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https://finnhub.io/api/news?id=32731bcbdd4914c49e73949a5221b30cdbd7f8b103092106bfbad93e08066b2d | The 2 Best Warren Buffett Stocks to Load Up On in September | Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has had an off year. Through the first eight months of 2022, Berkshire's shares have lost over 7% of their value. Berkshire's relative strength in this brutal market is proof positive that the Oracle of Omaha, along with his investment team, haven't lost their touch for stock picking. | 2022-09-05T10:15:00 | Yahoo | The 2 Best Warren Buffett Stocks to Load Up On in September
Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has had an off year. Through the first eight months of 2022, Berkshire's shares have lost over 7% of their value. Berkshire's relative strength in this brutal market is proof positive that the Oracle of Omaha, along with his investment team, haven't lost their touch for stock picking. | AAPL |
https://finnhub.io/api/news?id=208cf42a85fe18335a90574257b9f060f5c748febf22912686af66f4c0c2d222 | Apple (NASDAQ:AAPL) sheds 4.8% this week, as yearly returns fall more in line with earnings growth | When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose... | 2022-09-05T09:46:27 | Yahoo | Apple (NASDAQ:AAPL) sheds 4.8% this week, as yearly returns fall more in line with earnings growth
When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, you can make far more than 100% on a really good stock. For example, the Apple Inc. (NASDAQ:AAPL) share price has soared 293% in the last half decade. Most would be very happy with that. It's down 4.8% in the last seven days.
While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
See our latest analysis for Apple
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Apple achieved compound earnings per share (EPS) growth of 23% per year. This EPS growth is lower than the 31% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Apple has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Apple's TSR for the last 5 years was 314%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We're pleased to report that Apple shareholders have received a total shareholder return of 1.5% over one year. Of course, that includes the dividend. However, the TSR over five years, coming in at 33% per year, is even more impressive. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Apple better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Apple .
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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https://finnhub.io/api/news?id=74295f0247b71748f387dad62031886bb330a96e2b60418daa7e5fda24570deb | Tech stocks: MATANA is the new FAANG, analyst says | It's time to rethink who's at the top of the Big Tech food-chain, Constellation Research Principal Analyst & Founder Ray Wang told Yahoo Finance Live. | 2022-09-05T07:55:11 | Yahoo | MATANA is the new FAANG, analyst says
It's time to rethink who's at the top of the Big Tech food-chain, Constellation Research Principal Analyst & Founder Ray Wang told Yahoo Finance Live (video above).
Wang argued that MATANA — Microsoft (MSFT), Apple (AAPL), Tesla (TSLA), Alphabet (GOOG, GOOGL), Nvidia (NVDA), and Amazon (AMZN) – is an upgrade to FAANG by dropping Meta (META) and Netflix (NFLX) while adding Microsoft, Tesla, and Nvidia.
In 2013, when Jim Cramer of CNBC's "Mad Money" coined the term FAANG, many of those companies were thought of as upstarts who'd taken their respective markets by storm. This was especially true of Meta — then Facebook — and Netflix. But now, Wang said, both should be re-assessed. Meta, in particular, needs a new plan.
"Facebook has got to do something besides ads," he told Yahoo Finance. "Once again, they're taking a beating for it. So, is it going to be the glasses? Is it going to be the metaverse? We're not there yet and that's really kind of what the challenge is."
For Netflix, it's a question of growth, and what is and isn't on the table. And because the company's operating on a subscription model, Wang has questions about how much further they could go.
"The reason they're out is because, how many more subscribers? How many more subscriptions are you going to handle?" he said. "Product placement should be where they are, plus the ability to do IP licensing. Look at how Disney makes its money."
Wang stressed that Microsoft, which is often viewed as one of tech's leading legacy names, should be included in the group of tech's most elite leaders (and sometimes has been with the bulky FAAMNG acronym).
"Microsoft has more than just business-to-business and consumer – they've been able to manage both," he said. "They're positioned well for the metaverse. They're positioned well for the cloud and, of course, they've got their gaming business."
Rounding out the new grouping would be Tesla — a well-known success story at this point — and Nvidia.
"Nvidia is a lot more than just the chips that we look at and more than the data center or gaming," Wang said. "They're sitting at the edge between AI, the metaverse, the future of computing, and the way they do their partnerships, they're set up in a way that's going to be dominant for quite some time."
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks.
Download the Yahoo Finance app for Apple or Android.
Follow Yahoo Finance on Twitter, Facebook, Instagram, LinkedIn, and YouTube. | AAPL |
https://finnhub.io/api/news?id=a28d2a12161dd13a669f52d7cdaa5fc1be20bd3dfa9ede611e6d4f7f36586485 | AirPods Pro 2 release date: New Apple earphones to arrive imminently with a range of upgrades, report claims | New earphones should bring better sound alongside other features | 2022-09-05T03:56:51 | Yahoo | AirPods Pro 2 release date: New Apple earphones to arrive imminently with a range of upgrades, report claims
New earphones should bring better sound alongside other features
Apple is about to launch an update to the AirPods Pro, according to a new report.
Apple first launched the AirPods Pro in October 2019. They have stayed unchanged in the years since, even while Apple has updated the non-Pro AirPods.
That is set to change at this week’s iPhone event, however, according to a new report from Apple’s Mark Gurman. Apple will unveil the first update to the AirPods Pro in a livestreamed event that is also rumoured to see new Apple Watches and perhaps other products.
The new AirPods Pro are not expected to undergo any kind of external redesign. While some recent reports have suggested that Apple is working on a new version without the trademark “stalks” that extend out of the ear, for instance, that does not appear to be planned imminently.
The new earphones will however focus on upgrades to the internal specifications. That includes the introduction of a new version of the H1 processor that is in all of Apple’s earphones and headphones and powers their wireless audio.
That better processor will allow for lossless audio, some reports have suggested. That might be done either by upgrading the Bluetooth technology in the earphones – or doing away with bluetooth entirely, and using a new kind of wireless standard.
The new case could also be able to make a noise so that it can be more easily found using Apple’s Find My app. At the moment, sound can only be emitted from the earphones themselves – which means that it is relatively quiet, especially when the earphones are in their case.
Apple will hold its iPhone event on 7 September, with its first on-stage launch since before the pandemic. Alongside new AirPods, it is rumoured to be introducing four new iPhones and up to five Apple Watches.
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Join thought-provoking conversations, follow other Independent readers and see their replies | AAPL |
https://finnhub.io/api/news?id=bc4f692062371659a154f22507fcf964d284e3b29de15e8c542423b527a2a74a | 6 Reasons to Buy Apple Stock Now and Never Sell | From their peaks several months ago, the S&P 500 and the Nasdaq Composite indexes have declined 17% and 26%, respectively, while Apple stock has shed just 13%. Given his extraordinary track record, investors could do far worse than following in the footsteps of legendary money manager Warren Buffett. Lest there be any doubt, Apple is far and away Berkshire's largest holding. | 2022-09-05T03:13:00 | Yahoo | 6 Reasons to Buy Apple Stock Now and Never Sell
From their peaks several months ago, the S&P 500 and the Nasdaq Composite indexes have declined 17% and 26%, respectively, while Apple stock has shed just 13%. Given his extraordinary track record, investors could do far worse than following in the footsteps of legendary money manager Warren Buffett. Lest there be any doubt, Apple is far and away Berkshire's largest holding. | AAPL |
https://finnhub.io/api/news?id=936727097523da987b5ccb57b76febf18cbfb5c9a598afc5426be56b4868c023 | Aurora Innovation: Buyout Hope Isn't Ideal | Aurora Innovation soared on a CEO memo suggesting tech giants could buy the firm. See why I think investors should sell AUR stock on any buyout hype. | 2022-09-05T02:57:24 | SeekingAlpha | Aurora Innovation: Buyout Hope Isn't Ideal
Summary
- Aurora Innovation soared on a CEO memo suggesting tech giants could buy the firm.
- The internal memo actually highlights how the self-driving tech firm lacks the funds to commercialize the technology.
- Investors should sell the stock on any buyout hype.
- Looking for a portfolio of ideas like this one? Members of Out Fox The Street get exclusive access to our model portfolio. Learn More »
At one point, Aurora Innovation (NASDAQ:AUR) was one of the most promising companies in the autonomous driving technology sector. Now, the stock was trading below $2 and the CEO is promoting a buyout from a tech giant. My investment thesis remains Bearish on the stock due to extreme high costs levels while a buyout isn't a great investment thesis.
Buyout Hype
Per Bloomberg, a company memo from CEO Chris Urmson laid out potential scenarios for Aurora Innovation of possible buyouts by Apple (AAPL) and Microsoft (MSFT). While Apple is focused on developing EVs with self-driving technology, the company may or may not be interested in buying Aurora for a premium valuation.
Apple has a net cash balance of $60 billion and generates a ton of free cash flow annually, so the company could easily afford a cash payout to buy Aurora. The stock has market cap of only $3 billion and a 30% premium would only require one of the tech giants to pay ~$4 billion for the firm.
Apple has made several deals in this range such as buying Beats for $3 billion in order to enter the headphone and audio software market and paying $1 billion to buy the modem technology unit from Intel (INTC). Ultimately, the tech giant is still trying to build 5G modems to replace Qualcomm (QCOM) chips several years later, but Apple parlayed the headphone technology into a successful business with AirPods.
The problem with Aurora Innovation is that the company is focused on autonomous highway travel with trucks, not exactly the AVs where Apple is focused with an Apple Car. Baidu (BIDU) has already launched robotaxis in China and Tesla (TSLA) is promoting launching self-driving technology by the end of the year.
Aurora Innovation was once promoted as having the technology to compete with Waymo (GOOG, GOOGL) and Tesla in the sector. Now, the CEO appears to sound desperate looking for a way to cash out in a tough market.
As part of the memo, the CEO outlined tons of options to finance the business including a reduction in force or a merger with another AV business. Neither option seems appealing.
The Aurora Driver technology built by the company is more focused on commercial trucking operations. The company has an AV test with FedEx (FDX), amongst others, on multiple routes in Texas with a safety driver.
Again, this isn't an area where Apple would necessarily have an interest in the business. The tech giant is much more focused on consumer applications and the speculation of an Apple Car development is on either the software side for the infotainment system or an actual EV with AV technology.
Microsoft is more focused on enterprise customers, so possibly AV technology focused on corporate trucking customers would intrigue this tech giant.
Wild Cash Burn
For Q2'22, Aurora reported $171 million in cash operating expenses while obtaining about $21 million in collaboration revenue from Toyota (TM). Total expenses were $217 million due to an additional $46 million in stock-based compensation expenses.
The company has an annualized spending rate of close to $900 million. Aurora burned $225 million in cash from operations in the 1H of the year and another $9 million from property and equipment while originally forecasting a cumulative cash burn of $3.7 billion through 2027 where the company forecast turning profitable.
One really has to question if Apple, or even Microsoft, wants to acquire a business burning that much cash. The company suggests commercial applications won't start until 2024 with the launch of the Aurora Driver truck platform. Aurora hadn't forecast much in the ways of revenues until a few years after launch.
Cleary, the internal memo is trying to address the main question of how Aurora gets to 2027 with a cash balance of $1.4 billion. What appeared like a strong balance sheet, quickly gets depleted in the next couple of years before the platform even launches.
The stock ended up 15% on Friday following the memo leak, but Aurora only trades at $2.43 now. The company is in a weaker position after this memo leak questions the viability of the firm.
Takeaway
The key investor takeaway is that the internal memo from CEO Chris Urmson has to really question the business prospects of Aurora Innovation. The AV technology company valued at $11 billion with the SPAC deal and rumored at higher values in the private markets now appears a shell of its former self with an odd claim that a tech giant might buy the company when the stock valuation is trading at a fraction of the previous amount.
Investors should continue to avoid this stock, especially on any buyout hope.
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This article was written by
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Analyst’s Disclosure: I/we have a beneficial long position in the shares of QCOM either through stock ownership, options, or other derivatives. 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.
The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (10)
Why not just read the disclosure? It clearly states no position whether long or short in $AUR. Got a position in some Lidar stocks, but we aren't going to justify your allegations.
Any CEO of a public company better understand an internal memo is as good as public information. | AAPL |
https://finnhub.io/api/news?id=138099edfb8d95164a2d8fc0deb91ff1adf89cd63d270c95405f621420fc11ec | iPhone 14 release date: what time is Apple's event and how to watch it live | Apple is planning an iPhone extravaganza this year, returning to a live, in-person launch event for the first time since the coronavirus pandemic as it prepares to reveal its latest smartphone. | 2022-09-05T02:57:16 | Yahoo | iPhone 14 release date: what time is Apple's event and how to watch it live
Apple is planning an iPhone extravaganza this year, returning to a live, in-person launch event for the first time since the coronavirus pandemic as it prepares to reveal its latest smartphone.
The California company is expected to launch four new iPhone models at the event. These will include the iPhone 14 and iPhone 14 Pro, as well as two Max or plus-size versions of each device.
Apple could also reveal upgrades to its other products such as a "Pro" version of the Apple Watch.
The launches follow last year's iPhone 13, 13 Pro, iPhone 13 Mini and iPhone 13 Pro Max.
We are still waiting on the final details of the event, but here is everything we know so far.
When will Apple reveal its new iPhone?
Apple normally sticks to a regular schedule for its iPhone launches. The company is planning to reveal its new devices on Wednesday September 7, according to an invitation for the launch event. The event is due to kick off at around 6pm (BST).
When will the iPhone 14 go on sale?
After Apple does reveal its new phones you can expect a delay of a few days between the event and sales kicking off.
Pre-orders are expected to begin on Friday 9 September for the new models of iPhone. In previous years, fans have had to wait a bit longer for some devices, which came later in the year.
On September 16, the Friday after its main event, the tech giant will release its new iPhone models in stores.
Where to watch Apple's iPhone event
Apple will stream its launch event on Apple.com and on YouTube. You will also be able to follow along on our live blog. | AAPL |
https://finnhub.io/api/news?id=6fe8be1da206fce7a158e9517bc27e9e5ba7b0e9617e57d3e48a47f6d2bef2e5 | Walgreens Dividend Is Now Yielding 5.45% And Is Looking Inexpensive | Walgreens is looking cheap after falling -33.53% YTD and pushing its P/FCF multiple to 8.86x. See how WBA presents an opportunity for capital appreciation. | 2022-09-05T02:00:00 | SeekingAlpha | Walgreens Dividend Is Now Yielding 5.45% And Is Looking Inexpensive
Summary
- Walgreens is looking cheap after declining by -33.53% YTD and pushing its price to FCF multiple to 8.86x.
- Walgreens has created value for shareholders despite its falling share price as its repurchased more than 20% of its shares outstanding since 2015.
- Walgreens has increased its dividend for 46 consecutive years and has been a good steward of financial stability and an allocator of capital.
- I think shares of WBA are too low and present an opportunity for capital appreciation and investors will get paid a large dividend along the way.
- I do much more than just articles at Barbell Capital: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »
Shares of Walgreens Boots Alliance (NASDAQ:WBA) have disappointed shareholders lately, declining -31.88% over the past year and -33.53% YTD. It's been a rough road as WBA started 2022 at $53.06, and shares have slid to $35.27. Not even the enormous 5.45% dividend yield can get shareholders excited as new 52-week lows were just made. The market isn't rewarding many companies these days, but WBA generates billions in profits unlike many popular companies. Nobody knows when the market will, and the current weakness is creating some attractive opportunities for long-term investors. WBA has been in a perpetual decline as shares have lost -56.67% of their value over the previous 5-years. With shares yielding over 5%, I think it's time to consider shares of WBA for an income-focused portfolio.
Walgreens is trading at an attractive valuation even though the market continues to punish its shares
This may not be the best environment to pick winners and losers or see which companies investors are overlooking as the majority of stocks are declining. The Nasdaq is in a bear market, while the S&P is on the verge of crossing over into bear market territory once again. WBA has declined -33.53%, underperforming the major indices in 2022. It's market cap has declined to $30.3 billion, which is now less than the total equity on WBA's balance sheet. WBA is also getting close to trading at a 1:1 ratio to its book value. Many news articles and segments on financial news networks have discussed profitless tech and how companies with non-existent EPS and FCF will continue to be punished in a rising rate environment. Looking at WBA's financials, there are a lot of reasons why I am getting bullish on WBA.
Free Cash Flow (FCF) is often looked at as one of the best measures of profitability as FCF excludes the non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital from the balance sheet. To some investors, FCF is more important to analyze than net income because it's harder to manipulate as it is a true indication of the company's cash. FCF is also the pool of capital that companies can utilize to repay debt, pay dividends, buy back shares, make acquisitions, or reinvest in the business. With every share of stock purchased, you're getting an equity share of the business in return, and your shares represent a portion of the revenue and earnings generated. In my opinion, businesses that generate large amounts of FCF should be rewarded, not discarded.
When it comes to the FCF multiple, I like to pay between 18-22 times FCF for a company's stock, and if I can find good companies trading at less than 18x FCF, my interest immediately elevates. The FCF multiple that the market places on a company can be found by dividing a company's market cap by the FCF produced over the trailing twelve months (TTM). Apple (AAPL), for instance, trades at an FCF multiple of 23.28x ($2.5 trillion / $107.58 billion). I am willing to pay more for a company's FCF if they have a larger growth rate, and AAPL at 23.28x FCF looks very intriguing.
WBA has generated $5.06 billion in cash from operations and allocated $1.62 billion to CapEx putting its FCF at $3.44 billion over the TTM. WBA's market cap is $30.3 billion, which means its trading at 8.86x its FCF. WBA trades at one of the lowest FCF ratios of all the Dividend Aristocrats. International Business Machines (IBM) trades at a FCF multiple of 14.08x ($115.42 billion market cap / $8.2 billion FCF), Johnson & Johnson (JNJ) trades at a FCF multiple of 21.45x ($427.87 billion market cap / $19.95 billion FCF), Kimberly-Clark (KMB) trades at a FCF multiple of 23.59x ($42.7 billion market cap / $1.81 billion FCF), and Caterpillar (CAT) trades at a FCF multiple of 31.28x ($95.46 billion market cap / $3.05 billion FCF).
Looking further through WBA's financials, I found two metrics that were also interesting. WBA has $31.16 billion of total equity on its balance sheet. As WBA's market cap is $30.3 billion, it's currently trading at a -2.75% discount to the equity on its balance sheet. Most companies trade at a premium to equity, and WBA has now fallen below a 1:1 ratio. The other aspect that looks interesting is WBA's book value. On WBA's balance sheet, its book value per share is $30.38. WBA currently trades at a 16.1% premium to its book value. For value investors, the P/B ratio is a timeless method for finding stocks that could be mispriced. A P/B ratio of less than 1 could be an indicator that the market has misunderstood a company and undervalued it. As WBA is trading close to a 1:1 book value, there could be an underlying opportunity in its shares.
WBA is approaching Dividend King status and continues to allocate capital back to shareholders
WBA is a Dividend Aristocrat approaching Dividend King status as it increased its annual dividend for 46 consecutive years. WBA's share price has been declining, but that hasn't stopped WBA from rewarding its shareholders with a growing dividend and buybacks. WBA generates billions in FCF and puts that pool of capital to work. With every share repurchased, shareholders own a larger part of the equity in WBA, and with every dividend increase, shareholders receive a larger portion of the earnings each share generates.
Since WBA's last stock split in 1999, its quarterly dividend has increased by 1,377% going from $0.0325 to $0.48. WBA pays a dividend of $1.92 per share, which is a 5.45% yield. In the TTM, WBA has generated $6.22 in EPS, placing its annual payout ratio at 30.87% of its earnings. WBA's dividend has a 5-year growth rate of 4.63%, with 46 years of consecutive increases. At today's prices, WBA is generating considerable amounts of income and, after 4 more increases, will be considered a Dividend King.
WBA has also used its profits to buy back shares. In 2015 WBA had 1.09 billion shares outstanding. Since then, WBA has used its FCF to buy back 224.5 million shares, reducing its outstanding shares by -20.62%. With each buyback, WBA increases the amount of equity its remaining shares represent, and its EPS and revenue per share are spread among a lower float. While many companies continue to issue shares and dilute shareholders, WBA not only increases equity for its investors but has provided decades of dividend increases. I think this is something that is overlooked and that companies who create value for shareholders through buybacks and dividends should be rewarded, not discounted. WBA is doing this from a position of financial stability, not weakness.
Conclusion
I believe shares of WBA have gotten too cheap and lost in the havoc created by the declining indices. Today, WBA trades at 8.86x FCF, trades at a discount to its equity, and is getting close to a 1:1 P/B. WBA generates $134.52 billion in revenue and billions in profits. Today you are able to pick shares up at a steep discount and get paid a dividend that exceeds 5% while you wait for a turnaround. I think WBA could be a great income stock and a capital appreciation generator if you take a long-term approach. For investors who WBA has burned, maybe now is the time to consider dollar cost averaging into the position and reinvesting the dividend. WBA's track record suggests that future buybacks and dividend increases will occur as they have an impeccable track record of generating FCF. When the markets finally recover, I could see WBA trading over $50 per share once again.
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Analyst’s Disclosure: I/we have a beneficial long position in the shares of WBA, AAPL either through stock ownership, options, or other derivatives. 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.
Disclaimer: I am not an investment advisor or professional. This article is my own personal opinion and is not meant to be a recommendation of the purchase or sale of stock. Investors should conduct their own research before investing to see if the companies discussed in this article fit into their portfolio parameters.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (164)
Long WBA, losing my shirt, and holding on with white knuckles. Right now,
off to Walgreens for flu shots!
think I'll stick with drugstores in the good old USA.seekingalpha.com/...
Long WBA. | AAPL |
https://finnhub.io/api/news?id=010c4a6370a09868386761c50c2825cb701ca4f094db8a8d13339ea79fa27888 | Apple event: When is the iPhone 14 and Watch release date? | Apple will hold a major event next month, it has announced. The presentation is almost certain to see the release of the iPhone 14 and new versions of the Apple Watch. It may be structured similarly to the WWDC event in June, which saw select journalists and developers invited to watch the broadcast on a screen at Apple Park. | 2022-09-05T01:59:23 | Yahoo | Apple event: When is the iPhone 14 and Watch release date?
Apple will hold a major event next month, it has announced.
The presentation is almost certain to see the release of the iPhone 14 and new versions of the Apple Watch.
And it will take place on 7 September, at 10am local pacific time, it said in an invitation sent to journalists.
Some were invited to Apple’s campus in Cupertino, suggesting that the event is likely to include some in-person participation. It may be structured similarly to the WWDC event in June, which saw select journalists and developers invited to watch the broadcast on a screen at Apple Park.
The invitation did not appear to hold any clues as to what Apple was preparing to announce. It only included the line “Far Out” and an abstract image of the Apple logo – and while the company’s invitations are often pored over for clues, they rarely offer any meaningful hint of what might be coming.
The event is being held slightly earlier in the year than usual. Apple tends to hold its iPhone event in the second or third week of September, and some had expected that it might be held on the 14th.
An early event is also likely to bring an early release date for the new products. The iPhone tends to be released on the Friday a week after the event – if Apple follows a similar pattern this year, that would see it launch on 16 September.
Apple is rumoured to be preparing four new iPhones: a Pro and non-Pro version, in two different sizes. Unlike previous years, the same two sizes will be offered in both versions of the phone, and the iPhone Mini is rumoured to be finished.
Most of the upgrades will come specifically to those Pro models. The notch at the top of the display is said to have been swapped for a small cutout in the display, and that screen is also rumoured to be always-on
Full details of the rumoured changes coming to the iPhone can be found here.
As well as those phones, Apple is expected to release three new versions of the Apple Watch – one more than usual. As well as the standard aluminium and steel versions, Apple is expected to release to release a new “Pro” model, with a bigger display and a more rugged design.
The Apple Watch usually arrives on the same schedule as the iPhone.
Apple has also been said to be working on new AirPods Pro earphones, new iPads, and updated Macs. But at least some of those products may be saved for a rumoured October event.
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https://finnhub.io/api/news?id=0d7538081551839751d5ed6e0d2cde265f5815f0cf188a56f0a0abfe3f3b5d7c | When is the next Apple event? | Apple is holding perhaps its biggest event of the year, revealing the iPhone 14, new Watches and more with the event announced for 7 September, at 10am local pacific time. Apple has now confirmed when exactly the reveal will take place. The release dates will not be revealed until later, but there is plenty of information to make a good guess about when the new iPhones will be released. | 2022-09-05T01:27:26 | Yahoo | What time is the Apple event?
Related: Fix Your Own Phone With Apple’s Self-Repair Service
Apple is holding perhaps its biggest event of the year, revealing the iPhone 14, new Watches and more with the event announced for 7 September, at 10am local pacific time.
The event will take place in September – with the release of those new products coming along soon after.
Apple has now confirmed when exactly the reveal will take place. The release dates will not be revealed until later, but there is plenty of information to make a good guess about when the new iPhones will be released.
You can read everything that is likely to be revealed at the “Far Out” event here.
Launch event
Apple’s launch event, named Far Out, will take place on 7 September, at 10am local pacific time.
That launch is relatively early, especially when compared with the last couple of years of pandemic-inflected launches, when the phones did not fully arrive until October. It is not clear why Apple has sped up the schedule – but it could be anything from an attempt to get out ahead of any economic bad news to the setup of the calendar.
It will be a livestreamed online event, as usual. But in a first since the beginning of the pandemic, Apple appears to be hosting select media at an in-person event at the Steve Jobs Theater on its campus, too.
Release date
The release date is even more reliable than the launch date: it almost certainly comes a week and a half after the phone is first revealed.
Given the 7 September launch, that would put the most likely release date as 16 September. That will probably be the case for the iPhone as well as the new Apple Watches.
In recent years, that launch date hasn’t included all of the phones; manufacturing problems have led some of them not to arrive for weeks. But those problems do not appear to be affecting availability for the iPhone 14, and there is nothing to suggest any of them will be delayed.
This will almost certainly be confirmed during the launch event, as usual.
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https://finnhub.io/api/news?id=e4b3b2aacad92dd21589edc5c160cabbf76158405889877a88b203983ec2b181 | What time is the next Apple event? | Apple is holding perhaps its biggest event of the year, revealing the iPhone 14, new Watches and more with the event announced for 7 September, at 10am local pacific time. Apple has now confirmed when exactly the reveal will take place. The release dates will not be revealed until later, but there is plenty of information to make a good guess about when the new iPhones will be released. | 2022-09-05T01:27:02 | Yahoo | What time is the Apple event?
Related: Fix Your Own Phone With Apple’s Self-Repair Service
Apple is holding perhaps its biggest event of the year, revealing the iPhone 14, new Watches and more with the event announced for 7 September, at 10am local pacific time.
The event will take place in September – with the release of those new products coming along soon after.
Apple has now confirmed when exactly the reveal will take place. The release dates will not be revealed until later, but there is plenty of information to make a good guess about when the new iPhones will be released.
You can read everything that is likely to be revealed at the “Far Out” event here.
Launch event
Apple’s launch event, named Far Out, will take place on 7 September, at 10am local pacific time.
That launch is relatively early, especially when compared with the last couple of years of pandemic-inflected launches, when the phones did not fully arrive until October. It is not clear why Apple has sped up the schedule – but it could be anything from an attempt to get out ahead of any economic bad news to the setup of the calendar.
It will be a livestreamed online event, as usual. But in a first since the beginning of the pandemic, Apple appears to be hosting select media at an in-person event at the Steve Jobs Theater on its campus, too.
Release date
The release date is even more reliable than the launch date: it almost certainly comes a week and a half after the phone is first revealed.
Given the 7 September launch, that would put the most likely release date as 16 September. That will probably be the case for the iPhone as well as the new Apple Watches.
In recent years, that launch date hasn’t included all of the phones; manufacturing problems have led some of them not to arrive for weeks. But those problems do not appear to be affecting availability for the iPhone 14, and there is nothing to suggest any of them will be delayed.
This will almost certainly be confirmed during the launch event, as usual.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies | AAPL |
https://finnhub.io/api/news?id=a7fff2ac69fe27276371aa5462b6904fabe6f6bb0af929f3f111052788eb8cc2 | 7 Growth Stocks That Could 10X by 2027 | It takes courage and conviction right now to snap up growth stocks to buy that could appreciate 10-fold over the next five years. | 2022-09-05T00:44:00 | InvestorPlace | MarketWatch published an article early in 2022 which highlighted last year’s best-performing S&P 500, mid-cap, small-cap, Nasdaq-100, and Dow 30 stocks. Some of the names on the five lists were cited by analysts as the top growth stocks to buy in 2022.
We know in hindsight that growth stocks weren’t the best bet over the past eight months. That distinction goes to energy stocks. The energy stocks in the S&P 500 jumped almost 45% in the first eight months of 2022. Out of the 11 sectors in the index, utilities is the only one besides energy in positive territory in 2022. The S&P 500’s utilities rose 3.4% through the first eight months of 2022.
