new”. Outside of the phone, he doesn’t see what is going to propel the company.

The longer-term trend line that started in 2013 has been broken. A long-term trend line that has been broken is really significant. Sometimes you get a rally if it breaks out above the trend line again, but at this time this company is underperforming its sector of tech stocks, and is breaking down.

If you are a long term investor and bought it much higher, then hold on to it. The recent decline is probably overdone. They have a very dominant global brand. There are near term headwinds. He will buy it back at some point in the future.

Had the best quarter in history of humankind, and the stock dropped 6%. This reminds him of Microsoft (MSFT-Q) a few years ago. It was treated as a dead company and was never going to innovate, and had only one product. Apple is generating an unbelievable amount of cash, but don’t think for one second that this is just going to be an iPhone company. IPhone is 60%-70% of profits. Expect they will add more products and add-ons.