For this article, I’m tasked with selecting seven growth stocks to buy that have a better-than-average shot of appreciating ten-fold over the next five years.
I’m going to take at least one name from each of the five MarketWatch lists.
And to qualify for this column, stocks will have to have an average rating of “overweight” or “buy” from Wall Street analysts.
|NVDA||Nvidia||$136.47|
|DKS||Dick’s Sporting Goods||$108.23|
|PRFT||Perficient||$73.49|
|MRNA||Moderna||$138.57|
|AAPL||Apple||$155.81|
|ORLY||O’Reilly Automotive||$702.70|
|CCRN||Cross Country Healthcare||$24.79|
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) gained 125.5% in 2021. It had tumbled 54% in 2022 through Friday.
However, the analysts remain bullish on NVDA stock. Of the 44 covering NVDA , 35 rate it a “buy” or an “overweight.” Only one analyst has a “sell” rating on it. Their average price target for the shares is $211.02, more than 50% above its current share price.
The chip maker’s three-year annualized average revenue growth is 32%.
That’s the good news. The bad news is that NVDA expects its Q3 revenue to fall by 17% compared to the same period a year earlier. Also, it took a $1.34 billion charge in Q2 to account for the inventory that it wrote down due to slower-than-expected revenue growth.
CEO Jensen Huang remains confident that the gaming market will rebound.
“While Gaming navigates significant short-term macroeconomic challenges, we believe the long-term fundamentals in Gaming remain strong,” Huang stated on the company Q2 earnings conference call.
“NVIDIA RTX has redefined computer graphics and is now supported by almost 300 games and applications. NVIDIA’s GeForce GPUs are the most coveted brand by gamers, representing 15 of the top 15 most popular GPUs on Steam.”
NVDA stock hasn’t been this low since April 2021, more than 17 months ago. I like the chances of its share price rising ten-fold over the next five years.
Dick’s Sporting Goods (DKS)
Dick’s Sporting Goods (NYSE:DKS) gained 116.4% in 2021. It has given 6% back in 2022.
Of the 26 analysts covering DKS stock, 13 rate it a “buy” or an “overweight.” Only one rates it a “sell,” and analysts’ average price target on the name is $124.78, about 16% higher than its current share price.
Investors who did not carefully read the retailer’s earnings report would likely have wrongly concluded that it had a dud of a quarter. It did not. That’s far from the truth.
The 5.1% decline in Dick’s same-store sales may scream “run for the hills,” but the retreat came on the heels of a 20% increase in SSS in Q2 of 2021. Even more impressively, Dick’s net sales of $3.1 billion last quarter were 38% higher than in the same period of 2019.
And, as Executive Chairman Ed Stack pointed out, its earnings before taxes (EBT) in Q2 was equal to its EBT for all of 2019.
“The state of our industry is strong, and we remain in a great lane. DICK’S is the clear market leader, and as a result of our transformation, we are well-positioned to extend our lead and deliver long-term sales and earnings growth,” Stack stated in the company’s quarterly press release.
Maybe DKS stock won’t appreciate ten-fold over the next five years, but you can be darn sure that you won’t lose much on the shares either. Their risk/reward outlook is excellent.
Perficient (PRFT)
Perficient (NASDAQ:PRFT) gained 171% in 2021. It’s down 43% in 2022.
The Missouri-based company is a consulting firm that helps its customers utilize digital technologies to better engage with their customers. It provides its services to healthcare, financial services, manufacturing, automotive firms, and companies in several other industries.
Over the past three years, its average annualized revenue growth was 15.2%. Out of nine analysts, seven rate it a “buy,” with two “holds” and no “sell” recommendations. Their average price target on the shares is $115.25, 52% versus its current level of $72.77.
The company’s Q2 results were excellent. Its revenues rose 21% year-over-year while its earnings per share, excluding some items, jumped 26%. For all of 2022, it expects revenue of $915 million at the midpoint of its guidance. On the bottom line, the midpoint of its outlook equates to adjusted EPS of $4.30
Based on the company’s 2022 guidance, it’s trading at 17.6 times its EPS and 2.9 times its sales. Those are both reasonable given its growth prospects.
In July, the company announced that it would expand in India by adding new locations in Hyderabad and Pune, and increasing the office space in three other cities. The move adds approximately 73,000 square feet of office space for almost 2,000 new employees.
These additions should meaningfully increase its revenue.
Moderna (MRNA)
Moderna (NASDAQ:MRNA) gained 143% in 2021. It’s down 45% in 2022.
August ended with some good news for MRNA. First, it announced on Aug. 31 that the U.S. Food and Drug Administration (FDA) approved the company’s emergency use authorization (EUA) application for its Omicron-targeting Covid-19 booster vaccine for adults 18 and over. A day later, Health Canada issued the same approval.
Moderna will initially supply 12 million doses to Canada, which will have an option to purchase an additional 4.5 million doses.
In early August, Moderna reported its earnings for the first six months of 2022. On the top line, its revenues rose 71% YOY to $10.8 billion. On the bottom line, it earned $6.7 billion from its operations, 56% higher than during the same period a year earlier.
Moderna is generating so much cash that it finished Q2 with $18.1 billion of cash and investments, up from $17.6 billion at the end of December. Moderna is trading at three times its cash. That’s a cheap valuation.
Despite its low valuation, analysts are lukewarm on MRNA. Of the 19 analysts covering its stock, only seven rate it “overweight” or “buy.” Most have “hold” ratings on it and one has an outright “sell” rating on the shares. However, the analysts’ median target price is $197.00, versus its current price of $138.
Moderna’s pipeline is substantial. It has 31 of its 43 development candidates in clinical trials. One or two of those are bound to pay off in a big way.
Apple (AAPL)
Apple (NASDAQ:AAPL) gained 34.6% in 2021. It’s down a little more than 12% in 2022.
A Barron’s article from August made an interesting point about Apple’s size being a big negative for AAPL stock.
“As the largest U.S. company by far—with a market capitalization more than $500 billion greater than the number-two, Microsoft (MSFT)—Apple is widely owned and has a tendency to drag around, and be dragged around by, the major indexes,” Barron’s contributor Jack Denton wrote.
“After all, it makes up more than 7% of the entire S&P 500. If Apple was its own sector, it would have the seventh-largest weighting out of 12 and be almost twice as large as the energy sector.”
Despite the concerns about China’s slowing economy hurting Apple’s sales, analysts remain relatively upbeat about its stock. Of the 41 analysts covering AAPL, 32 rate it “overweight” or a “buy.” Only two have an “underweight” or a “sell” rating on it.
Apple’s services business continues to be very profitable. In the first nine months of 2022, the gross margin of its services business was 72%, almost double that of its products business.
O’Reilly Automotive (ORLY)
O’Reilly Automotive (NASDAQ:ORLY) appeared in my July column, called the 7 Best Retail Stocks to Buy Now. ORLY made the list because it consistently grows its free cash flow. It’s up almost 20% in 2022 relative to the S&P 500. Over the past five years, it’s up four-fold compared to the index.
ORLY gained 56% in 2021. Analysts generally like the stock. Of the 24 covering it, 17 have “buy” or “overweight” ratings on it, and their average price target is $768.63, versus its current price of $701.50.
I know that doesn’t seem like much of a difference. However, the shares perform well over the long haul. Since 2000, they’re up 8,400%, representing a compound annual growth rate of 22.8%.
This little snippet from CEO Gregory Johnson’s Aug. 23 speech encapsulates the state of O’Reilly’s business:
“So when you look at a 2-year stack basis, that comp will be 21%; 3-year, 28.5%. Gross margin year-to-date 51.6%; operating margin, 21.1%. And we’ve opened 116 net new stores and are on track to meet our projection of 175 to 185 stores for the year,” Johnson stated.
“Diluted earnings per share came in at $15.94. We generated $1.2 billion in free cash flow and repurchased $2.2 billion worth of our stock year-to-date under the stock repurchase program.”
As I said earlier, O’Reilly knows how to grow its free cash flow, but it’s also better than most at allocating it. Over the long-term, you won’t do much better than ORLY.
Cross Country Healthcare (CCRN)
Cross Country Healthcare (NASDAQ:CCRN) gained 213% in 2021, so it’s not surprising that it’s cooled off in 2022. However, relative to the Russell 2000, it’s up more than 9% on the year.
Cross Country works with healthcare clients such as hospitals, outpatient clinics, ambulatory clinics, physician practice groups, and other healthcare-related facilities to recruit and staff their businesses. The demand for its services is very strong.
Over the last three years, its revenue has grown at an annualized rate of 27.1% , while its operating income rose by an average of 104.4% annually. That’s some pretty good growth–and I don’t think that the firm is going to stop growing anytime soon.
It’s fair to say that the sequential decreases in its financial results that occurred in Q2 will continue in the back half of the year as staffing shortages dissipate, returning to more normal historical levels.
For example, in Q3, the company expects revenue of $610 million at the midpoint of its guidance. That’s 62.5% higher than a year earlier but down 19% from the previous quarter. Its adjusted EPS should also fall in Q3 versus Q2.
The company’s biggest growth driver is its Managed Service Programs (MSPs). Between 2015 and 2021, the estimated revenue of these MSPs grew by $800 million to $1.1 billion. The annual run rate of its revenue in Q2 was $2.2 billion. It has approximately 100 customers across more than 550 facilities.
Investors should expect more moderate growth from CCRN– barring any significant M&A transactions — but not a return to the slower growth that it generated before the pandemic.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. | AAPL |
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https://finnhub.io/api/news?id=376ceb130714d0f96a4c3ae45f14f77bd377ce7ad25d265c3f7f97317459f547 | Dow Jones Futures Rise: Market Sell-Off Intensifies; Apple Vs. ANET Stock | The major indexes broke more key support last week. Apple unveils the iPhone 14 Wednesday. AAPL stock is worth watching, but this tech leader looks better. | 2022-09-04T17:22:58 | Yahoo | Dow Jones Futures Rise; Energy Prices Lower Despite Surprise OPEC+ Move, Russia News
Futures rose modestly. Oil prices erased gains despite OPEC+ cut production while natgas fell despite Russia cutting off European natural gas.
Futures rose modestly. Oil prices erased gains despite OPEC+ cut production while natgas fell despite Russia cutting off European natural gas. | AAPL |
https://finnhub.io/api/news?id=512c8dbfb4ff477a245208e7423cae0c99d8db173fa549051a679f242cb736d1 | Trading The Top 10 Stocks From 40 Large Hedge Funds: Trading Update 9/4/2022 | A strategy selecting 10 of the 50 stocks, equally weighted, would have increased total return to 178.0%, an active return of 61.6% vs. SPY. | 2022-09-04T17:24:20 | SeekingAlpha | Trading The Top 10 Stocks From 40 Large Hedge Funds: Trading Update 9/4/2022
Summary
- This portfolio strategy uses the quarterly 13F filings to extract 50 consensus stocks from 40 large hedge funds that have more than $3.5 billion in Assets Under Management.
- From 1/2/2016 to date investing in all 50 stocks, equally weighted, would have produced a total return of 78.5%, an active return of -37.8% when compared to SPY’s 116.3%.
- A strategy selecting 10 of the 50 stocks, equally weighted, would have increased the total return to 178.0%, an active return of 61.6% when compared to SPY.
- Here we report the most recent holdings and the trading signals for 9/6/2022.
Research from Barclays and Novus published in October 2019 found that a copycat stock selection strategy that combines conviction and consensus of fund managers that have longer-term views outperformed the S&P 500 by 3.80% on average annually from Q1 2004 to Q2 2019.
Based on that rational, we previously presented two trading models (in Article-1 and Article-2) that use the top 50 consensus stocks of 40 Large Hedge Funds (listed in Appendix A below), that historically outperformed the S&P 500. The iM-Top50(from 40 Hedge Funds) model holds all 50 stocks equally weighted and has a low turnover. The iM-Top10(from 40 Hedge Funds) model holds a subset of 10 stocks, also equally weighted, but with higher turnover which is rewarded by improved returns.
The performance simulation, and generation of trading signals, for these strategies is done using the platform Portfolio123 and reported below. For more comprehensive description of the 50 stock universe please refer to here.
Note: This update is published on Seeking Alpha, editor permitting, only if the model has generated trading signals.
Model Performance:
Note: The iM-Top10VariableWeight model (green line) is an experimental model. It holds the same stocks as the iM-Top10 model put position weights are adjusted to an inverse function of market capitalization, that is the higher the market cap of the stock the lower the position weight. As a consequence it is difficult to trade as market capitalization changes with the stock price.
Trade Signals for 9/6/2022
|iM-Top10(of 40 Large Hedge Funds)|
|Action||Ticker||Shares||Name|
|SELL||ADBE||67||Adobe, Inc.|
|BUY||QCOM||192||QUALCOMM, Inc.|
|iM-Top50(of 40 Large Hedge Funds)|
|No Trades|
The models trade on the first trading day of the week. Trading signals are published on a weekly basis here on Seeking Alpha (subject to model trading and editor’s acceptance) and on iMarketSignals. Next update on Sunday 9/13/2022
Holdings for iM-Top10(of 40 Large Hedge Funds) as of 9/2/2022
|Current Portfolio 9/2/2022||Cash Flow|
|Ticker||Number of Shares||Weight||Value now||Open Date||Open Costs||Rebal Costs | Return||Dividends Received||Gain to date|
|(AAPL)||179||10.03%||$27,890||08/22/22||($30,109)||—||—||($2,219)|
|(ADBE)||67||8.87%||$24,665||08/08/22||($29,199)||—||—||($4,533)|
|(CHTR)||67||9.81%||$27,278||08/22/22||($29,707)||—||—||($2,429)|
|(DHR)||103||9.98%||$27,750||06/13/22||($25,190)||—||$26||$2,586|
|(INCY)||411||10.38%||$28,856||08/22/22||($30,326)||—||—||($1,470)|
|(MA)||87||10.10%||$28,063||05/02/22||($27,266)||($3,816)||$37||($2,982)|
|(SCHW)||416||10.53%||$29,261||08/08/22||($28,585)||—||$92||$768|
|(TDG)||50||10.81%||$30,060||05/23/22||($28,158)||—||$925||$2,827|
|(TSM)||321||9.34%||$25,969||08/08/22||($28,268)||—||—||($2,299)|
|(V)||140||9.96%||$27,686||12/07/20||($30,865)||$1,269||$360||($1,549)|
Holdings for iM-Top50(of 40 Large Hedge Funds) as of 8/19/2022
|Current Portfolio 9/2/2022||Cash Flow|
|Ticker||Number of Shares||Weight||Value now||Open Date||Open Costs||Rebal Costs | Return||Dividends Received||Gain to date|
|(AAPL)||24||2.09%||$3,739||01/04/16||($2,109)||$4,982||$269||$6,881|
|(ADBE)||9||1.86%||$3,313||01/04/16||($2,118)||$3,218||—||$4,414|
|(ALTR)||69||1.88%||$3,358||08/22/22||($3,714)||—||—||($357)|
|(AMT)||14||1.97%||$3,512||01/04/16||($2,033)||$1,727||$480||$3,686|
|(AMZN)||30||2.14%||$3,825||01/04/16||($1,913)||$3,912||—||$5,825|
|(APP)||140||1.89%||$3,373||05/30/22||($3,147)||($2,402)||—||($2,176)|
|(BRK.B)||13||2.02%||$3,610||05/23/22||($4,343)||$144||—||($589)|
|(BSX)||96||2.18%||$3,887||02/24/20||($3,949)||$152||—||$90|
|(CHTR)||8||1.82%||$3,257||08/22/22||($3,547)||—||—||($290)|
|(CNI)||32||2.10%||$3,744||05/23/22||($4,410)||$819||$23||$175|
|(COUP)||55||1.76%||$3,134||08/19/19||($3,549)||($3,491)||—||($3,906)|
|(CRM)||20||1.72%||$3,074||05/22/17||($2,315)||$840||—||$1,599|
|(CRWD)||20||1.93%||$3,449||05/26/20||($4,210)||$5,621||—||$4,860|
|(DHR)||13||1.96%||$3,502||08/19/19||($3,547)||$3,433||$54||$3,442|
|(DOCU)||57||1.74%||$3,104||08/24/20||($5,118)||($4,258)||—||($6,272)|
|(ELV)||8||2.16%||$3,856||02/28/22||($4,503)||$854||$29||$237|
|(FATE)||133||1.99%||$3,554||02/16/21||($6,499)||($3,851)||—||($6,796)|
|(FIS)||38||1.92%||$3,419||08/22/22||($3,724)||—||—||($305)|
|(FISV)||44||2.50%||$4,463||11/18/19||($3,209)||($1,830)||—||($576)|
|(FOLD)||396||2.54%||$4,538||05/23/22||($4,407)||$1,277||—||$1,408|
|(GFS)||62||2.01%||$3,589||08/22/22||($3,680)||—||—||($92)|
|(GOOGL)||34||2.05%||$3,667||01/04/16||($2,281)||$2,932||—||$4,318|
|(INCY)||45||1.77%||$3,159||02/28/22||($4,566)||$1,507||—||$100|
|(INTU)||8||1.88%||$3,360||02/19/19||($3,523)||$3,219||$112||$3,168|
|(KMX)||39||1.91%||$3,415||05/24/21||($5,377)||$721||—||($1,241)|
|(MA)||11||1.99%||$3,548||01/04/16||($2,088)||$2,636||$144||$4,241|
|(MCO)||12||1.91%||$3,413||01/04/16||($2,044)||$2,791||$259||$4,419|
|(META)||22||1.98%||$3,527||01/04/16||($2,047)||($928)||—||$553|
|(MSFT)||16||2.29%||$4,097||01/04/16||($2,085)||$3,882||$366||$6,260|
|(MU)||62||1.96%||$3,492||08/22/22||($3,634)||—||—||($142)|
|(NFLX)||17||2.15%||$3,844||01/04/16||($2,092)||$687||—||$2,439|
|(NOW)||8||1.95%||$3,476||11/19/18||($2,825)||$3,001||—||$3,652|
|(NVDA)||21||1.61%||$2,866||02/24/20||($3,830)||$6,951||$16||$6,003|
|(QCOM)||24||1.73%||$3,084||08/24/20||($5,106)||$3,168||$238||$1,384|
|(SCHW)||58||2.29%||$4,080||02/28/22||($4,555)||($526)||$24||($978)|
|(SGEN)||24||2.05%||$3,656||01/04/16||($2,099)||$2,907||—||$4,465|
|(SNOW)||26||2.50%||$4,459||02/16/21||($6,487)||($89)||—||($2,117)|
|(SPGI)||10||1.95%||$3,476||05/23/22||($4,544)||$976||$20||($72)|
|(TDG)||6||2.02%||$3,607||01/04/16||($2,071)||$2,572||$1,023||$5,131|
|(TMO)||8||2.44%||$4,348||05/23/22||($4,446)||—||$2||($95)|
|(TMUS)||28||2.23%||$3,975||05/23/22||($4,395)||$704||—||$285|
|(TSLA)||18||2.72%||$4,864||05/26/20||($4,098)||$10,984||—||$11,749|
|(TSM)||43||1.95%||$3,479||11/22/21||($6,768)||$1,599||$61||($1,629)|
|(UBER)||137||2.23%||$3,980||05/23/22||($4,358)||$1,350||—||$972|
|(UNH)||7||2.02%||$3,614||05/22/17||($2,274)||$3,836||$314||$5,492|
|(UNP)||17||2.13%||$3,807||05/23/22||($4,331)||$670||$48||$194|
|(V)||17||1.88%||$3,362||01/04/16||($2,046)||$1,693||$170||$3,179|
|(W)||71||1.98%||$3,527||11/23/20||($5,390)||($5,138)||—||($7,001)|
|(WDAY)||25||2.22%||$3,964||05/26/20||($4,213)||$159||—||($91)|
Appendix A
Hedge Fund Filers:
- Akre Capital Management LLC
- Alkeon Capital Management LLC
- Altimeter Capital Management, LP
- Aristotle Capital Management, LLC
- Baker Bros. Advisors LP
- Barings LLC
- Calamos Advisors LLC
- Capital International Ltd
- Citadel Advisors LLC
- Coatue Management LLC
- D. E. Shaw & Company, Inc.
- Disciplined Growth Investors Inc
- DSM Capital Partners LLC
- Echo Street Capital Management LLC
- FMR LLC
- Fort Washington Investment Advisors Inc
- GW&K Investment Management, LLC
- Hitchwood Capital Management LP
- Jennison Associates LLC
- King Luther Capital Management Corp
- Kohlberg Kravis Roberts & Company LP
- Lone Pine Capital LLC
- Loomis Sayles & Company LP
- Matrix Capital Management Company, LP
- Meritage Group LP
- Panagora Asset Management Inc
- Perceptive Advisors LLC
- Pinebridge Investments, LP
- Redmile Group, LLC
- Renaissance Technologies LLC
- Riverbridge Partners LLC
- Ruane, Cunniff & Goldfarb LP
- Steadfast Capital Management LP
- TCI Fund Management Ltd
- Tiger Global Management LLC
- Verition Fund Management LLC
- Viking Global Investors LP
- Westfield Capital Management Company LP
- Whale Rock Capital Management LLC
- Winslow Capital Management, LLC
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (4) | AAPL |
https://finnhub.io/api/news?id=ac287ef122ce5b0a3f7c699fe9e70b8d312015bc632b0b522cd9ba4bdb75a92b | Dow Jones Futures Loom: Market Sell-Off Intensifies, Bulls Face Several Hurdles; 5 Stocks To Watch | The major indexes broke more key support last week. Apple unveils the iPhone 14 Wednesday. AAPL stock is worth watching, but this tech leader looks better. | 2022-09-04T10:40:58 | Yahoo | Dow Jones Futures Rise; Energy Prices Lower Despite Surprise OPEC+ Move, Russia News
Futures rose modestly. Oil prices erased gains despite OPEC+ cut production while natgas fell despite Russia cutting off European natural gas.
Futures rose modestly. Oil prices erased gains despite OPEC+ cut production while natgas fell despite Russia cutting off European natural gas. | AAPL |
https://finnhub.io/api/news?id=49688b88a4261e8cb2a9608deefd1800ed9f6af9d127900f35c7fa98b84cb433 | GameStop, Apple, Kroger, NIO, and Other Stocks to Watch This Week | The market is closed on Labor Day. GameStop, NIO, DocuSign, Zscaler, and Kroger report and Apple will unveil new iPhones. Plus, the latest PMIs and an ECB... | 2022-09-04T08:00:00 | MarketWatch | U.S. stock and bond markets will be closed on Monday for Labor Day. It’s a quiet week on the earnings calendar once investors return from the long weekend, but a few major economic-data releases should grab plenty of attention.
Results this week will come from GameStop and NIO on Wednesday, DocuSign and Zscaler on Thursday, and Kroger on Friday. Apple will also host a product launch event on Wednesday, when it is expected to unveil a new lineup of iPhones and Apple Watches.
Economic data releases next week include the Institute for Supply Management’s Services Purchasing Managers’ Index for August on Tuesday. The consensus estimate is for the index to decline by about three points, to 54.
Other data for investors and economists to watch next week will be the Federal Reserve’s sixth beige book of the year on Wednesday and the Department of Labor’s initial jobless claims for the latest week on Thursday.
The European Central Bank also announces a monetary-policy decision on Thursday. Futures markets are pricing in the greatest odds of a 75-basis-point hike, which would bring ECB’s benchmark interest-rate target to 0.75%.
Monday 9/5
Equity and fixed-income markets are closed in observance of Labor Day.
Tuesday 9/6
The Institute for Supply Management releases its Services Purchasing Managers’ Index for August. Consensus estimate is for a 54 reading, about three points lower than in July. The index is well off its record high of 68.4 from November, but still above the expansionary level of 50.
Wednesday 9/7
Appleholds a launch event, titled “Far Out,” at its headquarters in Cupertino, Calif. The company is expected to unveil four new iPhone 14 models and three new Apple Watches, along with other products.
GameStop and NIO report quarterly results.
The Federal Reserve releases the beige book for the sixth of eight times this year. The report summarizes current economic conditions with anecdotal data collected by the 12 regional Federal Reserve banks.
The Mortgage Bankers Association releases its mortgage application survey for the week ending on Sept. 2. Mortgage applications have dropped for three consecutive weeks and are at a multidecade low amid record-high home prices and surging mortgage rates.
Thursday 9/8
DocuSign and Zscaler hold conference calls to discuss quarterly earnings.
Moderna hosts a research and development day, with presentations from its executive leadership, including CEO Stéphane Bancel.
The European Central Bank announces its monetary-policy decision. Traders are pricing in a 60% chance of a jumbo-size 75-basis-point hike, which would bring ECB’s deposit facility rate to 0.75%. At its last meeting, in July, the central bank lifted its key interest rate by half a percentage point, from negative 0.5% to zero. It has been just over a decade since the deposit facility rate was last above zero.
The Department of Labor reports initial jobless claims for the week ending on Sept. 3. Claims averaged 241,500 in August, and have risen steadily this year from historically low levels.
Friday 9/9
Kroger reports second-quarter fiscal-2023 results.
Tapestry, the parent company of fashion brands Coach and Kate Spade, holds an investor day at its headquarters in New York. The company will discuss its long-term strategic initiatives and update its financial outlook.
The Federal Reserve releases the Financial Accounts of the United States for the second quarter. The report gives a snapshot of the nation’s household net worth and debt. In the first quarter, household net worth fell by $544 billion, to $149.3 trillion. It was the first decline since the first quarter of 2020. With the S&P 500 index plunging more than 16% in the second quarter, it’s very likely that the report will show another decrease.
Write to Nicholas Jasinski at [email protected] | AAPL |
https://finnhub.io/api/news?id=5e3caf9659a6b86e647912932707dac5af13d681b74f48a36e989293979899ce | 7 Monster Stock Market Predictions For The Week Of Sept. 6 | 2022-09-04T05:40:00 | TalkMarkets | Sorry, the page you are looking for has been removed. Let's find a better place for you to go. Back to Home | AAPL |
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https://finnhub.io/api/news?id=b86d363b4ca27e4559a987dfae9f161cb7c182e74d5debe8e6d7a7ad0601836c | Dow Jones Dives Toward Bear Market Lows As AMD, Tesla, On Semi Plunge; What To Do Now | A market rally attempt is reeling as the indexes plunged on Friday's jobs report. Tesla, AMD and On Semi sold off. | 2022-10-07T16:16:47 | Yahoo | Dow Jones Futures: Stocks Near Bear Market Lows On Columbus Day
The market rally attempt is reeling, back near bear lows. What will investors discover on Columbus Day?
The market rally attempt is reeling, back near bear lows. What will investors discover on Columbus Day? | AAPL |
https://finnhub.io/api/news?id=775974dd1b98232bb642ea54f0572eeed03ddd07b6b65db67152af768cd3009f | Weekly Roundup | Despite the late-week selloff, the portfolio had a rather good week, as about a dozen of our holdings outperformed the S&P 500. | 2022-10-07T15:45:00 | Yahoo | Weekly Roundup
Despite the late-week selloff, the portfolio had a rather good week, as about a dozen of our holdings outperformed the S&P 500.
Despite the late-week selloff, the portfolio had a rather good week, as about a dozen of our holdings outperformed the S&P 500. | AAPL |
https://finnhub.io/api/news?id=c1d635cf5fa87690d2237475c11131c6d2902ae76e2803894901899f05ddc1de | 2 Unstoppable Warren Buffett Stocks That Can Turn Sitting Cash Into Growing Wealth | Investors listen to Warren Buffett because of his long-term ability to beat the S&P 500. Between 1965 and 2021, a 56-year timeframe, his Berkshire Hathaway portfolio has logged average returns of 20.1%. Berkshire has also beat the indexes in 2022, with Berkshire stock falling 6% since January versus almost 20% for the S&P 500. | 2022-10-07T13:05:00 | Yahoo | 2 Unstoppable Warren Buffett Stocks That Can Turn Sitting Cash Into Growing Wealth
Investors listen to Warren Buffett because of his long-term ability to beat the S&P 500. Between 1965 and 2021, a 56-year timeframe, his Berkshire Hathaway portfolio has logged average returns of 20.1%. Berkshire has also beat the indexes in 2022, with Berkshire stock falling 6% since January versus almost 20% for the S&P 500. | AAPL |
https://finnhub.io/api/news?id=258d48e6dd1a59f6eeef3c2ffeb8df980dec07dc430ac85a181b3bfd972f124e | Facebook warns 1m users their login details may have been stolen | Facebook is notifying 1m users that their login details may have been stolen thanks to fake Android and Apple programmes posing as legitimate mobile apps. | 2022-10-07T11:36:54 | Yahoo | One million Facebook users warned their login details may have been stolen
Facebook is notifying 1m users that their login details may have been stolen thanks to fake Android and Apple programmes posing as legitimate mobile apps.
“Our security researchers have found more than 400 malicious Android and iOS apps this year that were designed to steal Facebook login information and compromise people’s accounts,” said David Agranovich, Facebook’s director of threat disruption.
The malicious apps were uploaded to the Apple and Google Play app stores and posed as innocent, unrelated programmes. Some appeared to be photo-editing software, Facebook said, while others posed as free games or music players.
Apple’s iOS and Google’s Android are the two most widely used mobile phone operating systems in the world, being installed on billions of smartphones and tablet devices.
All of the malicious apps detected by Facebook had been removed from the iOS and Android app stores before the news was unveiled, Facebook added. About 10pc of the fake programmes were on the Apple App Store.
“We are also alerting people who may have unknowingly self-compromised their accounts by downloading these apps and sharing their credentials, and are helping them to secure their accounts,” said Mr Agranovich.
Such apps work by copying the look and feel of features such as the “Sign in with Facebook” button. Instead of checking the username and password with Facebook’s servers, malicious apps simply send them to their creators.
Stolen login information is prized by cyber criminals as it gives access to further personal information about the account holder that can be used for identity theft or other crimes of fraud.
Usernames and passwords are also bought and sold by cyber criminals who match stolen accounts with other information such as home addresses or credit card details obtained from other criminal sources.
Facebook advised users to be cautious about installing mobile apps that required a login to function: “Be suspicious of a photo-editing app that needs your Facebook login and password before allowing you to use it.”
While both Apple and Google attempt to vet new apps being published on their app stores, the task is a vast one: Apple says it hosts 2 million programmes, while Google’s Play Store – the Android equivalent – has slightly more, at around 2.65m. | AAPL |
https://finnhub.io/api/news?id=c488e27c719f95028bc2b3ccd9ae8dbb95dace4c554d5933f4eadf1538207f67 | Biden Tightens China Chip Rules on Chaotic Day for Industry | (Bloomberg) -- The Biden administration announced new restrictions on China’s access to US semiconductor technology, escalating tensions between the two countries and adding fresh complications to an industry reeling from a slump in demand. Most Read from BloombergBiden Says Putin Threats Real, Could Spark Nuclear ‘Armageddon’Kremlin Lets State Media Tell Some Truths About Putin’s Stalling WarMusk's Twitter Takeover Hits Snag Over Debt-Financing IssueBiden Should Hit Saudi Arabia Where It Really | 2022-10-07T09:53:20 | Yahoo | China Says Biden’s New Chip Technology Curbs Will Harm Recovery
(Bloomberg) -- China criticized expanded US restrictions on its access to semiconductor technology, saying they’ll harm supply chains and the world economy.
President Joe Biden administration announced the export curbs on Friday, escalating tensions between the two countries and adding complications for an industry faced with slumping demand.
The measures seek to stop China’s drive to develop its own chip industry and advance its military capabilities. They include restrictions on the export of some types of chips used in artificial intelligence and supercomputing and tighten rules on the sale of semiconductor manufacturing equipment to any Chinese company.
China “has poured resources into developing supercomputing capabilities and seeks to become a world leader in artificial intelligence by 2030,” said Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler. “It is using these capabilities to monitor, track and surveil their own citizens, and fuel its military modernization.”
Chinese Foreign Ministry spokesperson Mao Ning said Saturday that the measures, which begin to enter into force this month, are unfair and will “also hurt the interests of US companies,” according to an official briefing transcript. They “deal a blow to global industrial and supply chains and world economic recovery,” she said.
The US is seeking to ensure that Chinese companies don’t transfer technology to the country’s military and that chipmakers in China don’t develop the capability to make advanced semiconductors themselves.
The rules come at a difficult time for the chip industry, which is suffering a steep drop in demand for personal-computer and smartphone components. Shares of many of the world’s biggest semiconductor makers tumbled on Friday following reports that the slump may be even worse than thought.
The government’s actions add another layer of uncertainty for investors already trying to work out how much demand for semiconductors might shrink. Companies such as Applied Materials Inc. and Intel Corp. can’t easily walk away from China, the biggest single market for their products and a key part of a global supply chain for electronics used everywhere in the world.
Chipmaker stocks have struggled throughout 2022, following three straight years where the group climbed between 40% and 60%. The Philadelphia Stock Exchange Semiconductor Index is down nearly 40% so far this year, on track for its biggest annual drop since 2008, and it recently fell to its lowest level since November 2020.
Widespread Losses
The losses have been widespread, with nearly every component of the industry benchmark index in negative territory this year. Nvidia Corp. and Advanced Micro Devices Inc. have declined almost 60%. AMD reported preliminary third-quarter revenue on Thursday that was weaker than expected. AMD and Nvidia have already disclosed that the China-related restrictions on AI chips will hurt their sales.
Nvidia said Friday that the broader regulations won’t have “a material impact on our business,” which is already restricted by previous export controls.
When the new rules come into force, it will be harder for providers of chips used in Chinese supercomputers and related gear to get permission to fill orders. They should presume requests will be denied, according to senior Commerce Department officials.
Commerce also put a raft of restrictions on supplying US machinery that’s capable of making advanced semiconductors. It’s going after the types of memory chips and logic components that are at the heart of state-of-the art designs.
While there will be more latitude for overseas companies needing technology for their own operations in China -- or for parties that can prove they’re making things there for immediate export elsewhere -- Commerce said it will enforce the rules and also cut off support for existing deployments of machinery covered by the restrictions.
While the US is home to the biggest block of companies that design vital electronic components and provide the complex machinery to manufacture them, other regions have capabilities that could undermine some of the government’s efforts.
Commerce Department officials acknowledged that overseas cooperation is necessary to avoid hampering the initiatives and said there are talks with other parties underway around the world on the topic.
Chipmaking gear restrictions cover production of the following:
Logic chips using so-called nonplanar transistors made with 16-nanometer technology or anything more advanced than that. Generally speaking, the smaller the nanometers, the more capable the chip.
18-nanometer dynamic random access memory chips.
Nand-style flash memory chips with 128 layers or more.
For companies with plants in China, including non-US firms, the rules will create additional hurdles and require government signoff.
South Korea’s SK Hynix Inc. is one of the world’s largest makers of memory chips and has facilities in China as part of a supply network that sends components around the world.
“The new measures restrict sale of equipment for memory products of certain level of technology or above, but allow Korean chipmakers to export if they have a license from the Commerce Department,” the company said in a statement. “SK Hynix is ready to make its utmost efforts to get the US government’s license and will closely work with the Korean government for this.”
Separately, Commerce added more names to a list of companies that it regards as “unverified,” meaning it doesn’t know where their products end up being used. The 31 additions are all Chinese. That indicates that US suppliers will face new hurdles in selling technologies to those entities.
The biggest name to be added to the list is Yangtze Memory Technologies Co. The memory-chip maker is widely regarded as being the best bet China has of breaking through into the front ranks of the industry and has made progress with advanced products for chip-based storage.
The US chip industry has expressed concern that moving too aggressively could put domestic companies at a disadvantage. They worry that losing China sales will hurt their ability to spend on innovation and potentially help competitors abroad.
The Semiconductor Industry Association, which represents all of the largest US chipmakers, said it’s evaluating the impact of the new export controls and will ensure compliance.
A bill signed by Biden in August promises to infuse about $52 billion into the US semiconductor industry.
(Updates with response from Chinese foreign ministry in sixth paragraph.)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P. | AAPL |
https://finnhub.io/api/news?id=ed30d210a273eb4e272b788742ae0b868360c16c698676674f221c0003c761e7 | Tesla: 3 Things That Separate It From Its Competitors | As investors will find out in the not-too-distant future, Tesla is far more than an EV company. Read more to see 3 things that separates TSLA from competitors. | 2022-10-07T09:12:15 | SeekingAlpha | Tesla: 3 Things That Separate It From Its Competitors
Summary
- As investors will find out in the not-too-distant future that Tesla is far more than an EV company.
- There are 3 areas Tesla is increasing expertise in that are creating a wide moat against its competitors.
- The ability to apply machine learning and AI via rapid iteration allows Tesla to target large markets with products and services that could end up being larger than its EV.
I believe it's a mistake to continue to categorize Tesla, Inc. (NASDAQ:TSLA) as an electric vehicle ("EV") company because that undervalues the three major characteristics of the business that can be applied to a variety of sectors and segments of the market that have the potential to drive billions of dollars in sales.
The three things I'm referring to are machine learning, AI, and iteration. When combined together, these are powerful forces with the potential to disrupt numerous markets, or create new ones, as evidenced by the push by Tesla toward self-driving vehicles.
In this article, I want to explore the extraordinary potential Tesla has because it has already worked much of this out via its AI, associated with the millions of hours it has had getting feedback from its EVs. As it continues to improve on the process, Tesla is able to rapidly bring products from an idea to a prototype, to a completed product far quicker than its competitors. This is a tremendous moat when thinking of how Tesla has the expertise in hand to apply this to a wide variety of products and services.
Before I get into specific products and possibilities, I want to show readers how they should view the company long term, based upon similarities between Tesla, Apple (AAPL), and Amazon.com (AMZN).
What will Tesla become?
Like mentioned above, I think it's a mistake to consider Tesla solely as an EV company, even though in the near term that will continue to be the major generator of revenue. The reason why is it limits the growth possibilities inherent in the development of AI and machine learning, combined with failing fast and iteration.
For example, when Amazon was launched as an e-commerce solution for selling books, the thought never entered anybody's mind that the knowledge it would gather through its growing customer base and its supply chain would result in it expanding to AWS and other products, which would be significant in improving the performance of the company.
In other words, Amazon is far more than an e-commerce company, by virtue of its own processes which turned it into a tech company competing on various fronts. To consider Amazon an e-commerce company would only represent a piece of the puzzle that makes Amazon what it is.
The same is going to be true with Tesla in my opinion, as it leverages its strengths to apply them to products and services that have the potential to generate multi-billion dollars in revenue.
Apple is similar when considering its core business of iPhones. A number of years ago investors and analysts expresses concern of the vulnerability Apple had because of its heavy reliance on its iPhone line for growing revenue and earnings.
While the iPhone remains its flagship product, Apple has expanded to a variety of products and services, that together provide a significant addition to revenue and earnings that complement the iPhone, providing a cushion if sales slowdown.
The difference I see between Tesla and Apple is, I believe, that Tesla has the potential to outperform Apple with its future ancillary products, although it has a way to go before it can compete with the iPhone as a core product. An argument could easily be made that the EV market will eventually vastly outperform the smartphone market, and that will be true, but I don't think the EV market is going to go up in the straight line that many adherents and fans of the sector think.
The reason why is there is a huge electrical grid problem that is struggling as green tech is increasingly being used as a higher percentage of the grid. The challenge is, there are already weaknesses being experienced by some grids that have to engage in rolling blackouts in order to allow customers to have access to energy. Picture what that will be like as the number of EVs grow in the market and demand for energy expands in response to the need to charge vehicles. That is a major problem that is just beginning to be realized.
The point there is it's almost certainly going to take a lot longer to meet goals set by governments, which suggests to me the EV sector is going to eventually slowdown in order to allow the electric grid to catch up.
And in the worst-case scenario, people could rise up in anger if they're forced to go without electricity at times, they really need it, putting pressure on politicians and leaders to solve their energy problems by incorporating more fossil fuels into their energy demands.
As it relates to Tesla, this could be a problem in the not-too-distant future that results in a slowdown of demand and sales because of the possible inability of EV owners to charge up their vehicles without putting huge strains on the grid.
Looking ahead, I think Elon Musk understands the vulnerability of Tesla in relying on one sector to grow its business, and in my opinion, is positioning itself to target other growth markets that will move the revenue needle.
My thesis is Tesla, in the years ahead, is going to be an AI company that leverages its tech and data to launch wide variety of products and services that have the potential to catch competitors by surprise, not only from early mover advantage, but by the rapid pace it's able to bring a product to market.
A recent example of that is its Optimus robot.
Optimus robot
If you remember last year at Tesla's AI day, it revealed its plans for a robot that had the appearance of a human being. The announcement was accompanied by a person dressing up like a robot and jumping around on the platform; some people, at first, actually thought it was a robot doing it.
While Elon Musk enjoys doing stuff like that, it was apparent he was serious about the idea behind the robot, understanding it was in fact, at the time, only an idea.
Fast forward to today, and the introduction of Optimus at its most recent AI Day, underscores the ability of Tesla to rapidly develop a product over a period of several months, reinforcing the fact Tesla can fail quickly and make adjustments to improve a product, bearing in mind Optimus is still in its prototype stage.
The purpose of Optimus is to provide a robotic worker that can be used in the home, office or industrial settings that can help with various needs of the particular environment it's working in.
Not only can it bend down and lift up things that have some weight, it also has the dexterity to hold onto smaller tools.
Assuming the potential scale is there based upon demand, Tesla wants to bring the cost down to under $20,000 in order to appeal to as wide a customer base as possible. That means it's working on a variety of skillsets the robot can use to perform a variety of tasks in different settings.
The significance of this isn't Optimus itself, but the underlying AI used to quickly build it. In other words, building the body of the robot is the easy part, designing the software to operate it is the hard part. Being able to do it in a very short time confirms Tesla is able to leverage the AI it is using in its EVs and apply it to other products.
Again, when thinking Tesla can apply this to other products shows the future potential of its AI that goes beyond electric vehicles.
That said, it appears Tesla could have a big winner on its hands as it improves Optimus in a similar way it has been improving its self-driving vehicles. It will probably take several years before we begin to see what type of demand and potential for the robotic worker is.
Concerning competition, other companies like Boston Dynamics and its Atlas robot is far more advanced than Optimus, as it has the ability to perform a variety of acrobatic exercises. Another is Agility Robotics' Digit, which can avoid obstacles (important in environment humans are present in), pick things up and put things down, and walk across different terrains, among other skills.
This isn't surprising when considering Optimus went from idea to prototype in only a few months. Going forward, if Tesla's AI is going to become as powerful as I think it is, it's going to catch up with and surpass its competitors. The fact there are robots more advanced than Optimus gives investors a good benchmark to analyze the progress and capability of Tesla's AI when applying it to designing and building products like Optimus.
One final thing to say about Optimus is, in the near term its primary value will be to attract new workers that like to work on cool things. The battle for engineering talent is huge, and companies providing interesting things to work on will be the winners in the competitive job marketplace.
Another important development for Tesla is its supercomputer Dojo.
Dojo
Dojo is a supercomputer built in-house by Tesla for the sole purpose of teaching its AI. This behind-the-scenes tech is the secret sauce behind the ability of Tesla to quickly make so much progress in the tasks it's working on.
As part of Dojo Tesla has been develop what it calls ExaPOD, which is a way of scaling the supercomputer to improve its performance. The company stated the Dojo ExaPOD includes a spec of 1.1 EFLOP, which translates into a mindboggling one quintillion operations per second. The first ExaPOD or cluster is on schedule to be available by Q1 2023. Below is an example of the ExaPOD.
The company has a goal of building seven ExaPODs. That will make the Dojo the leading supercomputer in the world.
What needs to be considered here is Tesla could have more than enough computer power for the purpose of developing self-driving vehicles. So the obvious question is, why does it need so much computing power? My opinion is it has a number of products and services in mind that we have no idea about.
The most important takeaway is Tesla will have an extraordinarily advanced AI and machine learning system as a result of that type of computing power, that it will be able to fail even faster, giving itself even more of a competitive edge for markets it wants to compete in.
Concerning the near term, when Dojo is fully deployed in 2023, it will have the capacity to accelerate the development of Tesla's FSD models, which will help the company widen its lead against competitors.
Where Tesla stands today
While we're talking about extraordinary future potential for Tesla, we still need to look at where the company stands today in order to manage near-term expectations.
As the company stands today, I think it's valued at close to where it should be. When the company starts to roll out new products based upon its AI expertise and its leading supercomputer, that will change, but it will take some time.
Based upon its EV business, Tesla trades at a huge premium against its competitors, but at 56x forward earnings, it seems to me it's fully valued. That's also reflected in its P/S of 8.9x; which is a hefty number.
With the supply chain working itself out, Tesla shouldn't have too much trouble in gaining the parts it needs to supply the market. The one issue going forward is this: as the interest rates rise, will it end up having a negative impact on demand, based upon affordability?
In other words, as supply issues resolve themselves, the company may be heading into slowing demand. If that's how it works out, it'll probably continue on through the middle of 2023, depending upon how much interest rates fall and if the Fed signals it's done increasing rates.
On the other hand, there is pent-up demand from the supply chain issues, so there could be some decent momentum that higher costs may not have an impact on in the near term.
Conclusion
I've read some thoughts on what investors think Tesla is boosting Dojo for, but it really doesn't matter. Since one ExaPOD is more than enough for its self-driving segment, it's plain to see that Tesla is boosting its supercomputer power in preparation for something big in the future.
What this confirms is Tesla isn't just talking about being more than an EV company, but is taking visible steps to improve its AI and machine learning in order to empower the company to take an idea from concept, to prototype, to a functional product or service quicker than its competitors.
The bottom line is, even though Tesla's EV business has been under pressure lately, it has a lot more in mind for the business than limiting itself to that market, even though it is a very large one that will continue to grow for many years into the future.
It'll be the bread and butter of the company for the next several years, but I'm expecting announcements in the months and years ahead that will give more clarity concerning what it plans on using its advanced AI and machine learning for.
Since it will end up with the most powerful supercomputer in the world teaching and training its AI, the possibilities are endless, although the company will without a doubt focus on large enough markets that will significantly move the needle of the company.
In the present, Dojo will further advance Tesla's already formidable AI expertise, accelerating the advancement of its FSD models and other EVs it's developing.
Once the economy improves, even higher interest rates are unlikely to dampen the pent-up demand with its EVs, and ultimately, its FSD vehicles. There will probably be more short-term pain for Tesla shareholders, but over the long term I believe they're going to be strongly rewarded once sentiment turns positive.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
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Comments (276)
Unfortunately, I see no evidence of any technological moat at Tesla. Either in the product side nor on the manufacturing side. I see lots of fan sites and smoke and mirrors, but nothing substantive. 100 percent automation was going to be the future at Tesla. Didn't happen. Robots moving too fast to see. Didn't happen. An open topped unit construction architecture that would allow the interior to be installed from above. Didn't happen. Today, it's very large scale die casting of the entire rear subframe assembly. There are very good reasons to seriously doubt whether this will actually lower costs. And we have heard nothing about it since its introduction with much fanfare. Tesla supposed to have some kind of revolutionary new battery. No evidence that it performs any differently from anyone else's batteries, including those that Tesla buys from outside suppliers. The vehicles themselves seem to perform about the same as competing vehicles from companies like Daimler Benz. Tesla has lost leadership in the critical light truck segment, and has lagged behind in electric heavy trucks as well. Manufacture consumer goods as a gigantic mean reversion machine. It is extremely difficult to revolutionize the industry, because, despite the assertion of Tesla fans, every manufacturer optimizes every process all the time. The cult of Elon Musk relies on the notion that everyone else in the automotive industry is an idiot, and that they somehow don't want to optimize their processes or products. When you look at a video of a Tesla assembly line, it looks just like everyone else's. There is a reason for this.
Yep. You’re right. For a company that’s just recently turned profitable, and grown at better than 50%, eclipsing a $1T market cap, blowing out EV sales in North America and having the most productive EV factory in the world. There is a LOT they haven’t delivered on. It’s all deferred opportunity though, because nobody else has done it, at volume, either. The whole pie is there, and Tesla will get more than their fair share in EVs and Energy and Software and Hardware. Even through this recession Tesla extends their lead. How do? Profits. Tesla produces EVs that are responsible for ~80% of the profitable EV sales. Tesla doesn’t compete in the light truck category, yet, because margins and battery capacity have made it obvious that opening a new line would just diminish the stellar margins that they’ve already established. And finally, Musk gets beat up consistently for everything under the sun, but your point about thinking he’s always the smartest guy in the room lacks truth. At every earnings call, Tesla event etc he’s always giving praise to the team, giving credit where it’s due. With his time split between Tesla and SpaceX and…so on. He has to trust that his guys and gals will step up to meet challenges. The bad rap is partly his own fault (poor filter), but realize that a good deal of it is political or competitive in nature.
EV's are a long way from dominating the automotive industry. Probably a decade.
Would love to be able to help you, but if you don’t understand the implications of Tesla as a software / hardware company then there’s seriously no way to help.
2. Tesla is an energy-management company
3. Tesla is a data-mining and data-management company.When people compare P/E multiples of other (dissimilar, unrelated, manufacturing) companies, those people reveal their lack of understanding and/or outright denial of the brilliance and head-start enjoyed by Tesla.I sat in on a conference call a few years ago and I distinctly remember Elon stating that, at some point, Tesla's energy production/management revenue would eclipse its EV revenue.Though that statement is almost incomprehensible (given the number of Gigafactories that have popped over the past few years), it is entirely conceivable (RE: Congress' recent clean-energy bills/investments -- and the many that will follow).I will dollar-cost average all the way down... and all the way back up.
2. Tesla is an energy-management company
3. Tesla is a data-mining and data-management company.Tesla's energy production/management revenue will eventually eclipse its EV revenue.
https://youtu.be/Grf9KeZnGLo
https://youtu.be/vGojo4MVq6o
https://youtu.be/wv1l6aTnB_IEvery month people with the system make videos of the success and failures. You can certainly point out it’s late but it’s still improving and they definitely have more work. You are right that the application of multiple products using the same software stack will definitely offer opportunities
Have you ever successfully invested in a growth company before? I don’t think you’re giving great advice. Personally I don’t think history will care much about $200, $300, $400. Those numbers are a consequence of the FED. The numbers that will be important are $600, $800, $1000 and probably rising over the next decade.
Broad Integration + Vertical integration
Pace of innovationThere's plenty more. but these 3 are the primary factors.PS. The stock may crater near term. This is opportunity.
In three months forward earnings (2023) will be as low as 28 if the stock stays flat. Big difference in only a few months. | AAPL |
https://finnhub.io/api/news?id=744cf717df526fdca2a90a5c5ff56862d2b248de465e1435322b9a5fdede165e | 2 Technology Stocks For Your October 2022 Watchlist | Check out these technology stocks for a potential buy and hold opportunity. | 2022-10-07T08:39:30 | StockMarket | Technology is playing an increasingly important role in our lives today. As we become more reliant on technology, it is becoming more important for businesses to invest in technology. With that, technology stocks are a type of stock that represents ownership in a company that produces or uses technology. Technology stocks are popular with investors because they offer the potential for high growth. Notably, some of the more popular technology stocks among stock market investors today are companies such as Amazon (NASDAQ: AMZN), Alphabet Inc. (NASDAQ: GOOGL), and Meta Platforms Inc. (NASDAQ: META) just to name a few. Technology companies often have high-profit margins and strong market demand for their products.
However, investing in technology stocks can also be risky. Technology companies are often volatile and susceptible to sudden changes in the marketplace. When investing in technology stocks, it is important to carefully research the company before making a purchase. You should also be aware of the risks involved.
Furthermore, technology stocks can provide investors with the opportunity to earn high returns, but they can also be risky. Before investing, it is important to understand both the potential rewards and risks involved. If this has you keen on investing in the tech sector, here are two technology stocks to watch in the stock market today.
Technology Stocks To Watch Right Now
- Microsoft Corporation (NASDAQ: MSFT)
- Apple, Inc. (NASDAQ: AAPL)
1. Microsoft (MSFT Stock)
Starting off the list today is Microsoft Corporation (MSFT). In short, Microsoft is an American multinational technology company. Additionally, the company develops, manufactures, licenses supports, and sells computer software, consumer electronics, personal computers, and related services. Its best-known software products are the Microsoft Windows line of operating systems, Microsoft Office office suite, and Internet Explorer and Edge web browsers.
MSFT Recent Stock News
In September, Microsoft reported that its Board Of Directors have declared a quarterly dividend of $0.68 per share. This represents a $0.06 or 10% increase in dividend payment from the previous quarter’s dividend. Moreover, the dividend is payable on December 8th, 2022 to shareholders on record on November 17, 2022.
Separate from that, Microsoft also reported that it will be hosting its 2022 annual shareholders meeting. Specifically, the company’s annual shareholder meeting for 2022 will take place on December 13, 2022.
MSFT Stock Chart
Meanwhile, so far in 2022, MSFT stock has fallen over 29% as of Friday’s mid-morning trading session at $235.68 per share. What’s more, shares of Microsoft stock is currently trading 32.58% off of their 52-week high of $349.67 a share.
[Read More] Top Stocks To Buy Now? 3 Industrial Stocks To Check Out
2. Apple (AAPL Stock)
Next, Apple Inc. (AAPL) is an American multinational technology company. Simply put, the company designs, develops and sells consumer electronics, computer software, and online services. The company’s hardware products include the iPhone smartphone, the iPad tablet computer, the Mac personal computer, the iPod portable media player, the Apple Watch smartwatch, the Apple TV digital media player, and the HomePod smart speaker.
AAPL Recent Stock News
Recently, just last month, the company released its new product lineup to investors. In detail, Apple reported it has launched a new iPhone® 14 Pro and iPhone 14 Pro Max. For context, this new iPhone will include extra features that include an Always-On display, the first-ever 48MP camera on an iPhone, and others. Moreover, the company also reported that they will be introducing the new Apple Watch® Series 8 and the new Apple Watch SE®.
AAPL Stock Chart
Year-to-date, Apple stock is still down 22.50%. Meanwhile, on Friday morning, shares of AAPL stock are trading at $141.14 per share.
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https://finnhub.io/api/news?id=d9145c286e34c376413d3c2383da0db2ed950af345b3d57b69ab4875091f5183 | Alphabet (GOOGL) Expands Pixel Family With Latest Devices | Alphabet (GOOGL) Google's latest device launches strengthen its hardware business and device strategy. | 2022-10-07T07:03:02 | Yahoo | Alphabet (GOOGL) Expands Pixel Family With Latest Devices
Alphabet’s GOOGL division Google is leaving no stone unturned to expand its Pixel family.
At its Made by Google 2022 launch event, the company ended the quest for its long-awaited smartwatch by rolling out its first smartwatch — Google Pixel Watch, which runs on Wear OS software and is powered by Fitbit’s technology.
The watch comes with contactless payments, music control, turn-by-turn directions, heart rate variability, breathing rate, and resting heart rate features, to name a few.
The company expanded its smartphone offering by launching Pixel 7 and Pixel 7 Pro phones, which are powered by next-generation Tensor G2 processor and Android 13. The phones are also equipped with advanced machine learning technology and speech recognition feature.
Apart from the devices, Google gave a glimpse of its Pixel Tablet, which will be launched in 2023. The device will also be backed by a Tensor G2 chip like the new Pixel phones.
The latest move has added strength to Google’s hardware business and bolstered its device strategy.
Alphabet Inc. Price and Consensus
Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote
Growth Prospects
We believe that the latest move will help Google rapidly penetrate the booming smartphone, smartwatch and tablet market.
According to a report by Persistence Market Research, the global smartphone market is expected to reach $982.8 billion by 2031, seeing a CAGR of 6.8% between 2021 and 2031.
Per a report from Facts and Factors, revenues in the global smartwatch market are expected to hit $97.5 billion by 2028, witnessing a CAGR of 21.5% between 2022 and 2028.
Per a report from Maximize Market Research, the global tablet market is likely to reach $53.8 billion by 2029, witnessing a CAGR of 3.4% between 2022 and 2029.
Cut-Throat Competition With Apple
With the latest move, Google ups its device game against Apple AAPL, which continues to ride on its robust device portfolio.
Apple’s flagship device iPhone, which generated revenues of $40.67 billion and accounted for 49% of the total sales in third-quarter fiscal 2022, remains its key catalyst.
The company is continuously gaining strong traction among customers on the back of its iPhone 13 family of devices.
Recently, the company unveiled four iPhone models — iPhone 14, iPhone 14 Plus, iPhone 14 Pro and iPhone 14 Pro Max — at its product launch event.
Apple is also riding on its non-iPhone devices like Apple Watch and AirPod, which enjoy solid customer momentum.
At the same event, the company launched the next-gen Airpods Pro, the Apple Watch Series 8, the new Apple Watch SE, Apple Watch Ultra and updates to Fitness+.
Nevertheless, Google’s strengthening device strategy is likely to give strong competition to Apple.
Zacks Rank & Stocks to Consider
Currently, Alphabet carries a Zacks Rank #3 (Hold).
Investors interested in the broader Zacks Computer & Technology sector can consider some better-ranked stocks like Pure Storage PSTG and Arista Networks ANET. While Pure Storage currently sports a Zacks Rank #1 ( Strong Buy), Arista Networks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Pure Storage has lost 10.8% in the year-to-date period. The long-term earnings growth rate for PSTG is currently projected at 35.5%.
Arista Networks has lost 15.6% in the year-to-date period. The long-term earnings growth rate for ANET is currently projected at 15.7%.
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To read this article on Zacks.com click here.
Zacks Investment Research | AAPL |
https://finnhub.io/api/news?id=74a17a6976baa0058a2a719f65493c59686bf6cab3b2dfd32c5d5ea9d0f213f5 | The Best Mutual Funds Invest Huge Sums In These 24 Stocks | As the market tries to rebound, the best mutual funds bet big on 24 stocks including Vertex, Lilly and Enphase. | 2022-10-07T07:00:37 | Yahoo | The Best Mutual Funds Invest Huge Sums In These 24 Stocks
As the market tries to rebound, the best mutual funds bet big on 24 stocks including Vertex, Lilly and Enphase.
As the market tries to rebound, the best mutual funds bet big on 24 stocks including Vertex, Lilly and Enphase. | AAPL |
https://finnhub.io/api/news?id=b4fa4ae4b6dfa08a823a89f327621c0222a07ed4bdd15d6e81e97f0ecba72f34 | Stocks making the biggest moves midday: CVS, Credit Suisse, AMD, Lyft and more | These are the stocks posting the largest moves in midday trading. | 2022-10-07T06:30:01 | CNBC | Check out the companies making headlines in midday trading Friday.
Ambac Financial Group – Shares of the municipal bond insurer shot up 15.7% on news of settlements with Bank of America that would bring Ambac $1.84 billion. The settlements come out of lawsuits related to the bond insurance policies Ambac used for Bank of America prior to the 2008 financial crisis. Bank of America was down about 2.4%.
Levi Strauss – Levi's dropped 11.7% to a 52-week low after cutting its full-year sales and profit outlook Thursday, as the clothing maker cited issues stemming from the supply chain and the stronger U.S. dollar.
DraftKings – Shares of DraftKings rose 3.3% on a Bloomberg report that the online sports betting company is close to a partnership deal with ESPN.
Lyft – The rideshare company slid 8.7% after RBC downgraded the stock to sector perform from outperform. RBC said competitor Uber, which was down about 4.5%, had "structural advantages."
CVS Health – Shares of CVS dropped 10.5% following a report that the health care giant is in "exclusive talks" to buy Cano Health. The company had already been falling after the Centers for Medicare and Medicaid Services downgraded one of its Aetna Medicare Advantage plans in its annual ratings. Shares of Cano gained 9%.
Tesla, Twitter – The two businesses continued to move following a week of news on Elon Musk reviving his high-profile plans to purchase Twitter. Tesla fell 6.3%, while Twitter lost 0.2%. On Thursday, a judge said Musk needs to complete his purchase by Oct. 28 to avoid a trial.
Credit Suisse – The European bank was up 13.1% after offering to buy back $3 billion in debt securities Friday and sell a famous hotel it owns. It marks another day of tumult for shares of the stock — which hit an all-time low earlier in the week — as market observers questioned the bank's health.
DexCom – Shares of the manufacturer of glucose monitoring devices jumped 7.3% after the Centers for Medicare and Medicaid Services updated a local coverage determination related to such devices. The move could boost the bottom line for DexCom, a key player in the continuous glucose monitoring space.
Apple – The tech giant was down 3.7% despite Morgan Stanley reiterating the stock as overweight, noting elevated lead times for the iPhone. People following the company have raised concern over the performance of the new line of iPhones compared to previous rollouts as Apple yanked plans to increase production.
Meta – The Facebook owner also slid 4% despite being reiterated as a buy by Citi, which noted an appealing risk/reward outlook as Reels revenue increases and new ad formats come into play. The stock hit a 52-week low.
Cannabis companies – Shares of cannabis companies were all down, after initially soaring on news that President Joe Biden wants a review of how marijuana is classified under federal law. Biden also announced he'll pardon thousands convicted of marijuana possession. Tilray Brands, which reported a larger-than-expected quarterly loss on Friday, was down 18.8%. Canopy Growth plunged more than 25.6%, Aurora Cannabis fell 12.8% and Cronos Group lost 15.6%.
Advanced Micro Devices – Shares of Advanced Micro Devices plummeted 13.4% after the semiconductor company issued disappointing preliminary results for the third quarter and said it expects revenue to fall short of its previous $6.7 billion dollar forecast. AMD blamed the shortfall on weakening PC demand and supply chain constraints. Shares of other chip companies including Intel and Nvidia fell on the news.
Unity Software – Shares of Unity, known for its software for three-dimensional design, dropped 8.6%. It contrasts with Needham earlier Friday initiating the stock as a buy with an upside of 39%.
Provention – Shares of the biopharmaceutical company leaped 11.3%, continuing to rally on news Thursday of plans to launch a drug candidate for type 1 diabetes.
— CNBC's Samantha Subin, Michelle Fox, Carmen Reinicke, Tanaya Macheel and Yun Li contributed reporting. | AAPL |
https://finnhub.io/api/news?id=3a61310dc09564bcdc6e1c302c6122a60a6acc2b14effe9e3136b10688b98763 | 11 Best FAANG Stocks To Buy Now | In this article, we will be taking a look at the 11 best FAANG stocks to buy now. To skip our detailed analysis of these stocks and the technology sector, you can go directly to see the 5 Best FAANG Stocks to Buy Now. In spite of the Fed jacking up interest rates, the technology sector […] | 2022-10-07T06:24:03 | Yahoo | 11 Best FAANG Stocks To Buy Now
In this article, we will be taking a look at the 11 best FAANG stocks to buy now. To skip our detailed analysis of these stocks and the technology sector, you can go directly to see the 5 Best FAANG Stocks to Buy Now.
In spite of the Fed jacking up interest rates, the technology sector is continuing to attract investor attention in 2022. With rampant inflation still plaguing the market, the sector was expected to suffer from a loss in popularity. However, its cheaper valuation in a time of economic recession is managing to work in its favor. According to a Bloomberg article published this September, The Nasdaq 100 Index was 35% cheaper than its peak in 2020. Some of the best FAANG stocks like Apple Inc. (NASDAQ:AAPL) still continued to rake in cash and maintain their earnings outlooks, inspiring confidence as far as investors were concerned.
What are FAANG stocks?
The acronym FAANG refers to the top five American technology companies in the market today: Facebook (now known as Meta Platforms, Inc. (NASDAQ:META)), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Netflix, Inc. (NASDAQ:NFLX), and Alphabet Inc. (NASDAQ:GOOG). With Netflix, Inc. (NASDAQ:NFLX) losing the favor of many investors with its performance this year, Microsoft Corporation (NASDAQ:MSFT) is steadily becoming a new member of this group of stocks.
Investors' approach to the markets this year has demonstrated that staying away from the best FAANG stocks like Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) is not an option. The sheer size of the tech industry alone makes it the largest of its kind in the S&P 500, making up almost 27% of the index. As a result, many investors are now being pulled towards durable businesses like the FAANG stocks.
According to a Reuters article published this July, Microsoft Corporation's (NASDAQ:MSFT) earnings results added to investor confidence in the tech sector, as they showed that the FAANG stocks were well-equipped to deal with a recession. Microsoft Corporation (NASDAQ:MSFT) rose by about 3.1% in July after the company mentioned it was targeting double-digit growth in fiscal revenue.
Let's now take a look at the 11 best FAANG stocks to buy now.
Our Methodology
We have selected renowned tech stocks that are comparable to the Big Tech companies. These stocks were popular among the 895 hedge funds tracked by Insider Monkey in the second quarter of 2022. They have also reported positive latest earnings and demonstrate growth potential based on projected EPS growth, revenue growth, and free cash flow growth, among other factors. We have ranked these stocks based on the number of hedge funds holding stakes in them, from the lowest to the highest. We have also mentioned analyst ratings and price targets for these stocks.
Best FAANG Stocks To Buy Now
11۔ International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 40
International Business Machines Corporation (NYSE:IBM) is an information technology company providing integrated solutions and services across the globe. The company offers hybrid cloud platform and software solutions, software for business automation, data and artificial intelligence solutions, and more. It is based in Armonk, New York.
An Overweight rating was reiterated on shares of International Business Machines Corporation (NYSE:IBM) on October 6, by analyst Erik Woodring at Morgan Stanley. The analyst also placed a $152 price target on the stock.
The company's revenue has grown by 27.28% year-over-year, and its EPS is expected to grow by 8.97% over the next three to five years. International Business Machines Corporation (NYSE:IBM) has a one-year dividend growth rate of 0.77% as well. Its EPS in the second quarter of 2022 was $2.31, beating estimates by $0.02. International Business Machines Corporation (NYSE:IBM) also brought in $15.54 billion in revenue, beating estimates by $359.15 million.
Citadel Investment Group was the largest stakeholder in International Business Machines Corporation (NYSE:IBM) in the second quarter, holding 2.9 million shares worth about $420.9 million. In total, 40 funds were long the stock, with a total stake value of $948 million.
International Business Machines Corporation (NYSE:IBM), like Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), and Microsoft Corporation (NASDAQ:MSFT), is one of the top tech stocks hedge funds are pouring into today.
10. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 65
Intel Corporation (NASDAQ:INTC) is a semiconductor company working to design, manufacture, and sell computer products and technologies across the globe. It offers platform products like central processing units and chipsets. It is based in Santa Clara, California.
Ross Seymore at Deutsche Bank has a Hold rating on Intel Corporation (NASDAQ:INTC) shares as of September 8. The analyst also placed a $35 price target on the stock.
Intel Corporation (NASDAQ:INTC) has a forward dividend per share growth rate of 4.21%, and a one-year dividend growth rate of 5.17%. The company has been investing large sums in research and development, manufacturing, and packaging technologies, a move that will benefit it in the long run. This March, Intel Corporation (NASDAQ:INTC) announced plans to invest $85 billion in the above areas.
In total, there were 65 hedge funds long Intel Corporation (NASDAQ:INTC) in the second quarter. Their total stake value was $2.5 billion.
9. QUALCOMM, Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 71
QUALCOMM, Incorporated (NASDAQ:QCOM) is a semiconductor company working to develop and commercialize foundational technologies for the wireless industry worldwide. The company operates through its Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL), and Qualcomm Strategic Initiatives (QSI) segments. It is based in San Diego, California.
On September 26, Samik Chatterjee at JPMorgan reiterated an Overweight rating on shares of QUALCOMM, Incorporated (NASDAQ:QCOM). The analyst also placed a $185 price target on the stock.
QUALCOMM, Incorporated's (NASDAQ:QCOM) EPS is expected to grow by 23.02% over the next three to five years. The company's revenue has grown by 29.36% year-over-year, and its forward free cash flow per share growth rate is 50.65%. QUALCOMM, Incorporated (NASDAQ:QCOM) also has a one-year dividend growth rate of 6.08%. Analyst Chatterjee sees a substantial upside in the stock in light of the stock's current valuation.
QUALCOMM, Incorporated (NASDAQ:QCOM) was found among the 13F holdings of 71 hedge funds in the second quarter, and 73 funds in the previous quarter. Their total stake values were $2.8 billion and $3.6 billion, respectively.
8. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 84
NVIDIA Corporation (NASDAQ:NVDA) is another semiconductor company providing graphics, compute, and networking solutions in the US, Taiwan, China, and internationally. It offers game streaming services and related infrastructure, solutions for gaming platforms, and automotive platforms for infotainment systems. It is based in Santa Clara, California.
Joseph Moore at Morgan Stanley holds an Equal Weight rating on shares of NVIDIA Corporation (NASDAQ:NVDA) as of September 21. The analyst also maintains a $182 price target on the stock. Moore believes NVIDIA Corporation (NASDAQ:NVDA) will benefit in the near future, since gaming revenues are set to recover in 2023, seeing how prices in the sector are 28% higher than the baseline price from two year ago. NVIDIA Corporation (NASDAQ:NVDA) had revenue of $6.7 billion in the fiscal second quarter of 2023, beating estimates by $3.47 million.
There were 84 hedge funds long NVIDIA Corporation (NASDAQ:NVDA) in the second quarter, with a total stake value of $3.3 billion. Of these funds, Citadel Investment Group was the largest stakeholder in the company, holding 17.7 million shares worth $2.7 billion.
7. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 87
Advanced Micro Devices, Inc. (NASDAQ:AMD) is another information technology company operating in the semiconductor industry. The company offers chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs, and development services, among more. It is based in Santa Clara, California.
An Overweight rating was maintained on shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) on October 5, placed by analyst Aaron Rakers at Wells Fargo. The analyst also placed a $90 price target on the stock.
Advanced Micro Devices, Inc.'s (NASDAQ:AMD) working capital growth year-over-year stands at a rate of 61.17%. The company's EPS is expected to grow by 30.95% over the next three to five years, and its revenue has grown by 61.74% year-over-year. This October, Advanced Micro Devices, Inc. (NASDAQ:AMD) also led chip stocks higher for the third straight day of gains this month.
Out of 895 funds, 87 funds were long Advanced Micro Devices, Inc. (NASDAQ:AMD) in the second quarter, with a total stake value of $4.8 billion. In comparison, 83 funds were long the stock in the previous quarter, with a total stake value of $6.9 billion.
6. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 106
Alibaba Group Holding Limited (NYSE:BABA) is an internet and direct marketing retail company operating in the consumer discretionary sector. The company provides technology infrastructure and marketing reach to help merchants, retailers, and businesses to engage with their consumer bases in China and internationally. It is based in Hangzhou, China.
On October 3, Jiong Shao at Barclays kept an Overweight rating on Alibaba Group Holding Limited (NYSE:BABA) shares, while placing a $135 price target on the stock.
This October, Alibaba Group Holding Limited (NYSE:BABA) led Chinese tech stocks in the broader market, rising 4.6% on October 4. The company's revenue has grown by 10.87% year-over-year, and its EPS is expected to grow by 1.74% over the next three to five years. In the fiscal first quarter of 2023, Alibaba Group Holding Limited (NYSE:BABA) had an EPS of $1.74, beating estimates by $0.18, while its $30.46 billion revenue also beat estimates by $296.3 million.
Alibaba Group Holding Limited (NYSE:BABA) had 106 hedge funds long its stock in the second quarter, with a total stake value of $7.4 billion. Fisher Asset Management was the largest stakeholder in the company, holding 14.5 million shares worth $1.6 billion.
Distillate Capital Partners LLC, an investment management firm, mentioned Alibaba Group Holding Limited (NYSE:BABA) in its second quarter 2022 investor letter. Here's what the company said:
“Changes & Regional Weights: The largest new position is Alibaba Group Holding Limited (NYSE:BABA), which underperformed considerably and has seen its enterprise value fall by almost two thirds from its peak despite a net cash position on its balance sheet.”
Alibaba Group Holding Limited (NYSE:BABA), like Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), and Microsoft Corporation (NASDAQ:MSFT), has been on the rise in the tech sector for many year, attracting positive investor attention.
Click to continue reading and see the 5 Best FAANG Stocks to Buy Now.
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Disclosure: None. 11 Best FAANG Stocks to Buy Now is originally published on Insider Monkey. | AAPL |
https://finnhub.io/api/news?id=3506e093b1316a8b5c9515f98a153300a55e8fd7bb232c5cffa5812f5db3370e | U.S. Weekly FundFlows Insight Report: Taxable Bond ETFs Attract Their Largest Weekly Net Inflows Since December 21, 2021, For The Fund-Flows Week | Taxable bond ETFs attracted their largest weekly net inflows since 12/21/21. Click here to read the full US weekly fund flows insight report. | 2022-10-07T04:23:00 | SeekingAlpha | U.S. Weekly FundFlows Insight Report: Taxable Bond ETFs Attract Their Largest Weekly Net Inflows Since December 21, 2021, For The Fund-Flows Week
Summary
- Investors were overall net redeemers of fund assets for the second week in a row.
- On hopes that central banks will pivot to a more dovish stance, investors pushed global markets higher.
- Investors appeared to ignore the latest update to Q2 GDP numbers, which showed the U.S. economy cooled.
- For the first week in three, taxable fixed income ETFs witnessed net inflows.
Investors were overall net redeemers of fund assets (including those of conventional funds and ETFs) for the second week in a row, withdrawing a net $35.4 billion for the Refinitiv Lipper fund-flows week ended Wednesday, October 5. Fund investors were net redeemers of money market funds (-$24.7 billion), equity funds (-$4.5 billion), taxable bond funds (-$4.1 billion), and tax-exempt fixed income funds (-$2.1 billion) for the week.
Market Wrap-Up
After U.S. stocks posted their worst September returns since 2011, the Dow Jones Industrial Average and the S&P 500 indices posted their strongest two-day percentage gains since April 7, 2020, during the fund-flows week. The Dow chalked up its strongest start to a quarter since 1938, according to Dow Jones Market Data. On Friday, September 30, the Dow fell 500 points as stocks locked in their third consecutive quarterly loss - losing 6.66% for Q3. Nonetheless, in a little market-schadenfreude dynamics, on hopes that central banks will pivot to a more dovish stance, investors pushed global markets higher.
On the domestic side of the equation, the Russell 2000 Price Only Index (+2.77%) outshined the other broadly followed indices for the fund-flows week. It was followed by the Dow Jones Industrial Average Price Only Index (+1.99%). The Nasdaq Composite Price Only Index (+0.88%) posted the weakest returns. Overseas, the FTSE 100 Price Only Index (+5.33%) posted the strongest plus-side returns of the other often-followed broad-based international indices, while the Shanghai Composite Price Only Index (+1.50%) and the Nikkei 225 Price Only Index (+3.49%) were the group relative laggards.
For the fund-flows week, the Bloomberg Municipal Bond Index (+0.79%) outpaced the Morningstar LSTA U.S. Leveraged Loan Index (+0.44%) and the Bloomberg U.S. Aggregate Bond Index (-0.22%).
On Thursday, September 29, the U.S. markets plunged on news of an Apple (AAPL) downgrade by a Bank of America (BAC) analyst and after a batch of economic reports reinforced expectations the Federal Reserve will continue its aggressive rate hikes.
Investors appeared to ignore the latest update to Q2 GDP numbers, which showed the U.S. economy cooled to an annualized pace of 0.6%, and instead focused on a report from the Department of Labor which showed that the number of first-time jobless claims fell by 16,000 to 193,000 for the week prior - its lowest since April. The 10-year Treasury yield rose four bps, closing the day out at 3.76%, while the two-year Treasury yield rose nine bps to 4.16% - further pressuring stocks and bonds.
U.S. stocks closed significantly lower on Friday, September 30, after the August personal consumption expenditure inflation index showed core consumer inflation - which excludes food and energy prices - rose by 0.6%, more than analyst forecasts of a 0.5% rise, with stocks posting their lowest closing values since 2020 and cementing their third consecutive quarterly decline. Fanning the flames, eurozone data showed inflation rose at a record pace in September. The 10-year Treasury yield rose seven bps to close at 3.83%.
The Dow witnessed its largest one-day gain (+2.7%) since June 24 on Monday, October 3, as investors assessed the possibility of the Fed being pressured to pivot away from its hawkish monetary policy after the Institute of Supply Management said its manufacturing index fell to a 28-month low of 50.9% in September, lower than the 52% reading expected by analysts.
Adding to the possible pressures, the United Nations called for the Fed and other central banks to stop interest rate hikes to avoid causing significant harm to developing countries by pushing the global economy into a recession. The 10-year Treasury yield declined 16 bps to close at 3.67%.
Stocks continued their ascent on Tuesday, October 4, with the S&P 500 and the Dow posting their largest two-day percentage gain since April 17, 2020, as investors scooped up perceived oversold issues and considered the growing assumption that central banks would become more dovish.
Lending support to those hopes, the Reserve Bank of Australia delivered a smaller-than-expected 25-bps interest rate hike. In other news, U.S. job openings fell to 10.1 million in August - its lowest level since last fall. The 10-year Treasury yield declined five bps to end the day at 3.62%, while the two-year Treasury declined two bps to 4.10%, pushing the two- and 10-year Treasury spread to negative 48 bps (its largest negative value since September 23).
U.S. stocks snapped their two-day winning streak on Wednesday, October 5, after data showed a steady growth in private-sector jobs in September and OPEC+ announced its largest cut in oil production since April 2020. According to ADP, U.S. private sector employers added 208,000 jobs in September, beating analysts’ expectations of 200,000.
In addition, ADP reported annual pay was up 7.8%, further supporting the Fed’s hawkish stance and weighing on equity issues. The 10-year Treasury yield rose 14 bps to 3.76%. Front-month crude oil future prices rose 1.4% to settle at $87.76/barrel after the OPEC+ group said it is reducing its combined crude oil production levels by two million barrels per day starting next month.
Exchange-Traded Equity Funds
Equity ETFs witnessed their second week of net inflows in three, taking in $6.2 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$4.0 billion), injecting money also for the second week in three, while nondomestic equity ETFs witnessed their second straight week of net inflows, attracting $2.2 billion this past week. Large-cap ETFs (+$2.7 billion) witnessed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by equity income ETFs (+$1.6 billion) and sector-technology ETFs (+$470 million).
Meanwhile, sector-healthcare/biotechnology ETFs (-$689 million) suffered the largest net outflows, bettered by the mid-cap ETFs (-$251 billion).
SPDR S&P 500 ETF (SPY, +$1.6 billion) and iShares MSCI Emerging Markets Min Vol Factor ETF (EEMV, +$1.2 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Invesco QQQ Trust 1 (QQQ, -$1.8 billion) experienced the largest individual net redemptions and iShares Core S&P Total US Stock Market ETF (ITOT, -$1.2 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in three, taxable fixed income ETFs witnessed net inflows, taking in $7.7 billion this week - their largest weekly net inflows since December 8, 2021. APs were net purchasers of government-Treasury ETFs (+$3.5 billion), corporate investment-grade debt ETFs (-$3.0 billion), and corporate high-yield ETFs (+$2.5 billion), while being net redeemers of flexible ETFs (-$1.1 billion).
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$3.0 billion), iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.9 billion), and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$1.3 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares Core US Aggregate Bond ETF (AGG, -$779 million) and iShares TIPS Bond ETF (TIP, -$561 million) handed back the largest individual net redemptions for the week.
For the first week in nine, municipal bond ETFs attracted net inflows, taking in $1.2 billion this week. iShares National Muni Bond ETF (MUB, +$595 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares California Muni Bond ETF (CMF, -$52 million) experienced the largest net redemptions in the subgroup for the week.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the thirty-fifth week in a row - redeeming $10.6 billion - with the macro-group posting a market return of 2.72% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $6.8 billion, also witnessed their thirty-fifth consecutive week of net outflows while chalking up a 2.53% market gain on average for the fund-flows week. Nondomestic equity funds - posting a 3.21% weekly market gain on average - observed their twenty-sixth straight week of net outflows, handing back $3.9 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$5.3 billion) and small-cap funds (-$853 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$3.0 billion) and global equity funds (-$849 million) for the week.
Conventional Fixed Income Funds
For the seventh consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows - handing back $11.8 billion this past week - while posting a 0.64% market return on average for the fund-flows week. None of the conventional fixed income fund macro-groups attracted net new money for the week. Corporate investment-grade debt funds (-$6.5 billion) suffered the largest net redemptions for the fund-flows week, bettered by flexible funds (-$1.5 billion) and international & global debt funds (-$1.3 billion).
The municipal bond funds group posted a 1.10% return on average during the fund-flows week (their first weekly plus-side return in nine) and witnessed net outflows for the seventh straight week, handing back $3.3 billion this week. High Yield Municipal Debt Funds (-$930 million) and General & Insured Municipal Debt Funds (-$804 million) suffered the largest net redemptions for the week.
Year to date, the municipal bond funds macro-group handed back $107.9 billion - witnessing the largest net redemption thus far of any full year dating back to 1992 when Lipper began calculating weekly estimated net flows.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
This article was written by
Comments (1) | AAPL |
https://finnhub.io/api/news?id=ef2d07b358bef17f234206c6bec755e986ccea0e943f8b1918faef688b1c88f0 | Taiwan Tensions Spark New Round of US War-Gaming on Risk to TSMC | (Bloomberg) -- President Joe Biden has been explicit in vowing to commit US forces in the event of a Chinese attack on Taiwan. The question occupying US and Taiwanese officials is the fate of the island’s flagship semiconductor industry. Most Read from BloombergBiden Says Putin Threats Real, Could Spark Nuclear ‘Armageddon’Kremlin Lets State Media Tell Some Truths About Putin’s Stalling WarMusk's Twitter Takeover Hits Snag Over Debt-Financing IssueNord Stream Leaks Caused by Detonations in Sign | 2022-10-07T02:01:31 | Yahoo | Taiwan Tensions Spark New Round of US War-Gaming on Risk to TSMC
(Bloomberg) -- President Joe Biden has been explicit in vowing to commit US forces in the event of a Chinese attack on Taiwan. The question occupying US and Taiwanese officials is the fate of the island’s flagship semiconductor industry.
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Contingency planning for a potential assault on Taiwan has been stepped up after Russia’s invasion of Ukraine, according to people familiar with the Biden administration’s deliberations. The scenarios attach heightened strategic significance to the island’s cutting-edge chip industry, led by Taiwan Semiconductor Manufacturing Co. In the worst case, they say, the US would consider evacuating Taiwan’s highly skilled chip engineers.
Estimates by the US National Security Council project that a Chinese invasion and the loss of TSMC could disrupt the world economy to the tune of more than $1 trillion, around twice the value of the entire semiconductor industry’s annual global sales.
That doomsday scenario injects a new dynamic to Washington’s war-gaming that highlights an uncomfortable dilemma: For all the talk of strong support for the government in Taipei, the US has concluded that it’s too dependent on Taiwan for the kind of advanced chips that are essential for the latest smartphones and next-generation military hardware, and is working to build more domestic capacity as a result.
“The focus among policymakers — and this is true of the US and elsewhere — is of understanding where risks are or concentration is,” said Chris Miller, an associate professor at Tufts University and the author of Chip War: The Fight for the World’s Most Critical Technology. The chip industry’s concentration in Taiwan, he said, “has raised red flags.”
The following account of the contingency planning being undertaken was provided by multiple officials and former officials who requested anonymity to speak candidly. They stressed that plans are purely hypothetical and many details remain unresolved.
The US sees Taiwan as a key part of a new chip alliance it’s trying to set up, and last month the Senate Committee on Foreign Relations approved an act conveying staunch support. Despite those reassurances, Taipei is feeling pressured by Washington on the chip front as attempts are also made to reduce Taiwan’s role in the global supply chain, effectively diminishing what President Tsai Ing-wen has called the island’s “Silicon Shield.” China views the democratically governed island of Taiwan as its territory.
The paradox was on show during Kamala Harris’s September visit to Asia. Hours before hailing Taiwan’s technological contributions to the “global good,” the vice president touted a new US bill authorizing $50 billion for semiconductor research and manufacturing in America.
“Our dependence on Taiwan for chips is, you know, cut substantially,” Commerce Secretary Gina Raimondo said Sept. 29, when asked at an Atlantic Council event where she saw the US in 10 years. “It’s just like a new dawn.”
TSMC’s might lies in its leading-edge technologies and its indispensable role in keeping the global economy humming. Companies including Apple Inc., Tesla Inc. and Volkswagen AG all need chips from TSMC, and so does the US military. California-based Intel Corp. is a couple of generations behind the Taiwanese company’s technology and is struggling to catch up.
Taiwan is trying to assuage Washington’s concerns: This week the government pledged to work closely with the US and other allies to prevent China’s military from acquiring its state-of-the-art technology. Taiwan’s Minister of Economic Affairs Wang Mei-hua is visiting the US later this month to discuss supply chain resiliency and geopolitics with relevant stakeholders.
TSMC has meanwhile agreed to build a $12 billion chip fabrication plant, or fab, in Arizona, a facility in Japan, and is mulling a European hub. Yet it has also said it doesn’t plan to move its most advanced technology abroad.
Miller of Tufts, in a recent report for the Center for a New American Security, suggests the US threaten export controls on chip design software and manufacturing equipment in a bid to pressure TSMC to roll out its newest process technologies simultaneously in the US and in Taiwan. He says TSMC could also be pressed to commit that every dollar of capital expenditure in Taiwan be matched at one of its new overseas facilities.
Washington is showing no signs of willingness to exert that kind of pressure.
Taiwan’s economy ministry said in a statement that the chip supply chain is long and complex, involving divisions of labor, with the US, Europe and Japan all playing critical roles. “Rather than saying chip production is centralized in Taiwan, it’s more apt to say that like-minded countries are creating innovation and leadership by focusing on their own strengths,” it said.
Read more on what could happen if China invaded Taiwan
There have always been contingency plans around TSMC. It lies in a seismically active area and it is hugely power intensive on an island that imports most of its energy. But the reality of war in Europe is giving added impetus to the planning for any Chinese attack.
One potential option is for Washington to try to entice TSMC workers to relocate to the US on the last planes out. The US would consider evacuating Taiwan’s chip engineers in a scenario that involves a full invasion.
Yet even if evacuation were feasible, replicating somewhere else the infrastructure that TSMC has established in Taiwan would take years if not decades, cost tens of billions of dollars, and wouldn’t mitigate the impact on the world economy of losing its factories.
At the extreme end of the spectrum, some advocate the US make clear to China that it would destroy TSMC facilities if the island was occupied, in an attempt to deter military action or, ultimately, deprive Beijing of the production plants. Such a “scorched-earth strategy” scenario was raised in a paper by two academics that appeared in the November 2021 issue of the US Army War College Quarterly.
That’s not something under consideration. Still, some former officials with ties to the Pentagon want the Biden administration to devise such a plan, arguing that there would be no other option in an invasion scenario.
“We can’t allow such a valuable equity to fall into Chinese hands, I think it would be nuts,” said Elbridge Colby, a former Pentagon official who helped write the Trump administration’s national defense strategy. Hawks in Washington doubt the Biden administration would pursue so extreme a path, however.
That doesn’t take into account Taiwan’s own plans for its most strategic company. TSMC declined to comment for this article. However, Chief Executive Officer Mark Liu said in a July interview with CNN that the company could not be controlled by force and an invasion would “render TSMC factories inoperable.”
“TSMC and Taiwanese chip firms are all a part of global supply chain,” the economy ministry said. “The notion of snatching TSMC by force doesn’t align with the reality of how the chip industry operates.”
US officials declined to comment publicly on the details of their planning. One said that thinking through worst case scenarios was the defense department’s bread and butter.
Still, in a September interview with Bloomberg Television, National Security Advisor Jake Sullivan described the prospect of a Chinese invasion as a “distinct threat,” without specifying a timeframe for any potential move by China. Global financial firms are reassessing the risks of doing business in China on the back of escalating tensions.
The concern in Taipei is that President Xi Jinping may be tempted to launch an attack to divert attention from a faltering Chinese economy and high unemployment.
China denies any such intention. Beijing blames the US for changing the status quo in the region, including by House Speaker Nancy Pelosi’s August trip to Taiwan. In any case, Xi has myriad other problems at home, and there’s no sign an invasion is imminent.
Chinese Ambassador to the US Qin Gang downplayed the threat of an imminent attack on Taiwan. “People are over nervous about it,” he told reporters in August. Speculation China had moved up the timeline for an invasion is “baseless,” he said.
Internal US meetings on Taiwan have intensified in frequency and scope in recent months regardless. At least two studies are under way, one at the Treasury Department on the overall market impact of an invasion, and one at the National Security Council about supply chains, semiconductors and US dependencies on TSMC.
To reduce its reliance on foreign supplies, the US has incentivized TSMC to build its Arizona fab and secured a $17 billion commitment from Samsung Electronics Co. of South Korea for a new advanced fab in Texas. Samsung, the only company to challenge TSMC at the leading edge, said this week it could add more fabs in the US. Meanwhile, Intel is adding capacities in Arizona and creating a new chip hub in Ohio.
But it will take another two years at least for these plants to come online.
US officials meantime believe China’s approach will harden following this month’s Communist Party Congress, when Xi is expected to secure a precedent-defying third term. They see him emerging emboldened, more aggressive in his territorial assertions and US engagement.
Not all US officials are convinced that Xi would push for a military invasion. But even a blockade or economic coercion would have grave consequences for Taiwan and the global economy.
Lately there’s been “a more acute concern about the prospect that the supply chain could be cut by some action by the Chinese,” whether a D-Day style attack or blockade, said Rupert Hammond-Chambers, president of the US-Taiwan Business Council. Businesses, like governments, are looking much harder at contingencies, he said, “so that if, God forbid, something does happen, they’ve actually got a game plan.”
(Updates with Economy Minister trip to US in seventh paragraph.)
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https://finnhub.io/api/news?id=bbc8db2df4528689c75af299129a55f06f902c27d4a8db6206eb9ebb5798d4ef | Where Will Lucid Motors Be in 5 Years? | In five years, Lucid Motors will stand alone as the de facto brand of luxury EVs. It not only rivals Tesla; it outclasses it in many ways. | 2022-10-07T04:09:00 | InvestorPlace | [Editor’s note: “Where Will Lucid Motors Be in 5 Years?” was previously published in June 2021. It has since been updated to include the most relevant information available.]
Lucid Motors (LCID) is one of my favorite EV stocks in the game. In fact, I’ve been bullish on this company for a while.
And the best part? It continues to prove itself — and why we should all be fans of LCID stock.
Tesla (TSLA) has been the industry leader for years. Indeed, we’ve been bullish on Tesla for so long that we’ve scored our readers 2,000%-plus gains on the stock. But sometimes, even great things must come to an end.
Edmunds’ car experts recently put the two EV makers to the test. And when comparing Lucid’s Air Dream Edition to Tesla’s Model S Plaid, they proved the two can go toe-to-toe.
Both models tied in terms of pricing and value, interior and tech. And in fact, Lucid proved its range and performance were superior. Though the Model S ultimately beat out the newcomer, it was only by an incredibly slim margin. According to Edmunds:
“The Lucid Air is a praiseworthy first effort from a new automaker, thanks in large part to its Tesla-beating range, otherworldly acceleration and head-turning exterior design. For now, the Model S holds a slight edge overall, but if Lucid can work past its teething issues, it may well end…Tesla’s reign.”
Relative newcomer Lucid is giving titan Tesla a run for its money. And this is only the beginning.
Taking Over Where Others Left Off
For years, EV stocks followed TSLA wherever it went. Up or down, all other EV stocks followed suit.
But this is no longer true. It’s becoming clear that Lucid Motors is providing stiff competition for Tesla, especially in the premium, luxury channel. Where Tesla stands to lose a lot of market share, we think Lucid can step in and dominate.
And industry developments have only strengthened this thesis.
Tesla cancelled its Model S Plaid+, its 500-plus mile range version, and the only version capable of rivalling Lucid Motors’s Air Dream Edition in terms of range. This is a big win for Lucid. Its Air Dream stands alone as the best performance EV in the market.
And when Tesla released its Model S Plaid, there were no “mic drop” moments. It was all according to plan. And that’s great news for other companies but not for Tesla. This means it may be maxing out its underlying tech.
That would mean Tesla’s max point is below Lucid’s. And that gives the startup ample room to take the industry lead.
Take a Road Trip With LCID Stock
It looks like Lucid will be the winner of the luxury EV race, at least for the next few years.
That means LCID stock will outperform TSLA. With a $711 billion market capitalization, Tesla is priced to dominate the EV market for the foreseeable future. If it doesn’t, the stock will fall.
Meanwhile, with a mere $22.8 billion market capitalization, Lucid is priced for some market share gains in the EV industry. And if those gains are as large as we expect, LCID stock will power much higher.
A game plan for the next six to 12 months? Sell TSLA stock into strength. Buy LCID stock on weakness.
Over the next three to five years, Lucid stock will meaningfully outperform TSLA from current levels.
Where Will Lucid Motors Be in Five Years?
In five years, here’s where we see Lucid Motors within the broad context of the EV industry.
For one, it’ll be standing alone as the de facto brand of luxury EVs — above Tesla, Audi and Porsche (POAHY). In terms of brand and technology, it will be in a class all its own.
It’ll also have stores in all the high-class malls, like Tesla does today. Those stores will be busier than Tesla’s. And they’ll be nicer and fancier, too.
Lucid Motors will be selling hundreds of thousands of cars a year, at super-high price points, with extremely favorable margins. We’re talking a $20-plus billion revenue company by 2026, with 20%-plus gross margins.
For all intents and purpose, in five years, Lucid will be where Tesla was around 2019 or 2020. And by the end of 2020, Tesla was worth $650 billion.
The Final Word on Lucid
Of course, especially given the continuing market turbulence, we’ve got an eye on LCID and TSLA stock prices now. But what we’re really looking at is Lucid’s impending superiority in the EV industry in the more distant future.
Tesla cancelled its competing model and is seemingly bowing out of the luxury car race. And that makes Lucid’s job much easier.
But LCID stock isn’t the only one on my radar.
In fact, there’s a tiny, $3 technology stock that I think may be the single most compelling 12-month investment opportunity in the market today.
See; the world’s largest company – Apple (AAPL) – is about to enter the EV game. They’ve been working on a super-secret “Apple Car” project since 2015. And late last year, the company reportedly increased investments into the project so as to accelerate its development timeline.
The implication? Apple will launch its own EV likely within the next two years.
Judging by the success of the iPhone, iPad, Mac, and Apple Watch, it seems very probable that the Apple Car is a huge hit. It even seems possible that this car unseats Tesla as the best-selling EV in the market.
If so, the Apple Car could be bigger than the iPhone, iPad, Mac, and Apple Watch put together.
And the $3 stock I’m talking about is – per my analysis – positioned to secure a partnership with Apple to supply a critical piece of technology to make the Apple Car work.
If that sounds like a big deal, it’s because it is. My modeling suggests this tiny stock could soar 40X over the next few years.
So… what’re you waiting for? This may be the most exciting investment opportunity in the market today.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article. | AAPL |
https://finnhub.io/api/news?id=701c871975d9a385006acfd07b1c1c009d73b9890908dbea78ff75edb2a6c823 | These 3 Tech Stocks Are Building the Future | Amazon, Apple, and Microsoft have the innovation and drive to continue influencing the tech world for years to come. | 2022-10-07T04:00:00 | Yahoo | These 3 Tech Stocks Are Building the Future
Amazon, Apple, and Microsoft have the innovation and drive to continue influencing the tech world for years to come.
Amazon, Apple, and Microsoft have the innovation and drive to continue influencing the tech world for years to come. | AAPL |
https://finnhub.io/api/news?id=681b49dc48ad46cb23e41a2d954136d1bd4006eeef9a80cd8dc08fd7e8d1c710 | Apple (NASDAQ:AAPL): a No-Brainer Defensive Stock that Keeps 5-Star Analyst Bullish | Apple (NASDAQ:AAPL), one of the most admired brands in the world, has several strong points to steer it through headwinds as the world heads into the turfs of a rec... | 2022-10-07T03:54:00 | TipRanks | Apple (NASDAQ:AAPL), one of the most admired brands in the world, has several strong points to steer it through headwinds as the world heads into the turfs of a recession. Despite a few hiccups here and there, Wall Street is largely bullish on AAPL stock. Tigress Financial Partners analyst Ivan Feinseth is one of the bulls who recently reiterated his faith in Apple and noted several points to justify his stance.
Analyst Not Too Worried about iPhone 14 Production Plans
Apple was thrown into the limelight recently when Bloomberg reported that the company has reconsidered a second-half production ramp for iPhone 14. This sparked speculations that demand for the flagship device has failed to gain the expected traction.
However, Feinseth feels that “the sell-off in AAPL’s shares over weakness on reported iPhone 14 production reduction is a buying opportunity as it’s all about revenue growth and not unit volume.” The analyst is positive that the top models of iPhone 14 Pro are still experiencing strong demand and “continue to outsell entry-level phones.”
Moreover, Feinseth also opined that buyers of the flagship iPhones are more likely to drive growth and profitability by consuming more expensive Apple Services.
Other Achievements That Highlight Apple’s Strength
Among the major milestones that Apple hit this year is counterbalancing the impacts to its business from the COVID-led lockdowns in China, suspension of business in Russia, and significant currency headwinds.
“AAPL’s industry-leading position and strong brand equity, driven by its innovative ability and powerful cash generation, will continue to generate an increasing Return on Capital (ROC), driving the ongoing growth of Economic Profit and shareholder value creation,” noted Feinseth. The analyst is impressed with the company’s ability to navigate and overcome major headwinds that have led big companies to bite the dust this year.
Feinseth also noted that the CarPlay Interface for vehicles underscores the company’s efforts to expand its presence in the automotive market, which can create a solid path for growth based on the increasing demand for driver assistance systems.
Furthermore, Feinseth also believes that the launch of Apple’s virtual reality headset this year or early in the next year has the potential to pave the way for a “paradigm shift” in Apple’s portfolio of offerings.
Moreover, Feinseth is optimistic that Apple’s solid balance sheet and cash flows will continue to support future growth, acquisitions, and higher shareholder returns.
Is Apple a Buy, Hold, or Sell?
Needless to say, the analyst maintained his Buy rating and $210 price target on AAPL stock, buoyed by the belief that “new product introductions, an ever-expanding ecosystem, and increasing services revenue will continue to drive accelerating Business Performance trends.”
Wall Street is also strongly optimistic about Apple stock, with a Strong Buy consensus rating based on 24 Buys, four Holds, and one Sell. The average price target of $182.97 indicates that AAPL stock can still grow about 30% from current price levels over the next 12 months.
Conclusion: Apple is Worth Taking a Bite Of
Simply put, Apple is too big to fail. The numerous avenues that the company is expanding into have created a strong case for not only growth in its business but also stock appreciation. | AAPL |
https://finnhub.io/api/news?id=2e61d56faaf6192f9c599d1fa25d10a7fabf0ecb61059b18602c0afa0491049a | Apple And The Golden Age Of American Innovation: Is It Ending? | The last 20 years will be remembered as a golden age of innovation, especially for American companies. Click here to read my analysis and the impact on Apple. | 2022-10-07T03:36:20 | SeekingAlpha | Apple And The Golden Age Of American Innovation: Is It Ending?
Summary
- The last 20 years will be remembered as a golden age of innovation, especially for American companies.
- Many new markets were created, but some of the largest such as social media, smartphones, and software are now maturing.
- This article reviews recent innovation and looks at if there is enough new innovation and markets to continue the rapid pace.
- It also includes a look and recommendation for innovation leader Apple.
"We have never seen this much innovation evolving at the same time"
Cathie Wood
Cathie Wood is certainly right about that. However, assuming all new tech would work as intended, grow profitably and indefinitely, and have little competition turned out to be another matter.
A big part of our future will be determined by innovations, so, let's have some fun and try to predict the future.
Purpose of the Article
This article will start with the amazing amount of factors that came together to create this historic surge in innovation and stock market wealth, in the U.S. It will discuss why it happened in the U.S. It will then look at how much these factors will continue into the future. Finally, we will look at Apple specifically as a leader and personification of recent innovation.
A big part of our future will be determined by innovations. So, let's have some fun and try to predict the future. If you have different predictions than mine, please add them to the comment section.
Background
The last 20 years have been a golden era of innovation that propelled the stock market up. In the 20 years ended January 1, 2022, the S&P 500 increased 400% despite two recessions.
On December 2, 2019, I published an article titled The Golden Age Of American Mega Growth Stocks. In the past the largest companies had underperformed due to the law of large numbers limiting growth. In the years leading up to that article, the largest American tech stocks had outperformed the market to the point they became the biggest factor driving the whole market forward.
While many have pointed toward the Fed's policy of easy money, the real source of the strong stock market was massive innovation by American companies of all sizes. This was further enabled by offshoring of labor which kept costs and inflation down. That is because stock prices are comprised of two factors; earnings and a PE ratio (or multiple of earnings to account for future growth). The Fed through interest rates primarily impacts the latter. Most of the stock market gains the last 20 years were due to the former, increased earnings. That came from the proliferation of new markets driven by innovation. The Fed has a lot of impact in the intermediate term, but not in the long term. That has more to do with innovation, management and competitiveness.
Interestingly, the vast majority of this innovation and growth came from American companies. The U.S. has about 4.3% of the world's population but close to 50% of the market capitalization of all stocks in the world. It is not beating the world by 10%, its more like by 1000%. Let's look first at why this is.
Why so Much Innovation in the U.S.?
On January 19, 2019 I published an article titled America's Edge: America Is Still Great Here's How
In it I listed 12 reasons for our superior performance. These are summarized below.
1. Innovation - Despite having 4.3% of the world's population, over 50% of all inventions the past 20 years have been in the U.S. A lot of that is coming from our mega cap growth stocks.
2. Better Universities - There is a reason millions of the best foreign students go to U.S. universities. Many stay here and add to our economy.
3. Immigration - We still lead the world in immigration though recent policies are causing this to falter. Immigrants tend to work hard to take advantage of the opportunities in the U.S. Some become CEOs such as Elon Musk and Lisa Su.
4. Capital - We have by far the largest capital markets. In fact, the value of our stock market is almost as large as the rest of the world combined. Our bond market, private equity and banking system are also the largest.
5. Startups- Startups are more prevalent here than anywhere else. What helps new businesses and large ones entering new markets is the scale of the U.S. market, free enterprise protections, and access to talented employees and capital.
6. Infrastructure- Don't believe the criticisms here. Our roads, airports, ports, transportation and utilities are world class and reliable. Power outages are rare.
7. Military - The U.S. has by far the strongest, best funded military. This has led to numerous innovations to upgrade weapons and infrastructure. It also means more business for corporations.
8. Stability - Despite the current political divide, our government is more stable than most. We only have two significant political parties, which is unusual. There is a strong rule of law, freedom of the press, and a system of checks and balances.
9. Culture - U.S. culture has had the most influence on the rest of the world. However, there is also a corporate culture that has developed that involves non-discrimination, prohibitions of harassment, teamwork, learning and well defined opportunities.
10. Natural Resources - The U.S. is blessed with natural resources and has most of what it needs available domestically. Our farmland is also among the best in the world.
11. Accounting - While there will always be cheating, investors trust the numbers in the U.S. much more than in emerging economies.
12. Large corporations - Believe it or not, this is my number one reason for America's edge. I spent much of my article America's Edge: Yes America Is Still Great Here's How explaining it. But it starts with American innovation, so let's go there.
Innovation by Large U.S. Corporations
Why is innovation so strong in the U.S. versus elsewhere? First of all, we have a strong patent and patent protection system. Companies that innovate get paid and have recourse to sue if their IP is taken without compensation. This is a big reason the Chinese have not come close to matching us despite all their efforts. Secondly, we are importing highly skilled and highly motivated immigrants. They have to be highly motivated if willing to leave their homeland, friends and families to come here. Thirdly, our brand of capitalism allows an unlimited payoff. There is no cap to how much a person or company can be paid from executing on a good idea. Fourthly, the payoff is bigger here than elsewhere due to the size of our economy, the largest in the world by far. Fifth, we are willing to pay what it takes to get qualified people to carry out the research and for management. We just pay more. The highest paying fields are IT and medical, the same fields where most of the innovation is. Finally, we are more willing to take risks. This is due to the potential payoff just mentioned but it's also part of our culture as it is praised. Private equity is willing to lose a lot of money funding good ideas in order to invest in one that makes it big.
Innovation the Past 20 Years
Below is a list of new markets created just in the past 20 years. While the technology in many cases predated that, these markets started generating large revenues and became world changing in the last 20 years.
-GPS
-Streaming
-The Cloud
-Online search and ads
-Smart phone
-Apps
-Solar farms
-Wind farms
-Electric vehicles
-Social media
-Cryptos
-Online payments
-Online gaming
-Artificial intelligence
-Fracking (saved oil industry in U.S. and pushed back peak oil)
-Private space
-HD TV
-Smart TV
-Genetic mapping
-CRISPR (gene editing)
-Video conferencing (trend to remote working)
-Drones Ride hailing
-4G and 5G
Of these, smart phones and social media have had the most impact and are ubiquitous in our lives. Additionally, there have been huge strides and growth in software. Software has been around much longer than 20 years but as the cliché goes, it has eaten the world. Many of the fastest growing companies the past decade were software providers.
A major problem is that many of the major new markets that have driven innovation and revenue growth are maturing. These include GPS, smart phones, social media, online advertising, streaming, apps, online payments, fracking, HD and smart TV, video conferencing, ride hailing and telecommunications (now 5G).
Future Innovation Sectors
There is certainly more coming which are not big revenue generators yet today. Those already in the works include;
-Self-driving cars and trucks
-Small modular reactors (small safer nuclear plants)
-Virtual reality (already here but not generating much revenues yet)
-Drone deliveries
These are addition to growth in the innovation categories previously listed. There will always things we didn't think of that turn out to be big. My best guess is a major growth area in the future will be around extended life. Specifically stem cell grown organs and anti-aging treatments.
Innovation the Next 20 Years
There remains a lot of growth ahead. In addition to the coming innovation sectors, I mentioned just above, there remains a lot of growth left in those that have grown tremendously the last 20 years. These include;
-Solar farms
-Wind farms
-Electric vehicles
-The cloud
-Online gaming
-Artificial intelligence
-Private space
-Genetic mapping
-CRISPR (gene editing)
-Drones
-The cloud
Of those above, I see the biggest growth in AI, the cloud, and genetics such as CRISPR. I still expect the largest innovation from U.S., though the rapid development of other parts of the world should narrow the lead some. Specifically, there has been a lot of technological development in Southeast Asia, and not just China.
Innovation Needs
To keep innovation going at or above historical levels the following is needed.
-Capital
-Capitalism - profit incentives
-Risk takers
-Rule of law
-Educated workforce
Things that can slow it down include;
-Excessive regulation
-Excessive taxes
-A major geopolitical event
Some of the negatives are already happening. The US and European governments pushing back against monopolies held by the largest tech companies. In fact, I believe the Golden Age of mega caps is probably over. They will face a continuing tide of regulation and government pushback.
For that reason, a lot of the new innovation may need to come from smaller more nimble companies.
The Next 3-5 Years
I expect a slowdown or lull in innovation for the following reasons;
1. The biggest trends the last 20 years were in software, smart phones and social media. Those markets are maturing. Newer ones are not yet large enough to carry the baton forward at the same speed.
2. The IPO market is temporarily mostly shut down. This cuts off a major source of capital to the new generation of innovators.
3. We usually enter an age of sobriety following major innovation periods. Bubbles pop, excess capacity is reduced, and investors are less willing to take risks. I believe we will see this for several years.
4. We are moving away from globalization which is almost always a negative toward economic development as it reduces potential markets, suppliers and access to capital and is inflationary.
5. We are likely entering into a recession. I have written three articles on SA about why I expect a recession. Recessions slow R&D spending and capital raising.
Innovation in the U.S. will not go away and may not even slow. There is a critical mass of well-educated and trained scientists, engineers, mathematicians, IT professionals and managers to keep it going. But the days of accelerating innovation are probably over for a while.
Apple
Apple, Inc. (NASDAQ:AAPL) essentially invented some of the largest markets in the world today, including the smart phone, the PC, tablets, the app store, and the current method of online music sales. It used to be large corporations couldn't move quickly with new innovations but Apple has historically proven that wrong. However, Apple has introduced few new products or services in recent years. It's CEO, Tim Cook, who I greatly admire, has focused more on improving the existing products and efficiencies and moving more into services.
Revenue growth has slowed due to a maturing of most of its markets, especially the iPhone. The iPhone represented 49% of total revenues in the most recent quarter and its revenue growth was only 2.5% YoY. The latest iPhone 14 had few significant new features. Perhaps after 14 generations Apple is running out of new ideas. Apple lately seems to be maintaining a slow growth in smart phones. Apple gets a huge profit margin on its phones versus competitors in part because it has created a sticky ecosystem for them and because it has more features.
Revenue growth was 33% in 2021 after being only 3% in the two years ended 2020. The year 2021 appears to be anomaly due to Covid, and the huge stimulus package that followed. Revenues totaled $304.2 billion in the nine months ended June 25, 2022, up 8% from one year earlier. However, revenues slowed to up only 2% in the most recent quarter. EPS growth has been better and is currently running up 5-10%. This is primarily due to stock buybacks and improved margins.
Apple has done better in recent years expanding existing markets than introducing new products. Tim Cook is a great manager and operator, but not the innovator Steve Jobs was. To be fair, no one is. Apple clearly will need new markets if it is to resume solid revenue and earnings growth. It has a history of little significant M&A activity indicating growth will need to come organically. Their best prospect for a new market appears to be autonomous car software. However, based on obstacles run into by Tesla (TSLA), Waymo and others, getting that last 1% of development needed will be tough. It does not appear to be something that will help in the next few years. Instead, Apple has been growing EPS more with stock buybacks and improved margins.
Recent headlines indicate things are slowing and even declining.
1. Bank of America Analyst Wamsi Mohan recently lowered his rating on Apple to neutral from buy and cut his price target to $160 from $185, while also lowering fiscal 2023 estimates. "We see risk to this outperformance over the next year, as we expect material negative [estimates] revisions driven by weaker consumer demand (Services already in slowdown and we expect products to follow)," Mohan wrote in a note to clients.
2. Bloomberg reported on September 28, 2022, Apple is pulling back on iPhone production
3. On October 3, 2022 Morgan Stanley reported the App Store saw net revenue decline 5% year-over-year in September. This had been a significant growth area in the past.
4. On October 6, 2022, UBS noted that wait times for the new iPhone 14 product line have eased, indicating "flattish" year-over-year growth for the September quarter.
Apple Valuation
Apple currently trades at a PE ratio of 23.5 versus the average S&P 500 PE ratio of 15. Does Apple deserve an above market PE ratio despite below market revenue growth? Let's look at the reasons it does first then why it doesn't.
Apple is the bluest of blue chips right now which makes it a defensive holding in a recession or economic slowdown. That makes it similar to other slow growers with big moats like P&G (PG) and Coke (KO) which have similar above market PE ratios. Apple also has a very large moat, a strong balance sheet and one of the best CEOs. It has the ability to juice growth through acquisitions though it has done little of size in the past. Apple has a large enough R&D budget that can still create products with very large total addressable markets, though none appear imminent.
There are also a number of reasons it shouldn't have this much of a premium over the market. Its growth is at or below the market average at this point. Apple is facing the law of large numbers. The bigger you are the harder it is to grow. There are a lot less $25 billion new potential markets than $1 billion new markets. Apple is also probably not recession-proof based on its high-end products. Consumers trade down in a recession. It has not gone through a real recession with most of its current products. Apple gets huge margins on its largest product, the iPhone. Those margins may not be sustainable with innovations to the iPhone diminishing.
I compared Apple to other extremely strong but slower growing companies and two mature mega cap blue chip tech companies. The non-tech peers are all blue chips with huge moats, and extremely strong balance sheets but slower growing like Apple is now. The two tech peers are also extremely strong with huge moats, but faster growing than Apple.
Apple currently has a PE ratio of 23.5 to current year estimated earnings which is slightly above the non-tech peer group and similar to its tech peers, despite much lower growth. Revenue growth for Apple YoY was 8% in the last 3 quarters and 3% in the most recent quarter. That makes it more similar to the non-tech blue chips. Based on this comparison Apple should have a moderately lower PE ratio. It should also be noted, Apple is probably more cyclical in a recession than all but Alphabet.
Normally, I would rate Apple a hold based on the factors listed above. That is what I expected to do when I started this article. But the peer comparison, recent headlines along with a looming recession and the likely impact on Apple moves me to a sell recommendation. The stock closed at $146.40 on October 5, 2022. My 1 year price target assumes a PE ratio of 22 based on the comparables above, and is $134.
Takeaway
Apple is symbolic of a slowdown in innovation among the mega cap tech companies but not innovation overall. Innovation at Apple has slowed to the point where, along with other reasons, it no longer deserves a well above market PE ratio so I recommend a sell.
I believe American innovation will continue, though with a bit of a lull (due to reasons previously given), as long as we remain a capitalist nation that doesn't penalize innovation.
I have identified a number of new and existing markets where major innovations are probably coming. Please feel free to discuss others you see in the comment section below.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (68)
Aptera. It is currently accepting pre IPO investments.
It is solar powered for up to 40 miles a day, and has options for up to 1000 miles per charge range. It is has less aerodynamic drag than an F150 rear view mirror.
Cost starts at $25900.
- choosing the shortest queue
- finding the TV remote
- learning a physical skill by imagining what we are actually doing
- remembering the name of that person
- seeing all the field of play in a sports game
- action replay
- designing a special space
- always seeing the danger when driving
- finding stars in the sky
- finding birds in the trees
- finding leaks in the roof
- choosing prescription lensesI could keep going for ages.AR is going to be so much more than fingers on a screen.
As for stability, I‘m not as convinced that this will be a positive for the US in the future. The current political divide is a symptom of a weakness of the political system, which the Republicans exploit ruthlessly.
I see one additional innovation area: bio technology with most important protagonists Moderna and BioNTech. And please, it is short sighted to claim that COVID is a onetimer. | AAPL |
https://finnhub.io/api/news?id=da1cbd2c88f45755bab821bd634a990d6abba093508123f2a411313c67990e58 | Key Apple Supplier Clocks 48% Sales Growth In Q3 | Taiwan Semiconductor Manufacturing Company Ltd (NYSE: TSM) reported a September revenue growth of 36.4% year-on-year to NT$208.25 billion. Revenue for January through September 2022 totaled NT$1.64 trillion, up 42.6% Y/Y. Revenue for the third quarter grew 48% Y/Y to NT$613 billion ($19.4 billion), above the consensus of NT$603 billion, Bloomberg reports. The report noted that rising revenue at Apple Inc’s (NASDAQ: AAPL) most crucial chipmaker signals that the most prominent players in the $550 | 2022-10-07T03:01:48 | Yahoo | Key Apple Supplier Clocks 48% Sales Growth In Q3
Taiwan Semiconductor Manufacturing Company Ltd (NYSE: TSM) reported a September revenue growth of 36.4% year-on-year to NT$208.25 billion.
Revenue for January through September 2022 totaled NT$1.64 trillion, up 42.6% Y/Y.
Revenue for the third quarter grew 48% Y/Y to NT$613 billion ($19.4 billion), above the consensus of NT$603 billion, Bloomberg reports.
The report noted that rising revenue at Apple Inc’s (NASDAQ: AAPL) most crucial chipmaker signals that the most prominent players in the $550 billion semiconductor industry may bypass the severe downturn helped by resilient demand for electronics products.
Apple backed off plans to increase production of its new iPhones, raising questions about underlying electronics demand.
Samsung Electronics Co, Ltd (OTC: SSNLF) expects Q3 FY22 sales of 76 trillion Korean won versus actual sales of 73.98 Korean won in Q3 FY21.
Samsung expects operating profit likely to drop nearly 32% to 10.8 trillion won compared to the same period last year.
Other chipmakers, including Micron Technology, Inc (NASDAQ: MU), warned against a tougher market as inventories build up and order cut by the data center and consumer tech clients.
Price Action: TSM shares closed lower by 0.17% at $74.35 on Thursday.
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© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved. | AAPL |
https://finnhub.io/api/news?id=c1fd5a089dcf782902f501cda44f41bec335d00ef35a25eac9da3739130f43b6 | These 2 Stocks Make Up 52% of Warren Buffett's $325 Billion Portfolio | Few people command the attention of Wall Street professionals and everyday investors quite like billionaire Warren Buffett. Since taking the reins of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) in 1965, the Oracle of Omaha, as he's come to be known, has created more than $615 billion in value for shareholders and generated an aggregate return on his company's Class A shares (BRK.A) of 3,641,613%. In other words, there's plenty of reason for Wall Street and investors to pay attention to what Buffett is buying, selling, and holding. | 2022-10-07T02:21:00 | Yahoo | These 2 Stocks Make Up 52% of Warren Buffett's $325 Billion Portfolio
Few people command the attention of Wall Street professionals and everyday investors quite like billionaire Warren Buffett. Since taking the reins of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) in 1965, the Oracle of Omaha, as he's come to be known, has created more than $615 billion in value for shareholders and generated an aggregate return on his company's Class A shares (BRK.A) of 3,641,613%. In other words, there's plenty of reason for Wall Street and investors to pay attention to what Buffett is buying, selling, and holding. | AAPL |
https://finnhub.io/api/news?id=7bee7eddb44d8f15773d81eb2e98ff12458e3ad12bae7acd3f9363cf5239697d | Community Bank & Trust, Waco, - GuruFocus.com | GuruFocus Article or News written by insider and the topic is about: | 2022-10-07T02:01:00 | GuruFocus | Community Bank & Trust, Waco, Texas recently filed their 13F report for the third quarter of 2022, which ended on 2022-09-30.
The 13F report details which stocks were in a guru’s equity portfolio at the end of the quarter, though investors should note that these filings are limited in scope, containing only a snapshot of long positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They are not required to include international holdings, short positions or other types of investments. Still, even this limited filing can provide valuable information.
PO BOX 2303 WACO, TX 76703
As of the latest 13F report, the guru’s equity portfolio contained 129 stocks valued at a total of $281.00Mil. The top holdings were AAPL(11.69%), MSFT(3.86%), and JNJ(3.23%).
According to GuruFocus data, these were Community Bank & Trust, Waco, Texas’s top five trades of the quarter.
Apple Inc
Community Bank & Trust, Waco, Texas reduced their investment in NAS:AAPL by 4,393 shares. The trade had a 0.2% impact on the equity portfolio. During the quarter, the stock traded for an average price of $156.95.
On 10/07/2022, Apple Inc traded for a price of $143.09 per share and a market cap of $2,337.17Bil. The stock has returned 3.05% over the past year.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 10 out of 10.
In terms of valuation, Apple Inc has a price-earnings ratio of 24.00, a price-book ratio of 40.29, a price-earnings-to-growth (PEG) ratio of 1.69, a EV-to-Ebitda ratio of 18.29 and a price-sales ratio of 6.18.
The price-to-GF Value ratio is 0.85, earning the stock a GF Value rank of 7.
Campbell Soup Co
The guru sold out of their 8,626-share investment in NYSE:CPB. Previously, the stock had a 0.14% weight in the equity portfolio. Shares traded for an average price of $49.04 during the quarter.
On 10/07/2022, Campbell Soup Co traded for a price of $46.77 per share and a market cap of $13.99Bil. The stock has returned 14.27% over the past year.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10.
In terms of valuation, Campbell Soup Co has a price-earnings ratio of 18.69, a price-book ratio of 4.19, a price-earnings-to-growth (PEG) ratio of 46.73, a EV-to-Ebitda ratio of 12.62 and a price-sales ratio of 1.65.
The price-to-GF Value ratio is 0.97, earning the stock a GF Value rank of 5.
The Walt Disney Co
Community Bank & Trust, Waco, Texas reduced their investment in NYSE:DIS by 3,595 shares. The trade had a 0.11% impact on the equity portfolio. During the quarter, the stock traded for an average price of $107.02.
On 10/07/2022, The Walt Disney Co traded for a price of $98.61 per share and a market cap of $182.38Bil. The stock has returned -42.99% over the past year.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10.
In terms of valuation, The Walt Disney Co has a price-earnings ratio of 58.16, a price-book ratio of 1.93, a EV-to-Ebitda ratio of 18.80 and a price-sales ratio of 2.25.
The price-to-GF Value ratio is 0.62, earning the stock a GF Value rank of 8.
Citigroup Inc
Community Bank & Trust, Waco, Texas reduced their investment in NYSE:C by 5,907 shares. The trade had a 0.09% impact on the equity portfolio. During the quarter, the stock traded for an average price of $49.4.
On 10/07/2022, Citigroup Inc traded for a price of $42.74 per share and a market cap of $83.39Bil. The stock has returned -37.72% over the past year.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10.
In terms of valuation, Citigroup Inc has a price-earnings ratio of 5.51, a price-book ratio of 0.46, a price-earnings-to-growth (PEG) ratio of 1.04 and a price-sales ratio of 1.16.
The price-to-GF Value ratio is 0.63, earning the stock a GF Value rank of 10.
Target Corp
During the quarter, Community Bank & Trust, Waco, Texas bought 1,477 shares of NYSE:TGT for a total holding of 13,131. The trade had a 0.08% impact on the equity portfolio. During the quarter, the stock traded for an average price of $160.1.
On 10/07/2022, Target Corp traded for a price of $153.585 per share and a market cap of $71.69Bil. The stock has returned -29.67% over the past year.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10.
In terms of valuation, Target Corp has a price-earnings ratio of 17.70, a price-book ratio of 6.77, a price-earnings-to-growth (PEG) ratio of 1.26, a EV-to-Ebitda ratio of 10.38 and a price-sales ratio of 0.69.
The price-to-GF Value ratio is 0.69, earning the stock a GF Value rank of 10.
Please note, the numbers and facts quoted are as of the writing of this article and may not factor in the latest trading data or company announcements.
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This article is general in nature and does not represent the opinions of GuruFocus or any of its affiliates. This article is not intended to be financial advice, nor does it constitute investment advice or recommendations. It was written without regard to your individual situation or financial goals. We aim to bring you fundamental, data-driven analysis, The information on this site is in no way guaranteed for completeness, accuracy or in any other way. | AAPL |
https://finnhub.io/api/news?id=00ef79b77a0927e8fa23df970e0dbfcfa420b1b86cb6fb2e39887ed97223f630 | Market Rally Roars, 5 Growth Stocks Near Buy Points; Apple, Big Earnings Due | The market rally has stepped up on Fed pivot hopes. Snowflake is among 5 high-growth stocks near buy points. Apple headlines a huge week of upcoming earnings. | 2022-10-21T16:54:13 | Yahoo | Dow Jones Futures Signal Market Rally To Extend Gains; Tesla Cuts Model 3, Y Prices In China
Futures signaled further market rally gains. Snowflake leads 5 growth stocks near buy points. Tesla cut Model 3 and Y prices in China.
Futures signaled further market rally gains. Snowflake leads 5 growth stocks near buy points. Tesla cut Model 3 and Y prices in China. | AAPL |
https://finnhub.io/api/news?id=0f6ca0110e67774d2cf1b7e1ba1d9fa93ffe54c2f2d7283b9e000cac03105be6 | S&P 500 Weekly Earnings Update: Big Week For MegaCap Tech | The top 4 names in the S&P 500 report their calendar Q3 â22 earnings this week, although for Apple itâs their fiscal Q4 â22. | 2022-10-21T15:55:00 | SeekingAlpha | S&P 500 Weekly Earnings Update: Big Week For MegaCap Tech
Summary
- The top 4 names in the S&P 500 report their calendar Q3 ’22 earnings this week, although for Apple it’s their fiscal Q4 ’22.
- The forward 4-quarter estimate slid sequentially again this week to $232.61 from the prior week's $233.02. The forward 4-quarter estimate (FFQE) has now only increased sequentially 3 times in the last 17 weeks.
- The PE ratio is now 16x vs 15.4x last week thanks to the 5% weekly gain for the S&P 500.
The top 4 names in the S&P 500 report their calendar Q3 ’22 earnings this week, although for Apple (AAPL) it’s their fiscal Q4 ’22. These four names comprise about 20% of the S&P 500’s market cap as of the close of trading last night, Thursday, October 20, ’22.
This blog will be out with a preview of all 4 names – probably on Sunday – but here’s the weekly update for S&P 500 EPS numbers, sourced from IBES data by Refinitiv. (Meta (META) reports this week too, although it’s market cap rank has fallen to 15th in the S&P 500 as of last night.)
These three graphs should be interesting to readers since it’s the S&P 500 “net income” and not EPS which leads me to think the Refinitiv title is a little misleading to readers. While it’s horrible nit-picking, “earnings per share” is not net income, although “earnings” is net income.
- The bottom graph is the trend in quarterly net income for Q1 ’22 earnings, as of 4/22/22.
- The middle graph is the trend in quarterly net income for Q2 ’22 earnings, as of 7/22/22.
- The top graph is the trend in quarterly net income for Q3 ’22 earnings as of 10/24/22.
The point being – excluding the impact of fully diluted shares outstanding – readers can see the noticeable slowing in earnings or net income graphically as 2022 has progressed.
As my old boss used to ask, “What’s the point?”
The point is we see a whole lot of net income or earnings this week with Apple, Amazon (AMZN), Microsoft (MSFT) and Alphabet (GOOG) (GOOGL), not to mention Meta reporting their Q3 ’22 calendar results.
Here’s the list of report dates this coming week:
- Tuesday, 10/25: Alphabet and Microsoft (AMC)
- Wednesday, 10/26: Meta (AMC)
- Thursday, 10/27: Apple and Amazon (AMC)
AMC – after market close
S&P 500 data:
- The forward 4-quarter estimate slid sequentially again this week to $232.61 from the prior week's $233.02. The forward 4-quarter estimate (FFQE) has now only increased sequentially 3 times in the last 17 weeks.
- The PE ratio is now 16x vs 15.4x last week thanks to the 5% weekly gain for the S&P 500.
- The S&P 500 earnings yield fell to 6.2% this week from 6.5% last week.
The 10-year Treasury yield increased 20 basis points (bps) this week and 42 bps since 9/30/22 and yet the S&P 500 still has a slight gain in October, month-to-date.
That’s an interesting tell.
Rate of change update:
The interesting thing about this week is that all 3 “rates of change” buckets i.e. sequential, 4-week and 12-week improved this week versus last week, and the energy reports from Friday morning, 10/24, like Schlumberger (SLB) are not yet in the numbers.
Summary/conclusion: The interesting thing about this week’s trade wasn’t just the 5% pop in the S&P 500, but that the S&P 500 is rising in the face of a 20 bp increase in the 10-year Treasury yield and is still up month-to-date after a 42 bp increase in the 10-year Treasury yield. That’s a change in character and investors have to sit up and take note when relationships like that change.
Also, the S&P 500 closed at 3,674 the week of June 17th, 2022, when the S&P 500 printed that June ’22 low of 3,636 (various guests on CNBC keep saying 3,666, which is not right) and this week closed at 3,752.75. The 10-year Treasury yield spiked to 3.50% with the 3,636 low in mid-June ’22, and is now at 4.22% and yet the S&P 500 is flat.
The equity market is either predicting a turn in the inflation stats to reflect lower inflation or more downside is ahead for the S&P 500.
The fact that the S&P 500 looks like it’s been bottoming for 4 months should tell investors which way I’m leaning in terms of “higher” or “lower” stock prices.
Still, a lot depends on how these key earnings reports for what is 20% of the S&P 500 market cap in 5 names turns out. Meta fascinates me in the sense that it’s trading at 5x cash flow (ex balance sheet cash) and 8x free cash flow and yet is still the 15th largest name in the S&P 500 by market cap.
Some select clients have very small positions but it’s now entering “deep value” territory. Who’d have ever thought we’d be talking about Meta at a 2.7x book value valuation.
Has growth become too cheap? Has value become too expensive?
For Q3 ’22 earnings so far, the actual results are better than the poor sentiment we saw approaching earnings (again).
The plan is to write a lot more over the weekend but sometimes life gets in the way.
There is a definite preview of the big tech companies reporting this week coming Saturday or Sunday.
Take everything written here with a healthy dose of skepticism. Past performance is no guarantee of future results and none of this is recommendation to buy, sell or hold anything, although the goal is to give the reader some sense of how I’m approaching certain market themes, which readers are free to follow or not.
IBES data by Refinitiv is the primary data source for S&P 500 earnings while Briefing.com is the primary source of economic data and economic releases. Markets and opinions can change quickly for better or worse and this blog may not be updated.
Thanks for reading. More to come this weekend.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
This article was written by
Comments (13)
Thanks for the article !!!
JC
The stomach - grumbling.
The money system - no longer cheap
The gubmint - dysfunctional and uncaring.
The future - non-existent. My defense stocks have done exceedingly well - LMT, NOC, BAE Systems. The world is going to re-arm majorly in this decade. The walls are coming up and the magazines being loaded.
Maybe cause it's a blog,or maybe not..Have a good one !! | AAPL |
https://finnhub.io/api/news?id=0056606ff03e25e1a2cc7218db28ef457f735df095bb683e26e17f3a8e39d53e | Weekly Roundup | The volatile week ended with a rally that gave most our positions a boost, but we made no new trades and added no new names to the portfolio. | 2022-10-21T15:35:00 | Yahoo | Weekly Roundup
The volatile week ended with a rally that gave most our positions a boost, but we made no new trades and added no new names to the portfolio.
The volatile week ended with a rally that gave most our positions a boost, but we made no new trades and added no new names to the portfolio. | AAPL |
https://finnhub.io/api/news?id=befc9b210fa3158fee826d3273a71a77971a0f9639a8fe08279fce6fc6a6f5a9 | Megacap earnings to test fledgling U.S. stock rebound | Earnings reports from the four biggest U.S. companies by market capitalization in the coming week may test a nascent rally that has seen stocks claw their way back from yet another low. Investors view the growth giants as bellwethers for how corporate America is faring during a year in which inflation has soared, pushing the Federal Reserve to quickly enact a series of jumbo-sized rate hikes that bruised markets and raised fears a recession may be coming. | 2022-10-21T15:06:09 | Yahoo | Megacap earnings to test fledgling U.S. stock rebound
By Lewis Krauskopf
NEW YORK (Reuters) - Earnings reports from the four biggest U.S. companies by market capitalization in the coming week may test a nascent rally that has seen stocks claw their way back from yet another low.
Apple, Microsoft, Google-parent Alphabet and Amazon account for a combined 20% of the weight of the S&P 500 and more than a third of the Nasdaq Composite.
Investors view the growth giants as bellwethers for how corporate America is faring during a year in which inflation has soared, pushing the Federal Reserve to quickly enact a series of jumbo-sized rate hikes that bruised markets and raised fears a recession may be coming.
“If these megacaps can’t do well, then the question is: who can do well?” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. (Graphic: Megacaps market values vs stock market, https://fingfx.thomsonreuters.com/gfx/mkt/zdvxdydxzvx/Pasted%20image%201666369186528.png)
The S&P 500 is up nearly 5% from its Oct 12 closing low for the year after posting its biggest weekly gain since late June. Even with stocks' latest rebound, the index has dropped 21% so far in 2022, on track for its biggest decline since 2008.
Resilient corporate profits have been one bright spot this year, though doubts are growing over how sustainable they will be. With the bulk of S&P 500 companies still to report, third-quarter profits are estimated to have climbed 3.1% versus the year-ago period, which would be the weakest performance in two years, according to Refinitiv IBES, while earnings growth expectations for 2023 have fallen to 7.2% from 7.8% on Oct 1.
Next week's reports from the four megacaps may show whether companies with dominant positions can post solid performance despite worries of a potential economic downturn.
Because of their heavy weightings, "if those stocks don’t get it done, that puts pressure on the indices to continue to go down," said Chuck Carlson, chief executive officer at Horizon Investment Services.
Microsoft and Alphabet are due to report on Tuesday, with Amazon and Apple set for Thursday.
Apple shares are the only ones of the megacaps that have outperformed the broader market this year. Shares of the iPhone maker, which account for a 7% weight in S&P 500, are down about 17% in 2022; Microsoft and Amazon are each off roughly 28%, Alphabet is down 30%. (Graphic: Megacaps vs the U.S. stock market, https://graphics.reuters.com/USA-STOCKS/MEGACAPS/gkvlwmwlepb/chart.png)
Despite those steep losses, investors have maintained exposure to the megacap stocks. Actively managed U.S. mutual and exchange-traded funds held 11.41% of their portfolios in those four stocks combined as of the most recently available data, versus 11.44% at the end of 2021, according to Morningstar Direct.
Investors have been drawn to the large companies broadly because of their financial strength and competitive advantages that, in theory, will drive profits even during uncertain economic times.
Still, only Apple has topped analyst estimates for earnings and revenue in both of their most recent quarterly reports, according to Refinitiv data.
"The bar is higher for Apple because it has outperformed and because you haven’t seen the earnings blink yet,” said Walter Todd, chief investment officer at Greenwood Capital.
Questions loom over the other companies' key market areas, including personal computers for Microsoft, advertising spending for Alphabet and consumer strength for Amazon.
All three rely on cloud computing businesses, which will be in focus next week, according to Charlie Ryan, partner and portfolio manager at Evercore Wealth Management.
“Cloud would be the pillar that one would put their hopes on when they report,” Ryan said. “It has been continued strength for quite some time now and any deviation from that would be a concern.”
Meanwhile, soaring U.S. bond yields are pressuring valuations and complicating the picture for tech and other growth stocks, whose expected future earnings are discounted steeply by higher yields. Yields continued to rise this week, with the yield on the benchmark 10-year Treasury note hitting a fresh 14-year high.
All four stocks command higher valuations than the S&P 500, which trades at nearly 16 times forward earnings estimates. The P/Es for Apple and Microsoft are both about 22 times, Alphabet trades at 17.5 times, while Amazon sits at 60 times, according to Refinitiv Datastream.
“Those stocks have typically sold at earnings multiples that are on the higher side,” said Carlson, of Horizon Investment Services.“How they are going to continue to perform from here gives some insight into what investors are ultimately willing to pay for growth stocks.”
(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and David Gregorio) | AAPL |
https://finnhub.io/api/news?id=e413ee68b4c699272547968db20b91b670d14a7fd3130d57e47aebc547c7c952 | This Hugely Popular 3-in-1 Wireless Fast Charger is on Sale | It's time to cut the cord - this three-in-one charging station is just what you need to declutter your desk and put your electronics in order. | 2022-10-21T14:15:00 | Yahoo | This Hugely Popular 3-in-1 Wireless Fast Charger is on Sale
It's time to cut the cord - this three-in-one charging station is just what you need to declutter your desk and put your electronics in order.
It's time to cut the cord - this three-in-one charging station is just what you need to declutter your desk and put your electronics in order. | AAPL |
https://finnhub.io/api/news?id=57c755d60cd1652556519b4a94845c68694811a845fafdc83279495c83936ad3 | Taylor Swift's Midnights is Here and it Sounds Great on AirPods Pro | Yes, the clock finally struck midnight on Oct. 21 and just like that Taylor's Swift 10th studio album -- Midnights -- landed on streaming platforms everywhere. And for Apple Music fans specifically, it's mixed in Dolby Atmos with the ability to play in Spatial Audio. | 2022-10-21T14:10:00 | Yahoo | Taylor Swift's Midnights is Here and it Sounds Great on AirPods Pro
Yes, the clock finally struck midnight on Oct. 21 and just like that Taylor's Swift 10th studio album -- Midnights -- landed on streaming platforms everywhere. And for Apple Music fans specifically, it's mixed in Dolby Atmos with the ability to play in Spatial Audio. | AAPL |
https://finnhub.io/api/news?id=3265f3d16441418fd25c09301fdb4028c15aafba88ef0f7d3e1793b8ee551b71 | Apple iPhone 14 Pro Sales Seen Boosting September-Quarter Results | Investors will be paying close attention to Apple's September-quarter earnings and guidance amid signs of slowing consumer spending. | 2022-10-21T13:07:27 | Yahoo | Apple iPhone 14 Pro Sales Seen Boosting September-Quarter Results
Investors will be paying close attention to Apple's September-quarter earnings and guidance amid signs of slowing consumer spending.
Investors will be paying close attention to Apple's September-quarter earnings and guidance amid signs of slowing consumer spending. | AAPL |
https://finnhub.io/api/news?id=01d0f9073f220cef534b0ac2480aa226d8ccfbdfc8f9472e0b75b4a3064b8f52 | Apple Loses Crucial Design Chief, Casting Concerns Over Its AR, VR, Electric Car Prospects | Apple Inc’s (NASDAQ: AAPL) head of hardware design, Evans Hankey, will depart three years after taking the job, Bloomberg reported. Hankey will remain at Apple for the next six months while the company is yet to name her successor. One possible candidate to assume leadership is Richard Howarth, 9 To 5 Mac reports. Howarth briefly had the role of industrial design VP from 2015-2017, at the same time as when Jony Ive was ‘promoted’ to Chief Design Officer. Hankey was named to the post in 2019 to r | 2022-10-21T12:38:44 | Yahoo | Apple Loses Crucial Design Chief, Casting Concerns Over Its AR, VR, Electric Car Prospects
Apple Inc’s (NASDAQ: AAPL) head of hardware design, Evans Hankey, will depart three years after taking the job, Bloomberg reported.
Hankey will remain at Apple for the next six months while the company is yet to name her successor. One possible candidate to assume leadership is Richard Howarth, 9 To 5 Mac reports.
Howarth briefly had the role of industrial design VP from 2015-2017, at the same time as when Jony Ive was ‘promoted’ to Chief Design Officer.
Hankey was named to the post in 2019 to replace Jony Ive, the company’s iconic design chief for two decades.
Before taking her current role as VP of industrial design, Hankey spent several years at Apple reporting to Ive. Since then, she has reported to COO Jeff Williams.
Her pending exit marks the first time Apple will be without a de facto design chief since co-founder Steve Jobs retook control of the company in the late 1990s and appointed Ive to the job.
Many of CEO Tim Cook’s critics have remarked that he has repeatedly put operations executives in charge of critical decisions, thereby diminishing the contributions of the design group.
Apple worked on critical new devices, including a mixed-reality headset for next year and augmented reality glasses. There’s also the possibility of an electric car.
Price Action: AAPL shares traded higher by 2.93% at $147.61 on the last check Friday.
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© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved. | AAPL |
https://finnhub.io/api/news?id=7add049369939f7e421af823b9255a4157d6168c1546ebb1478370e2a3fffc2f | Apple starts selling smart locks for homes that are compatible with personal devices | Yahoo Finance Live checks out Apple's venture into the home security industry as the iPhone developer begins selling smart locks for homes. | 2022-10-21T12:32:37 | Yahoo | Apple starts selling smart locks for homes that are compatible with personal devices
Yahoo Finance Live checks out Apple's venture into the home security industry as the iPhone developer begins selling smart locks for homes.
Video Transcript
DAVE BRIGGS: Apple is opening doors to how your phone can be used to get in your home literally. The tech giant has teamed up with Level on a door lock that uses Apple Home Key. You just tap your iPhone or Apple Watch against the lock to lock or unlock it. You can also text keys to people that you want to let into your home when you're not there. The $329 Level Lock+ is the first home key supported lock that's being sold in Apple stores.
Apple shares currently trading up, just over 2%. As fantastic as this is in terms of a luxury, it is a little bit terrifying. I know real estate agents already have something similar, but just being able to-- the fear of someone be able to hack your phone and get in your home terrifies me a bit.
SEANA SMITH: Or if you lose your phone and it's not locked--
DAVE BRIGGS: Or if you lose your phone.
SEANA SMITH: --then, of course, there's a security risk there. As someone who routinely locks herself out and always forgets the keys, I am a big proponent of this. And I think it sounds like a great idea. I do, though--
DAVE BRIGGS: You don't have any fear?
SEANA SMITH: There are some fears out there. I think I need to learn a little bit more exactly about what happens if you do lose your phone, how long that key stays active if you were to send it to somebody so they could access your house, whether it's like a five-minute thing or--
DAVE BRIGGS: It's inevitable.
SEANA SMITH: --an hour thing.
DAVE BRIGGS: This is the future.
SEANA SMITH: It is, yeah.
DAVE BRIGGS: It's real scary.
SEANA SMITH: I'm excited about it. | AAPL |
https://finnhub.io/api/news?id=409709dbc41f55cd376591482e7d5c3aff02eeb2b8a5372915072915780553a1 | AT&T CFO: Phone bill delinquency rates ‘slightly worse than pre-pandemic norms’ | Subscribers are taking longer to pay their bills and AT&T executives are monitoring delinquencies to understand if this is the behavior of a consumer bracing for an economic downturn. | 2022-10-21T12:02:04 | Yahoo | AT&T CFO: Phone bill delinquency rates ‘slightly worse than pre-pandemic norms’
As investors brace for a potential economic downturn, AT&T (T) is monitoring one barometer of consumer health: whether subscribers are able to pay their phone bills on time.
"In terms of overall delinquencies, and I’ve been saying this since the spring, we are probably slightly worse than pre-pandemic norms," AT&T Chief Financial Officer Pascal Desroches told Yahoo Finance Live (video above). "But all in all, really strong fundamentals."
The CFO expressed confidence in the company's ability to offset any impact on its business stemming from rising delinquencies or subscribers "trading down" their service. Even if consumers decide to cut some spending in a more challenging economic climate, Desroches noted they probably won’t cut out their phones.
"When you look back at history, even in downturns the telecommunications sector tends to be more resilient than most," Desroches said. "Clearly, we would be impacted like others but not nearly to the same extent. Right now when you look at the criticality of telecommunications — whether wireless or broadband — that’s one of the last things the consumer would turn off even in a challenging economic environment."
During its fiscal third quarter, AT&T added 708,000 postpaid phone subscribers and an average revenue per user (ARPU) of $55.67, which represents growth of 2.4% versus the same quarter the year prior.
According to Desroches, that growth has been partly driven by consumer resiliency, particularly among more affluent households.
"More consumers are opting for the higher priced plan, and that’s part of what’s driving the growth in our ARPU that we reported," the CFO said.
Telecommunications companies like AT&T are also watching other factors critical to growth, such as device upgrade cycles and network reliability.
As it relates to smartphone sales, tech behemoth Apple (AAPL) has reportedly already adjusted its forecast for iPhone demand and rolled back production on its iPhone 14 Plus. The decision from one of the world's largest smartphone manufacturers cast a spotlight on a potentially weak upgrade cycle.
Still, Desroches remained optimistic about the outlook for AT&T into 2023.
"Our business has a history of performing well even in challenging economic times, and we don’t expect this time to be any different," Desroches said.
Brad Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.
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Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube | AAPL |
https://finnhub.io/api/news?id=8cc1e229cae3b14139851480e0215191fb187253cddc2f1158e12776716d7cd4 | Stock-market investors brace for busiest week of earnings season. Here's how it stacks up so far. | Stocks ended the first full week of earnings season on a strong note Friday. It gets more hectic next week, with 165 S&P 500 companies due to report results. | 2022-10-21T11:15:00 | MarketWatch | So far, so good?
Stocks ended the first full week of the earnings season on a strong note Friday, pushing the Dow Jones Industrial Average
DJIA,
The bar for earnings was set high last year as the global economy reopened from its pandemic-induced state. “Fast forward to this year, and earnings are facing tougher comparisons on a year-over-year basis. Add in the elevated risk of a recession, still hot inflation, and an aggressive Fed tightening cycle, and it is of little surprise that the sentiment surrounding the current 3Q22 earnings season is cautious,” said Larry Adam, chief investment officer for the private client group at Raymond James, in a Friday note.
“We have reason to believe the 3Q22 earnings season will be better than feared and could become a positive catalyst for equities just as the 2Q22 results were,” he wrote.
Read: Stocks are attempting a bounce as earnings season begins. Here’s what it will take for the gains to stick.
Better-than-feared earnings were credited with helping to fuel a stock-market rally from late June to early August, with equities bouncing back sharply from what were then 2020 lows before succumbing to fresh rounds of selling that, by the end of September, took the S&P 500 to its lowest close since November 2020.
The past week saw the number of S&P 500 companies reporting positive earnings surprises and the magnitude of these earnings surprises increase, noted John Butters, senior earnings analyst at FactSet, in a Friday note.
But the data doesn’t give bulls that much to work with. Even with that improvement, earnings beats are still running below long-term averages.
Through Friday, 20% of the companies in the S&P 500 had reported third-quarter results. Of these companies, 72% reported actual earnings per share, or EPS, above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%, Butters said. In aggregate, companies are reporting earnings that are 2.3% above estimates, which is below the 5-year average of 8.7% and below the 10-year average of 6.5%.
Meanwhile, the blended-earnings growth rate, which combines actual results for companies that have reported with estimated results for companies that have yet to report, rose to 1.5% compared with 1.3% at the end of last week, but it was still below the estimated earnings growth rate at the end of the quarter at 2.8%, he said. And both the number and magnitude of positive earnings surprises are below their 5-year and 10-year averages. On a year-over-year basis, the S&P 500 is reporting its lowest earnings growth since the third quarter of 2020, according to Butters.
The blended-revenue growth rate for the third quarter was 8.5%, compared with a revenue growth rate of 8.4% last week and a revenue growth rate of 8.7% at the end of the third quarter.
Next week’s lineup accounts for over 30% of the S&P 500’s market capitalization, Adam said. And with the tech sector accounting for around 20% of the index’s earnings, reports from Facebook parent Meta Platforms Inc.
META,
Earnings Watch: Big Tech has been an earnings refuge for years, but safety is no longer a sure thing
- Check out: Apple earnings: What do the iPhone production reports really mean?
- Amazon earnings: ‘The good news is the consumer is still spending. The bad news is they’re not spending on e-commerce.’
- Microsoft earnings on deck amid layoffs, recession fears: What to expect
- Early chip earnings provided a sigh of relief, but two more big tests are coming
Away from the backward-looking numbers, guidance from executives on the path ahead will be crucial against a backdrop of recession fears, Adam wrote, noting that so far guidance has remained resilient, with the net percentage of companies raising rather than lowering their outlook remaining positive.
“For example, the ‘Summer of Revenge Travel’ was known to benefit the airlines, but commentary from United
UAL,
The soaring U.S. dollar
DXY,
See: How the strong dollar can affect your financial health
“While the degree of the impact depends on the blend of costs versus sales overseas and how much of the currency risk is hedged, a stronger dollar typically impairs earnings,” Adam wrote. | AAPL |
https://finnhub.io/api/news?id=7fbc7ce17a54fa1c9489e664787813fd1af2d05ffcce1898b83613b168029626 | Tesla Stock Could Rebound in 3 Months. Here’s What it Would Take. | Tesla’s stock has been in a tailspin. But if the electric-vehicle maker is able to navigate a few bumpy months, it will be a signal that it’s headed in the... | 2022-10-21T11:13:00 | MarketWatch | Elon Musk says that Tesla could someday be worth more than Apple and Saudi Aramco, combined. First, it needs to get through the next few months.
Before Tesla (ticker: TSLA) reported third-quarter earnings this past week, investors had been hoping they would allay concerns that had been growing since the company released second-quarter numbers three months earlier. They did no such thing. While earnings topped expectations, third-quarter deliveries, sales, and profit margins all fell short of Street projections. Tesla shares slumped 6.7% following the release, putting them down 22% since the end of September, their second-worst start to a quarter since the first few weeks of 2016.
But for all the bad news, Tesla sees massive growth in 2023, as new plants in Germany and Texas continue ramping up. Tesla’s long-term bets on batteries and new vehicles should also help it lower costs and boost sales, though it remains to be seen whether growth comes at the expense of profits.
What’s more, Tesla still plans to deliver at least 450,000 vehicles during the fourth quarter, a massive number that, if achieved, would likely make the concerns disappear. While giving up on Tesla, or at least its stock, might strike some investors as the path of least resistance, giving the shares another three months seems to be the smart thing to do.
The nervousness pervading Wall Street about Tesla is palpable. Since the electric-vehicle maker reported, the average analyst’s price target on its stock has slid more than 4%, to $287. Among the most pressing concerns: Gross automotive profits per car, excluding regulatory credits, have fallen from a record $15,700 in the first quarter to $14,700 in the second and $14,300 in the third from an average car price of $54,000.
Arresting that profit decline is important, but Tesla also wants to hit its goal of 50% average volume growth in 2024, and that likely means a new manufacturing plant and introducing a lower-priced model to expand its market and fend off growing EV competition. The worry is that Tesla might end up looking more like Toyota (TM), which earns about $4,400 selling cars that average about $30,000 each, than the highly profitable company it is now. “The margin compression story is a worry and feeds into the bear thesis on Tesla,” says Wedbush analyst Dan Ives, who has an Outperform rating on the stock.
New vehicles, however, are the future of Tesla. On the company’s conference call, CEO Elon Musk said that a vehicle platform supporting a $30,000 compact EV is now the primary focus of his development team. That’s for good reason—more than half of the cars sold in the U.S., excluding trucks, sell for under $36,000. “The new Tesla $30,000 compact is a big deal that investors may be missing,” says Future Fund Active ETF co-founder Gary Black. “It dramatically expands Tesla’s addressable market.”
Also broadening that market, to a much lesser extent, is the much-delayed Cybertruck, set to hit roads in 2023—some 3.5 years after it was launched. It will have an estimated base price of $40,000 to $70,000, depending on configuration.
Other Tesla businesses are expanding, as well. Tesla’s energy-storage deployments hit 2,100 megawatt hours in the third quarter, up from 1,295 in the third quarter of 2021. And Tesla said it has tripled production of its larger-size battery cells, dubbed 4680s, though the introduction of those is still behind schedule. Significant 4680 output “was not as far off as I feared,” says Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, who notes that these batteries will help drive down product costs and improve vehicle performance.
Most important, while Tesla acknowledged that it won’t be able to deliver the 500,000 vehicles during the fourth quarter needed to hit 50% growth in 2022, guidance from CFO Zachary Kirkhorn implies that its fourth-quarter deliveries should top at least 450,000. That exceeds Wall Street projections and would be a quarterly record by some 100,000 units.
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A number in that range would make 50% volume growth in 2023 look feasible. It would also signal that margins are set to improve because efficiency and production speeds in Texas and Germany are rising, boosting the potential profit on each vehicle produced. “Short term, investors may focus on [margins] and demand being a little harder,” wrote RBC analyst Joseph Spak in a report following earnings. “However, midterm, we aren’t too worried about demand [and] see [a] path back to 30% [gross margin].”
But first, Tesla has to get through the next week. Musk is likely to complete his purchase of Twitter (TWTR) before Oct. 28—if the U.S. government doesn’t block the deal—for $54.20 a share, something that would necessitate his selling $5 billion to $10 billion in Tesla stock to help fund the purchase.
Investors don’t want to buy Tesla shares ahead of the large sale, which perhaps explains some of the stock’s recent weakness. With the deal set to close, Musk’s sales should be done soon. If the stock fails to hold around $200 through that sale, the downside risk is immense, says 22V managing director John Roque. “A break of $200 will suggest risk to $100,” he says.
In all, a lot will be clearer in three months. If Tesla pulls through, that could be a good time for investors to pounce.
Write to Al Root at [email protected] | AAPL |
https://finnhub.io/api/news?id=b936f05f8c72cd7a5972b6151280735fa763365585040cb9d93b324814571e62 | The 2021 Apple TV 4K Just Hit It's Lowest Price Ever on Amazon | While Apple did unveil the third-generation Apple TV 4K on Oct. 18 and it did bring the price down to just $129, Amazon is offering an even better deal. The previous-generation Apple TV 4K is down to just $99.99 and that is the lowest price we've ever seen. This generation of the Apple TV 4K came out in 2021 and in many ways is still very up to snuff. | 2022-10-21T10:55:00 | Yahoo | The 2021 Apple TV 4K Just Hit It's Lowest Price Ever on Amazon
While Apple did unveil the third-generation Apple TV 4K on Oct. 18 and it did bring the price down to just $129, Amazon is offering an even better deal. The previous-generation Apple TV 4K is down to just $99.99 and that is the lowest price we've ever seen. This generation of the Apple TV 4K came out in 2021 and in many ways is still very up to snuff. | AAPL |
https://finnhub.io/api/news?id=c2b02d48c21e11a43af26d3f30cfaa50ccaab392255bbfac62e662183e734fbd | The real trade war with China has begun | A new embargo on advanced semiconductor sales is the most aggressive move yet by any US president against China. | 2022-10-21T10:37:31 | Yahoo | The real trade war with China has begun
Former President Trump launched a “trade war” with China in 2018 that mostly produced a series of economic skirmishes and logistical workarounds. Trade between the two nations continued, with some collateral damage where Trump lobbed a tariff, or China lobbed back retaliatory measures.
With far less fanfare, the Biden administration has launched a new broadside against China that could do far more damage to its economy than anything Trump contemplated, and trigger unprecedented retaliation by China. On Oct. 7, the Biden administration surprised the world with new export controls that effectively prohibit the sale of advanced American computer chips and chipmaking technology to China. While several nations make advanced chips, much of the technology behind that production is American, which means the Biden ban will impede China’s ability to develop artificial intelligence, supercomputers, advanced weaponry and other crown jewels of the modern digital economy.
“These new controls [are] a genuine landmark in US-China relations,” Gregory Allen of the Center for Strategic and International Studies wrote in a recent analysis of the new rules. “These actions demonstrate an unprecedented degree of US government intervention to begin a new US policy of actively strangling large segments of the Chinese technology industry—strangling with an intent to kill.”
Until now, Biden’s China policy had been fuzzy. He kept in place the Trump tariffs on some $350 billion worth of Chinese imports, without saying whether he might review them as part of a broader strategy or continue Trump’s piecemeal approach to China. What’s clear now is that Biden plans to treat China as more of a military and economic threat than any of his predecessors. Some economic ties will undoubtedly continue, but the US government is now practicing a kind of economic containment strategy—subordinating trade and commerce to national security for the first time since China joined the World Trade Organization in 2001 and became the “world’s factory.”
The growing risks China poses
US relations with China have been fraying since the Obama administration, as China developed an aggressive program of stealing Western technology, using government subsidies to grab market share in key global industries, and building a muscular military able to enforce China’s communist ideology in Asia and beyond. At the same time, it became apparent that the mass movement of factory work to China had hollowed out America’s blue-collar labor force, with little or nothing to replace millions of lost jobs.
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Trump focused mostly on the US trade deficit with China, which economists broadly regard as a misdirected way to address the growing risk China poses. The Trump tariffs were supposed to stimulate new American manufacturing, by raising the cost of Chinese imports and making US production more competitive. But there’s been no meaningful change in US industrial production since the Trump tariffs went into effect. There has been one other notable change, however: Many imports of tariffed goods from China have been replaced with imports of non-tariffed goods from other countries, as Chad Bown of the Peterson Institute for International Studies has demonstrated. That’s just a shuffling of import flows, which doesn’t do anything to boost the US economy or create American jobs.
In the aftermath of the 2020 COVID pandemic, which revealed an alarming US over-dependence on imported goods from China and elsewhere, Biden vowed to strengthen domestic supply chains for critical products and technologies. The Inflation Reduction Act, for instance, incudes high domestic content requirement for electric vehicles in order to qualify for federal subsidies. It also includes powerful incentives for the domestic development of critical minerals such as lithium, cobalt and nickel.
The CHIPs+ Act, which Congress passed in July, was an unusual bipartisan effort to boost US production of semiconductors. Most Republicans and some Democrats normally oppose such “industrial policy,” deeming it better for private-market incentives to determine who builds what where. But there’s a growing consensus on the need to combat government support for key industries in China and even some democratic nations with similar programs here at home.
In September, National Security Adviser Jake Sullivan gave a speech in which he signaled a change in long-standing US policy on technology exports. “We have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies,” he said. “Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.”
Sullivan’s remarks got tech companies’ attention, but nobody was sure what he meant, exactly, until the government announced the new export controls on Oct. 7. Gregory Allen of CSIS detects four main thrusts to the new Biden policy, which broadly seeks to disrupt China’s artificial-intelligence industry: denying access to advanced chips, the software used to design those chips, the equipment used to produce those chips, and the components that go into the production equipment. There's also a restriction on "US persons" working with Chinese companies—as vendors or consultants, say—in the targeted industries.
“In summary,” Allen concludes, “the United States does not want China to have advanced AI computing and supercomputing facilities. In weaponizing its dominant chokepoint position in the global semiconductor value chain, the United States is exercising technological and geopolitical power on an incredible scale.”
'Something significant will happen in terms of retaliation'
The effect has been immediate. US chip suppliers such as Intel (INTC), Nvidia (NVDA), AMD (AMD), KLA (KLAC), Applied Materials (AMAT) and LAM Research (LRCX) have halted deliveries to China as they figure out what’s allowed under the new rules and what’s not. Apple (AAPL) has dropped a plan to use chips made by Chinese firm YMTC in upcoming iPhones, according to Nikkei Asia. Tech giants based in other countries, such as Taiwan’s TSMC, are likely to be affected as well, given close ties with US industry. Tech stocks, which have had a bad year, sold off further after the Oct. 7 announcement.
China will likely respond. “I’m assuming something significant will happen in terms of retaliation, because the impact of this rule is quite significant,” Kevin Wolf, former Assistant Commerce Secretary for Export Administration, said on a recent podcast. China could block US imports of critical minerals from China or punish US companies doing business in China, which would be muscular forms of escalation. It could also target US allies that must comply with some elements of the new US rule, including South Korea, Japan and Taiwan. Chinese President Xi Jinping will likely cite the move as evidence of America's effort to keep China down, perhaps fueling nationalistic sentiment.
There are risks to this economic containment effort. There will still be openings for firms from other nations to fill the gap with their own chip technology, for instance. American officials say they’ll spend the next year or two trying to get allies to join the Chinese chip embargo, but some nations could see it as a chance to turbocharge the development of their own chip industries. China could also defy expectations and make more technological progress on their own than expected.
Politically, however, the new Biden restrictions seem likely to stick, no matter which party wins the White House in 2024. China’s militant capitalism and hostility toward Taiwan and other neighbors have left it with few friends in Washington, and no “soft on China” wing in either party willing to advocate moderation. As Biden has kept Trump’s tariffs in place, the next president will probably cement Biden’s chip embargo, and perhaps look for other ways to tighten the screws on China.
Trade wars aren’t good, but some may be necessary.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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https://finnhub.io/api/news?id=2c1eb3878c1cde082dd6b27fe8c83bbd1759a353ca60e0f1ff9564caa7a4bbf5 | Snap ‘may have to go deeper’ in laying off workers, analyst warns | Snap may have to cut more employees after the latest stock rout, warns one analyst. | 2022-10-21T09:47:04 | Yahoo | Snap ‘may have to go deeper’ in laying off workers, analyst warns
Snap (SNAP) may have to cut even more employees than it previously thought given the sharper-than-expected slowdown in business in the third quarter, one longtime tech analyst warned.
"Yes, I mean they do [have to cut expenses more]," Jefferies Analyst Brent Thill said on Yahoo Finance Live (video above). "They just restructured the company. They obviously are in the process of still reducing the workforce by 20%. They may have to go deeper."
Snap stock crashed more than 24% on Friday morning after the social media platform reported that third-quarter sales decelerated for the fifth-straight quarter. Shares of the company topped Yahoo Finance's 'Trending Ticker' page throughout the session.
In late August, Snap announced it would cut 20% of its workforce, or around 1,300 employees.
Despite the recent round of mass layoffs, profits in the third quarter were lackluster as Snap continued to blame an advertising slowdown and Apple's (AAPL) privacy changes for its missteps in execution. The company also warned that sales trends in the fourth quarter would get worse.
Here's a snapshot of Snap's challenging quarter:
Net Sales: $1.13 billion vs. $1.14 billion estimated
Daily Active Users: 363 million vs. 358 million estimated
Average Revenue Per User: $3.11 vs. $3.17 estimated
Adjusted EPS: $0.08 vs. estimated loss of $0.02
Guidance: "Flat" revenue growth seen in the fourth quarter
Meanwhile, other Wall Street analysts echoed Thill's concerns on the medium-term outlook for Snap.
"With limited visibility around a potential rebound in advertising growth (despite compares easing) given (1) the softening macro backdrop, (2) growing competition for experimental budgets (particularly from TikTok), (3) engagement shifts away from high-monetizing Stories, (4) user growth that is increasingly skewed towards lower-monetizing regions, and (5) time spent on content in the U.S. declining, we struggle to identify a clear and sustainable inflection point to the upside," Deutsche Bank analyst Benjamin Black wrote in a note to clients.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube | AAPL |
https://finnhub.io/api/news?id=adcde032de33dae854027512b32c92a2772720469b009913fb2f10b66d4a0999 | Apple Inc. stock outperforms market on strong trading day | Shares of Apple Inc. rose 2.71% to $147.27 Friday, on what proved to be an all-around favorable trading session for the stock market, with the NASDAQ... | 2022-10-21T09:31:00 | MarketWatch | Shares of Apple Inc.
AAPL,
-0.28%
rose 2.71% to $147.27 Friday, on what proved to be an all-around favorable trading session for the stock market, with the NASDAQ Composite Index
COMP,
+0.55%
rising 2.31% to 10,859.72 and the Dow Jones Industrial Average
DJIA,
+0.93%
rising 2.47% to 31,082.56. Apple Inc. closed $35.67 short of its 52-week high ($182.94), which the company reached on January 4th.
The stock outperformed some of its competitors Friday, as Microsoft Corp.
MSFT,
+0.19%
rose 2.53% to $242.12, Alphabet Inc. Cl A
GOOGL,
+0.59%
rose 1.16% to $101.13, and International Business Machines Corp.
IBM,
+1.16%
rose 1.25% to $129.90. Trading volume (85.6 M) eclipsed its 50-day average volume of 85.0 M. | AAPL |
https://finnhub.io/api/news?id=e262d251090822ca1cfecd8e28d4e4c82d445d553095039f8c89107654544002 | Why Snap Stock Got Crushed Early Friday | The catalyst that sent the social media company plummeting was disappointing results caused by a slump in its ad tech business. Management preferred to focus on the silver lining of its cloudy results, reporting that its daily active users (DAUs) of 363 million climbed 19% year over year. Snap also announced that its board of directors had authorized a buyback program, with plans to repurchase as much as $500 million of its stock over the coming 12 months. | 2022-10-21T09:15:54 | Yahoo | Why Snap Stock Got Crushed Early Friday
The catalyst that sent the social media company plummeting was disappointing results caused by a slump in its ad tech business. Management preferred to focus on the silver lining of its cloudy results, reporting that its daily active users (DAUs) of 363 million climbed 19% year over year. Snap also announced that its board of directors had authorized a buyback program, with plans to repurchase as much as $500 million of its stock over the coming 12 months. | AAPL |
https://finnhub.io/api/news?id=941a966dc2d23c2873f6203cf2003377d63195f7fb2d8805b134a76601e6d210 | Stock Market Today: Dow in Best Week Since June as Hopes on Slowing Hikes Emerge | By Yasin Ebrahim | 2022-10-21T09:14:07 | Yahoo | Stock Market Today: Dow in Best Week Since June as Hopes on Slowing Hikes Emerge
By Yasin Ebrahim
Investing.com -- The Dow rallied Friday, to close out its best week since June as hopes that the Federal Reserve could slow the pace of rate hikes helped cool the surge in Treasury yields and bolstered growth sectors of the market including tech.
The Dow Jones Industrial Average gained 2.5% or 748 points, the Nasdaq was up 2.31%, and the S&P 500 rose 2%.
Growth sectors of the market rebounded following a slump a day earlier as Treasury yields eased from session highs on bets that the Fed may consider slowing the pace of rate hikes.
“[I]nvestors are now considering a December hike of 50-75 bps,” Janney Montgomery Scott said. “Prior to today, sentiment was closer to a 75-100bps potential hike at the next meeting. This recalibration of expectations is what’s helping stocks today.”
Apple (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) rose, with the latter up more than 2% ahead of earnings from big tech next week.
Microsoft’s cloud business Azure is likely to take on added investor attention amid concerns the weakening macroeconomic backdrop is weighing on global enterprise and cloud spending.
Snapchat parent company Snap (NYSE:SNAP), however, slumped 28% after the social media company reported quarterly results that missed on the bottom line and withdrew fourth quarter guidance amid slowing advertising spend.
Snap is likely to be “range bound" amid ongoing macro headwinds, Goldman Sachs said in a note.
Other social media stocks fell sharply, with Twitter (NYSE:TWTR), Pinterest (NYSE:PINS) and Meta Platforms (NASDAQ:META) in the red.
Consumer discretionary stocks were driven higher by a rise in Amazon (NASDAQ:AMZN) and a rebound in Tesla Inc (NASDAQ:TSLA) following a slump a day earlier.
Tesla’s rebound comes even as concerns mount that chief executive officer Elon Musk may be forced to sell more shares to fund the deal to buy Twitter.
Musk may need to sell an additional “$5 billion to $10 billion of Tesla stock” should financing talks fall through this week, Wedbush said in a note on Friday.
Energy was also among the biggest sector gainers, led by a more than 10% rise in Schlumberger NV (NYSE:SLB) after the oil field services firm reported better-than-expected quarterly results.
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Stock Market Today: Dow in Best Week Since June as Hopes on Slowing Hikes Emerge
Today's Most Important Initiations | AAPL |
https://finnhub.io/api/news?id=274ea140cf22def3d28b7220dd80a0b128c90940503d6023f9ff3b8ae5d9d67f | Merck Stock In Bullish Setup Ahead Of Q3 Results; Apple Leads FAANG Earnings Barrage | Merck stock has been showing relative strength ahead of its Q3 earnings report. Results are due Oct. 27 before the opening bell. | 2022-10-21T08:12:12 | Yahoo | Merck Stock In Bullish Setup Ahead Of Q3 Results; Apple Leads FAANG Earnings Barrage
Merck stock has been showing relative strength ahead of its Q3 earnings report. Results are due Oct. 27 before the opening bell.
Merck stock has been showing relative strength ahead of its Q3 earnings report. Results are due Oct. 27 before the opening bell. | AAPL |
https://finnhub.io/api/news?id=1552f12eba9e08a4a3d600db241270db5eb203b3c025a3d389afc635b7397df1 | Apple's design chief is leaving company three years after replacing Jony Ive | Apple Inc.’s head of industrial design is leaving the company, marking another significant loss in the department responsible for the iconic look and feel of... | 2022-10-21T09:00:00 | MarketWatch | Apple Inc.’s head of industrial design is leaving the company, marking another significant loss in the department responsible for the iconic look and feel of its iPhones, Macs and other popular consumer products.
Evans Hankey joined Apple
AAPL,
An Apple spokesman said the company is well equipped to continue onward without Hankey, who will temporarily stick around as it works through the change in leadership.
“The senior design team has strong leaders with decades of experience,” the spokesman said. Bloomberg earlier reported the news of Hankey’s departure.
See also: Apple earnings: What do the iPhone production reports really mean?
An expanded version of this report appears at WSJ.com.
Top stories from WSJ.com
Fed Set to Raise Rates by 0.75 Point and Debate Size of Future Hikes
IRS to Make Largest Increase Ever to 401(k) Contribution Limit | AAPL |
https://finnhub.io/api/news?id=d07c691743650197999da1c2bef3015af0e6c1968375befe6e3477f7544da2aa | The Dow Is Having a Great Month, the Nasdaq Is Having a Good One. What History Says Happens Next. | The Nasdaq has been hammered by some of its biggest tech stocks, drawing comparisons to the dot-com bubble and bust. The problem: Big Tech is still pricey. | 2022-10-28T13:48:00 | MarketWatch | There’s nothing worse than kicking someone when they’re down—but sometimes it needs to be done. That’s the case with the Nasdaq Composite, which is on pace to lag behind the Dow Jones Industrial Average in October by the most in any one month since 2002, and could keep bringing up the rear.
There’s no denying that the stock market did very well last week. The Dow gained 5.7%, while the S&P 500 rose 4%, and the Nasdaq advanced 2.2%. It was the Dow’s fourth consecutive week of gains.
And what a four weeks it has been. The Dow has jumped 14% in October and is on pace for its best month since January 1976, when the blue-chip benchmark surged 14.4%. The other indexes have fallen short of those gains: The Russell 2000 climbed 11%, the S&P 500 gained 8%, and the Nasdaq Composite rose a paltry 3.9%. Monday’s drop—the Dow declined 0.4%, while the S&P 500 fell 0.8%, and the Nasdaq dropped 0.1%--only made the gap wider.
That kind of outperformance by the Dow against the Nasdaq doesn’t happen very often. The Dow has outperformed the Nasdaq by more than nine percentage points this month, the most since February 2002, when it outperformed by 12.35 percentage points, and the seventh-largest monthly gap in 45 years. Monday’s losses—the Dow is off
Blame the Nasdaq’s underperformance on its biggest stocks. This past week saw Meta Platforms (ticker: META) shed 24% of its value, while Alphabet (GOOGL) dropped 4.8%, Amazon.com (AMZN) fell 13%, and Microsoft (MSFT) slid 2.6%, all after reporting earnings. Only Apple (AAPL), which rose 5.8% after reporting its results, finished the week higher, though it is down 1.1% on Monday.
“This really is the first time in 20 years that investors in technology have had their assumptions of effortless outperformance challenged to this degree,” writes Michael Shaoul, CEO of Marketfield Asset Management.
History suggests that the Nasdaq’s underperformance can continue. The Dow beat the Nasdaq by at least seven percentage points in 1978, 1980, and 1992, but most months of Dow dominance came during the popping of the dot-com bubble—a total of 12 from 1999 through 2002. Following one-offs in 1978, 1980, and 1992, the S&P 500 went on to rally by an average of 9.5% over the next six months. During the dot-com bust, the S&P 500 averaged a 9.9% decline following a month of Dow dominance.
The truth may be somewhere in between. Marta Norton, chief investment officer for the Americas at Morningstar Investment Management, says euphoria around tech resembles the dot-com boom, but just the fact that we call it Big Tech suggests a major difference in quality between now and then. Unfortunately, many of these stocks still look expensive. “We want to buy them,” Norton says. “But we want to buy them when they’re cheap, and not before then.”
Write to Ben Levisohn at [email protected] | AAPL |
https://finnhub.io/api/news?id=d741aae59f2dc59ce7a39a518506e8d126ff5daf79e80078b21230969e199747 | Blue Chip Stocks To Invest In Right Now? 2 In Focus | Is now the right time to add these blue chip stocks to your watchlist? | 2022-10-28T10:07:00 | StockMarket | Blue chip stocks are a type of investment that refers to stocks that are from large and well-established companies. These companies have a history of riding out market fluctuations and maintaining steady growth. As a result, blue chip stocks are often considered to be a safer investment than stocks from smaller or less established companies.
For example, some of the most well-known blue chip stocks include Apple (NASDAQ: AAPL), Coca-Cola (NYSE: KO), and IBM (NYSE: IBM). While there is no guarantee that any stock will always maintain its value, blue chip stocks tend to be more stable than other types of investments. As a result, they can be a good choice for investors who are looking for long-term growth. Considering this, here are two trending blue chip stocks to watch in the stock market today.
Blue Chip Stocks To Watch Now
1. Nike (NKE Stock)
Nike Inc. (NKE) is one of the most well-known sports brands in the world. In brief, Nike designs develop, and manufacture a wide range of sports equipment, including shoes, shirts, balls, and more. Nike also sponsors many professional athletes, including some of the biggest names in basketball, football, and other sports.
NKE Recent Stock News
Late last month, Nike announced its Q1 2023 financial results. Diving in, the company posted 1st quarter 2023 earnings of $0.93 per share, and revenue of $12.7 billion. This is compared with analysts’ consensus earnings estimate of $0.91 per share along with revenue of $12.3 billion for the first quarter of 2023. What’s more, the company reported a 3.6% increase in revenue on a year-over-year basis.
Meanwhile, during Nike’s conference call, the company said they now project fiscal 2023 revenue of approximately $47.18 billion to $49.75 billion. For contest, this is a lower outlook than what Nike previously announced for full-year 2023 revenue of approximately $51.38 billion.
John Donahoe, President and CEO, NIKE, Inc. “Our competitive advantages, including the strength of our brand, deep consumer connections and pipeline of innovative product, continue to prove that our strategy is working. We expect our unrelenting focus on better serving the consumer to continue to fuel growth and create value like only NIKE can.“
NKE Stock Chart
On Friday afternoon, shares of Nike stock are trading up by 2.56% at $92.85 per share.
[Read More] 3 Cyber Security Stocks For Your Late-October 2022 Watchlist
2. Target Corporation (TGT Stock)
Target Corporation (TGT) is an American retail giant that offers a wide range of products, from groceries to clothing to electronics. Moreover, Target is known for its competitive prices, and its slogan “Expect More. Pay Less.” is often used to attract shoppers. Target operates more than 1,800 stores across the United States, and it also has an online presence.
TGT Recent Stock News
On Wednesday of this week, Target announced that they will be expanding their relationship with cosnsumer retail giant Apple. In detail, Target will be more than tripling its Apple at Target locations, with more than than 150 locations. Additionally, Target Circle members will now have access to a 4-month free trial of Apple Fitness+, as well as other special offers for Apple products.
Furthermore, Jill Sando, EVP and chief merchandising officer, at Target commented, “For years, Target has been a destination for Apple products. Now we are excited to deepen our collaboration with Apple so even more guests can access the exceptional Apple at Target shop-in-shop experience. Through Target Circle, our popular free-to-join loyalty program, we’re also giving our guests the opportunity to try services like Apple Fitness+ for free, and with no purchase required.“
TGT Stock Chart
During Friday’s lunch time trading session, shares of Target stock are down modestly by 0.19% on the day, trading at $166.77 a share.
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https://finnhub.io/api/news?id=321813b2d49b733d9dc860572bb4fd8860690f398eb3ecc291b63cacd1315da8 | A $3 trillion loss: Big Tech's horrible year is getting worse | Big Tech companies took a heavy beating this week, to the tune of more than $255 billion in lost market capitalization that helped make a bad year even worse... | 2022-10-28T08:30:00 | MarketWatch | Big Tech companies are taking a heavy beating this week, to the tune of more than $255 billion in lost market capitalization that’s helped make a bad year even worse for the once-beloved sector.
The five tech giants that posted results this week have now lost a combined $3 trillion in market cap on the year, according to Dow Jones Market Data, showing that Big Tech isn’t immune to the macroeconomic storm sweeping up the broader stock market.
Facebook in freefall: 5 charts that show Meta’s financial collapse
The Big Five tech companies—Alphabet Inc.
GOOG,
Even more concerning this quarter, though, was the steep fall in net income seen nearly across the board. The five reported combined net income of $59.5 billion, down 17.8% from the $72.3 billion they logged a year before. In that year-ago quarter, income growth at the Big Five soared 39.1% in aggregate, even as Amazon’s saw its profit halved.
On the whole, the Big Five raked in $1.08 trillion in revenue through the first nine months of the year, up 9.2% from a year before, though both net income and free-cash flow turned lower. The gang recorded $178 billion in aggregate net income in the first three quarters of 2022, down 19.7% from a year before, along with $150 billion in free-cash flow, down 10%.
All five companies logged declining net income when looking at the first nine months of 2022, while Apple and Microsoft were the lone two to see growth in free-cash flow.
Tech companies, like others across the S&P 500
SPX,
“I want to acknowledge that we are still living through unprecedented times,” Apple Chief Executive Tim Cook told analysts on the company’s call on Thursday. “From war in Eastern Europe to the persistence of COVID-19, from climate disasters around the world to an increasingly difficult economic environment, a lot of people in a lot of places are struggling.”
Yet Apple was the standout this quarter, not just because it was the only Big Tech company to register a post-earnings bump in its stock price, but also because it was the only member of the gang to actually grow net income. (Apple’s stock was in fact heading to its best single-day gain since September 2020 amid a 7% Friday rally.)
The smartphone giant’s 0.8% increase in September-quarter net income was nothing to write home about compared with the 62.2% bump that Apple saw in the year-earlier quarter, but it was notable relative to the “carnage” of its Big Tech peers. Apple’s slight rise in net income came even as the company declined to raise prices on its iPhone 14 family despite supply-chain pressures and other challenges.
When zooming out, Apple’s net income is down on the year, however, off 1.1% through the first nine months, according to Dow Jones Market Data. Chief Executive Tim Cook said on the company’s earnings call that the company has seen “inflation related to logistics” and with some silicon components.
The internet sector, though, made Apple’s results shine even brighter, amid competitive and macroeconomic challenges that have been compounded, from a financial perspective, by the determination of Meta and Alphabet to push forward with aggressive spending plans.
Meta was the only Big Tech company to post a revenue decline (-4.5%) in the latest quarter, while at the same time the company’s losses in its Reality Labs business ballooned to nearly $10 billion over the last nine months. Net income in the quarter dropped in half and its stock sunk to its lowest level in six years on Wednesday.
The report marked an even grimmer chapter in a tough year for the company, which has now seen revenue rise only 0.2% through the first nine months of the year, as net income has plummeted more than 36% and as free-cash flow has nearly halved. Meta’s financial challenges could continue as Chief Executive Mark Zuckerberg vowed to plow more money into its metaverse ambitions with Reality Labs spending projected to “increase meaningfully again” next year.
Like Meta, Alphabet is determined to spend, even though it’s shown some signs that it will depart from the ways of old. Executives told analysts on their conference call that they would slow hiring levels in the fourth quarter, to half of the hires brought in during the third quarter. At least one Wall Street analyst said the internet search and ad giant should instead be freezing its hiring, and our colleagues at Barron’s declared that Alphabet needs to go on a diet.
Whereas investors once rewarded fast-growing tech companies for efforts to expand their businesses further, now Wall Street has sent a caution signal. At least two Big Tech companies are paying attention. Amazon Chief Financial Officer Brian Olsavsky told analysts the company was “taking action to tighten our belt,” and Microsoft executives made similar comments in the latest quarter.
“While we continue to help our customers do more with less, we will do the same internally,” Microsoft Chief Financial Officer Amy Hood, said as she noted that Microsoft’s operating-expense growth should “moderate materially” as the fiscal year goes on.
Adding more pressure to Big Tech was the fact that one of the golden sectors of tech — cloud computing — was also slowing down. The top two cloud service companies, Amazon’s AWS and Microsoft’s Azure, saw revenue growth deceleration in the September quarter, while Google Cloud saw revenue slow from the first and fourth quarter of 2021.
It’s worth asking at this point what should comprise Big Tech. Meta is worth far less than chip powerhouse Nvidia Corp.
NVDA,
MarketWatch periodically tabulates the results of the biggest tech companies to show the scale and performance of these market titans, but perhaps it’s worth removing Meta from the Big Tech gang as its valuation plummets.
With or without Meta, it’s clear that Big Tech’s fortunes have turned. The big high-double-digit growth days appear to be behind the group and investor expectations have now changed: Wall Street looks increasingly ready to reward companies for their ability to rein in expenses and generate free-cash flow. For now, heady growth is over. | AAPL |
https://finnhub.io/api/news?id=4995ca16e8a92a353e2e65a9ea902c47e565e9a0d550f0303a7963a4ddc40dfd | Apple: Q4 Earnings Made The Bears Look Stupid, Myself Included | Apple demonstrated incredible strength in an impossible environment, showing that it is truly in a league of its own. Read my earnings analysis of AAPL stock. | 2022-10-28T07:26:15 | SeekingAlpha | Apple: Q4 Earnings Made The Bears Look Stupid, Myself Included
Summary
- Apple is a generational company that has had a profound impact on our daily lives.
- It has built one of the most powerful business ecosystems to have ever existed.
- The true power of this ecosystem was shown in its Q4 results, as the company beat analysts' estimates on the top and bottom lines.
- This was achieved in an earnings season where plenty of other big tech stocks had cratered, and macroeconomic headwinds were rife.
- I was not optimistic about Apple's Q4 earnings - how wrong I was.
Investment Thesis
Apple (NASDAQ:AAPL) has absolutely dominated the smartphone market over the past decade, particularly in the western world, and in doing so it has created a formidable ecosystem that competitors are finding tough to crack. The design prowess of Steve Jobs laid the foundations for the current ecosystem of hardware and software created by Tim Cook's Apple, and investors have enjoyed great returns since he took the helm in August 2011.
The company released its Q4'22 results on Thursday, in an earnings season where plenty of big tech businesses got slammed after weaker-than-expected reports. I also wrote an article earlier this week previewing Apple's results, urging investors to be cautious due to the numerous risks that could impact this business.
So, did Apple make me look like a fool?
Yes, yes it did.
Apple Earnings Overview
Starting from the top, Apple's Q4 revenue grew 8.1% YoY to $90.1B, coming in ahead of analysts' estimates of $88.8B. This is perhaps even more impressive considering the exchange rate headwinds that have hampered many US-based global businesses; on a constant currency basis, YoY growth would have been 14%.
Moving onto the bottom line, and it was another story of success for Apple. The company posted EPS of $1.29, which came in ahead of analysts' estimates of $1.27.
Hats off to Apple; it delivered a very strong quarter in an earnings season where the likes of Meta (META) and Amazon (AMZN) fell 20% following the announcement of their results. All of these companies are facing the same headwinds, namely inflation and a strong US dollar, but Apple so far has coped the best out of all the big tech firms.
Plenty Of Highlights For Shareholders
Despite the difficult macroeconomic environment, this earnings call must have delighted Apple shareholders; it was full of great news, records being broken, and I think I would be feeling pretty smug as a shareholder right now - on the contrary, I'm feeling slightly sheepish after being proven quite wrong by this brilliant company.
Let's take a look at some of the highlights from Apple's Q4 earnings call, that I think show reason for optimism in the future - starting with the following gem from CEO Tim Cook:
We reached another record on our installed base of active devices, thanks to a quarterly record of upgraders and double-digit growth in switchers on iPhone. Across nearly every geographic segment, we reached a new revenue record for the quarter. And we continue to perform incredibly well in emerging markets with very strong double-digit growth in India, Southeast Asia and Latin America.
With the growth of Apple's services business and the attractive gross margins that it brings in, shareholders should be delighted to see a new record for Apple's installed base of devices. Furthermore, the records reached and strong performance in emerging markets show that, despite being an already huge and dominant business, Apple still has several growth levers it can pull.
I said in my previous article that the sales of Apple's new iPhone 14 would be a key item to watch, and the company gave a strong performance once again. Taking another snippet from Cook:
iPhone grew 10% in the Q4 timeframe to $42.6 billion. Customer demand was strong and better than we anticipated that it would be. And keep in mind that this is on top of a fiscal year of 2021 that had iPhone revenue grow by 39%, and so it's a tough compare as well. And so we were happy with it.
In terms of the new products, the 14 and the 14 Pro and Pro Max, the -- it's still very early. But since the beginning, we've been constrained on the 14 Pro and the 14 Pro Max and we continue to be constrained today.
There were talks of Apple having to cut back its production for the new iPhones, and I saw this as a cause for concern - well, that's a lesson learned for me. Apple saw stronger-than-expected demand for its new iPhones, and the constraints were in fact on the production side. It looks to me like another successful launch for the next generation of iPhones, and this behemoth keeps marching on.
Services Continue To Deliver
Apple's services could well be the basis of any investment thesis for the company, as it has the potential to grow rapidly, and it also offers up much higher gross profit margins. Anyone who did base their investment in Apple at least in part on its services revenue would've been pleased with this quarter, as CFO Luca Maestri put it:
Moving to Services, as I mentioned, we set a September quarter record in aggregate and in most geographic segments, generating $19.2 billion in revenue in spite of very large foreign exchange headwinds.
I'm starting to find it funny how, in spite of all the global macroeconomic difficulty, Apple seems to keep posting record results; in fact, the word 'record' was used a staggering 37 times in the Q4 earnings call.
The revenue growth of Apple's services continues to outpace the growth of its products, growing 14% YoY compared to 6% YoY for products. It now makes up 19.8% of Apple's total revenue, compared to 18.7% in 2021. As the graph below shows, it has consistently outpaced product growth.
Why does that matter? Two reasons.
First, there are only a limited number of people that Apple can sell their high-end devices to. It already has a smartphone market share of 48% in the United States, albeit there are still growth opportunities both at home and abroad. Yet the replacement cycle for smartphones is getting longer, so it is great news for shareholders that Apple has another growth lever it can pull. Plus, the more people who have devices in their hands, the more revenue Apple can generate due to the broader reach of its services.
Secondly, the margins on Apple's service revenues are significantly stronger than its margins for products; and, these margins have been growing over time.
Gross profit margins in FY22 for Apple's services was 71.7%, up from 66.0% in 2020. This compares to the gross profit margins for products, which were 36.3% in 2022 - these were also up, but it demonstrates exactly how much profit Apple's services can bring into the business as it becomes a larger portion of overall revenues.
Quick Take: Global Headwinds
I also want to briefly touch on Apple's geographical revenue split, now that its financial year has come to an end. As per the below chart, it's clear to see that Apple saw a substantial slowdown in several regions this year compared to its three-year CAGR; perhaps the most concerning is China, as the economy slowed in this former high-growth region, and geopolitical tensions continue to concern investors.
There is also the risk of an economic slowdown in Europe. As someone from the UK, this country in particular is feeling the pinch of rising interest rates and soaring energy prices, resulting in some economic difficulties and, ultimately, less money in the consumers' pocket.
Whilst this is something to be aware of, I believe Apple has demonstrated enough strength in this quarter to show investors that management can be trusted to deal with the most difficult of situations. I'm sure long-term Apple investors will be reading this and thinking "yeah, duh, that's what we've been saying for ages"; all I can do is hold my hands up and admit that I should've seen it sooner.
AAPL Stock Valuation
I normally look to invest in high-growth, disruptive companies where valuation is tough. At least with Apple, I feel like I have something a bit more stable and predictable - so, a bit of a treat for me. When a company is more stable like Apple, I do think valuation is substantially more important than it is for a high-growth disruptor. With that said, onto my valuation model:
I have decided to use analysts' estimates for my model, as Apple is such a large business that it is difficult for myself and my limited data to fully analyse the future outlook. I have also allowed for slightly higher and lower multiples in order to demonstrate potential additional upside and downside.
Put all that together, and I can see Apple shares achieving a CAGR through to 2026 of 1%, 5%, and 13% in my respective bear, base, and bull case scenarios. I do also believe that services could meaningfully expand this EBIT margin over time, and so perhaps the return will be closer to the bull case of 13%.
Bottom Line
I was not particularly optimistic about Apple's Q4 results, but boy did this company prove me wrong. When all other big tech stocks were getting crushed, Apple somehow delivered another strong set of results, in spite of the broader macroeconomic headwinds.
It's fair to say that this quarter has done enough to convert me; as such, I am changing my rating on Apple shares from a 'Hold' to a 'Buy'. I would still be cautious, and I do think there will be more attractive prices in the future, but Q4 showed that this is a reliably brilliant (or brilliantly reliable?) business that would be a solid addition to any portfolio.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (73)
First, there are only a limited number of people that Apple can sell their high-end devices to.
<<Yes. The common wisdom is iPhones are flat which is only supported by rising prices. We of course don’t know as they no longer report unit sales.However one growth driver is India. Apple seems to be doing well there from an extremely low base. If they only get 10% share that would be huge.
Good point! Although it may seem inevitable, the Russian debacle might just deter them. One can only hope that within the CCP, saner minds will prevail.
Never bet against the best managed Company in the world . Long Apple!
Look at how those calls turned out
--- Sears, Roebuck & Co. rose for nearly 100 years... before they started "cost cutting" to save money and sacrificed all their hard-earned reputation for quality. | AAPL |
https://finnhub.io/api/news?id=3573fb07500271c6bc326bc26946e371c6f3e89bf1422e8b7937dc2931180155 | Apple: Q3 Earnings Made The Bears Look Stupid, Myself Included | Apple demonstrated incredible strength in an impossible environment, showing that it is truly in a league of its own. Read my earnings analysis of AAPL stock. | 2022-10-28T07:26:15 | SeekingAlpha | Apple: Q4 Earnings Made The Bears Look Stupid, Myself Included
Summary
- Apple is a generational company that has had a profound impact on our daily lives.
- It has built one of the most powerful business ecosystems to have ever existed.
- The true power of this ecosystem was shown in its Q4 results, as the company beat analysts' estimates on the top and bottom lines.
- This was achieved in an earnings season where plenty of other big tech stocks had cratered, and macroeconomic headwinds were rife.
- I was not optimistic about Apple's Q4 earnings - how wrong I was.
Investment Thesis
Apple (NASDAQ:AAPL) has absolutely dominated the smartphone market over the past decade, particularly in the western world, and in doing so it has created a formidable ecosystem that competitors are finding tough to crack. The design prowess of Steve Jobs laid the foundations for the current ecosystem of hardware and software created by Tim Cook's Apple, and investors have enjoyed great returns since he took the helm in August 2011.
The company released its Q4'22 results on Thursday, in an earnings season where plenty of big tech businesses got slammed after weaker-than-expected reports. I also wrote an article earlier this week previewing Apple's results, urging investors to be cautious due to the numerous risks that could impact this business.
So, did Apple make me look like a fool?
Yes, yes it did.
Apple Earnings Overview
Starting from the top, Apple's Q4 revenue grew 8.1% YoY to $90.1B, coming in ahead of analysts' estimates of $88.8B. This is perhaps even more impressive considering the exchange rate headwinds that have hampered many US-based global businesses; on a constant currency basis, YoY growth would have been 14%.
Moving onto the bottom line, and it was another story of success for Apple. The company posted EPS of $1.29, which came in ahead of analysts' estimates of $1.27.
Hats off to Apple; it delivered a very strong quarter in an earnings season where the likes of Meta (META) and Amazon (AMZN) fell 20% following the announcement of their results. All of these companies are facing the same headwinds, namely inflation and a strong US dollar, but Apple so far has coped the best out of all the big tech firms.
Plenty Of Highlights For Shareholders
Despite the difficult macroeconomic environment, this earnings call must have delighted Apple shareholders; it was full of great news, records being broken, and I think I would be feeling pretty smug as a shareholder right now - on the contrary, I'm feeling slightly sheepish after being proven quite wrong by this brilliant company.
Let's take a look at some of the highlights from Apple's Q4 earnings call, that I think show reason for optimism in the future - starting with the following gem from CEO Tim Cook:
We reached another record on our installed base of active devices, thanks to a quarterly record of upgraders and double-digit growth in switchers on iPhone. Across nearly every geographic segment, we reached a new revenue record for the quarter. And we continue to perform incredibly well in emerging markets with very strong double-digit growth in India, Southeast Asia and Latin America.
With the growth of Apple's services business and the attractive gross margins that it brings in, shareholders should be delighted to see a new record for Apple's installed base of devices. Furthermore, the records reached and strong performance in emerging markets show that, despite being an already huge and dominant business, Apple still has several growth levers it can pull.
I said in my previous article that the sales of Apple's new iPhone 14 would be a key item to watch, and the company gave a strong performance once again. Taking another snippet from Cook:
iPhone grew 10% in the Q4 timeframe to $42.6 billion. Customer demand was strong and better than we anticipated that it would be. And keep in mind that this is on top of a fiscal year of 2021 that had iPhone revenue grow by 39%, and so it's a tough compare as well. And so we were happy with it.
In terms of the new products, the 14 and the 14 Pro and Pro Max, the -- it's still very early. But since the beginning, we've been constrained on the 14 Pro and the 14 Pro Max and we continue to be constrained today.
There were talks of Apple having to cut back its production for the new iPhones, and I saw this as a cause for concern - well, that's a lesson learned for me. Apple saw stronger-than-expected demand for its new iPhones, and the constraints were in fact on the production side. It looks to me like another successful launch for the next generation of iPhones, and this behemoth keeps marching on.
Services Continue To Deliver
Apple's services could well be the basis of any investment thesis for the company, as it has the potential to grow rapidly, and it also offers up much higher gross profit margins. Anyone who did base their investment in Apple at least in part on its services revenue would've been pleased with this quarter, as CFO Luca Maestri put it:
Moving to Services, as I mentioned, we set a September quarter record in aggregate and in most geographic segments, generating $19.2 billion in revenue in spite of very large foreign exchange headwinds.
I'm starting to find it funny how, in spite of all the global macroeconomic difficulty, Apple seems to keep posting record results; in fact, the word 'record' was used a staggering 37 times in the Q4 earnings call.
The revenue growth of Apple's services continues to outpace the growth of its products, growing 14% YoY compared to 6% YoY for products. It now makes up 19.8% of Apple's total revenue, compared to 18.7% in 2021. As the graph below shows, it has consistently outpaced product growth.
Why does that matter? Two reasons.
First, there are only a limited number of people that Apple can sell their high-end devices to. It already has a smartphone market share of 48% in the United States, albeit there are still growth opportunities both at home and abroad. Yet the replacement cycle for smartphones is getting longer, so it is great news for shareholders that Apple has another growth lever it can pull. Plus, the more people who have devices in their hands, the more revenue Apple can generate due to the broader reach of its services.
Secondly, the margins on Apple's service revenues are significantly stronger than its margins for products; and, these margins have been growing over time.
Gross profit margins in FY22 for Apple's services was 71.7%, up from 66.0% in 2020. This compares to the gross profit margins for products, which were 36.3% in 2022 - these were also up, but it demonstrates exactly how much profit Apple's services can bring into the business as it becomes a larger portion of overall revenues.
Quick Take: Global Headwinds
I also want to briefly touch on Apple's geographical revenue split, now that its financial year has come to an end. As per the below chart, it's clear to see that Apple saw a substantial slowdown in several regions this year compared to its three-year CAGR; perhaps the most concerning is China, as the economy slowed in this former high-growth region, and geopolitical tensions continue to concern investors.
There is also the risk of an economic slowdown in Europe. As someone from the UK, this country in particular is feeling the pinch of rising interest rates and soaring energy prices, resulting in some economic difficulties and, ultimately, less money in the consumers' pocket.
Whilst this is something to be aware of, I believe Apple has demonstrated enough strength in this quarter to show investors that management can be trusted to deal with the most difficult of situations. I'm sure long-term Apple investors will be reading this and thinking "yeah, duh, that's what we've been saying for ages"; all I can do is hold my hands up and admit that I should've seen it sooner.
AAPL Stock Valuation
I normally look to invest in high-growth, disruptive companies where valuation is tough. At least with Apple, I feel like I have something a bit more stable and predictable - so, a bit of a treat for me. When a company is more stable like Apple, I do think valuation is substantially more important than it is for a high-growth disruptor. With that said, onto my valuation model:
I have decided to use analysts' estimates for my model, as Apple is such a large business that it is difficult for myself and my limited data to fully analyse the future outlook. I have also allowed for slightly higher and lower multiples in order to demonstrate potential additional upside and downside.
Put all that together, and I can see Apple shares achieving a CAGR through to 2026 of 1%, 5%, and 13% in my respective bear, base, and bull case scenarios. I do also believe that services could meaningfully expand this EBIT margin over time, and so perhaps the return will be closer to the bull case of 13%.
Bottom Line
I was not particularly optimistic about Apple's Q4 results, but boy did this company prove me wrong. When all other big tech stocks were getting crushed, Apple somehow delivered another strong set of results, in spite of the broader macroeconomic headwinds.
It's fair to say that this quarter has done enough to convert me; as such, I am changing my rating on Apple shares from a 'Hold' to a 'Buy'. I would still be cautious, and I do think there will be more attractive prices in the future, but Q4 showed that this is a reliably brilliant (or brilliantly reliable?) business that would be a solid addition to any portfolio.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (73)
First, there are only a limited number of people that Apple can sell their high-end devices to.
<<Yes. The common wisdom is iPhones are flat which is only supported by rising prices. We of course don’t know as they no longer report unit sales.However one growth driver is India. Apple seems to be doing well there from an extremely low base. If they only get 10% share that would be huge.
Good point! Although it may seem inevitable, the Russian debacle might just deter them. One can only hope that within the CCP, saner minds will prevail.
Never bet against the best managed Company in the world . Long Apple!
Look at how those calls turned out
--- Sears, Roebuck & Co. rose for nearly 100 years... before they started "cost cutting" to save money and sacrificed all their hard-earned reputation for quality. | AAPL |
https://finnhub.io/api/news?id=1d5ae67d36a81bb5c5f756fe8b439429334c575b0da032419db639bf09988da2 | Apple And HP Inc.: Q4 Offers These Buffett Picks On A Platter | Judging by the earnings report from the FAAMG stocks so far, I expect the market volatility to heighten during Q4. See an analysis of AAPL and HPQ here. | 2022-10-28T07:17:42 | SeekingAlpha | Apple And HP Inc.: Q4 Offers These Buffett Picks On A Platter
Summary
- Judging by the earnings report (“ER”) from the FAAMG stocks so far, I expect the market volatility to heighten during Q4.
- And such market volatility can offer excellent stocks at an enticing entry price, including both Apple and HP Inc., two large holdings that Warren Buffett picked.
- This article explores the deeper and hidden similarities between these two stocks beyond the obvious (both in the IT sector, and both are Buffett picks).
- Both are going through a contracting phase (yes, even Apple goes through cycles). And both are truly the quintessential examples of Buffett-style compounders.
- Both HP and Apple represent a rare species that combines both superb profitability and the ability to deploy incremental capital at equally (or even higher) profitable levels.
- This idea was discussed in more depth with members of my private investing community, Envision Early Retirement. Learn More »
Thesis
If you are reading this, you must know two things already. First, both HP Inc. (NYSE:HPQ) and Apple Inc. (NASDAQ:AAPL) are in Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) equity portfolio. Buffett not only holds both stocks, but he holds large positions in both as you can see from the chart below. To wit, Apple is, of course, his largest position in the equity portfolio, with a current market value exceeding $122 billion. And HPQ is the 11th largest position, with a current market value exceeding $3.4 billion.
Second, AAPL released its FY Q4 earnings report (“ER”) after market close on Thursday (and all the prices used in this article are taken from the after-market prices on Thursday). AAPL beat both topline and bottom-line expectations (again). But there are signs of slowing growth, and Apple's stock prices fell by more than 3% in after-market trading to around $144. The company reported that is already cutting production of its new iPhone 14 Plus, and also its iPad revenue showed a decline to $7.17B (a 12% decline compared to $8.25B in 4Q21). HPQ is scheduled to report its Q3 earnings on 11/22/2022. But based on the ER results from heavyweights so far (like the FAAMG stocks), I expect it to report strong headwinds, too.
And this leads me to the thesis of this article. Given these headwinds, I expect the market volatility to heighten during Q4. Such market volatility can offer excellent entry opportunities for both AAPL and HPQ. In the remainder of this article, I will analyze the deeper and hidden similarities between these two stocks (beyond the obvious fact that they are both in the IT sector), with an intention to reverse engineer Buffett’s thought process. You will see that they actually share similar business cycles, they are both going through the contracting phase (yes, even Apple has contracting phases, too), and yet both are superbly profitable and scalable businesses.
AAPL and HPQ: state of the cycle
As you can see from the top panel of the following chart, they even share the same approximate 4-year cycle duration. To wit, over the past decade, both HPQ and AAPL have gone through about two full cycles as marked by their YoY quarterly revenues. The last contracting phase bottomed around 2016, with both reporting negative YoY quarterly revenue growth, followed by another bottom in 2019~2020. So, the bottom-to-bottom duration is about 4 years. And the last expansion cycle peaked around 2018, followed by the next peak somewhere during 2021~2022, again with a peak-to-peak duration of about ~4 years.
And as you can see, currently they are both going through the contracting phase of the current cycle after growth peaked in mid-2021. HPQ has already reported a negative YoY growth rate of -4.09%. AAPL’s YoY growth rate rates are still positive, but it is only 1.87%, a far cry from the rates it enjoyed during the expansion phases.
Looking ahead, I foresee the contracting cycle to continue a bit longer for both HPQ and AAPL before it reaches a bottom. According to this SA news, worldwide PC shipments sank again in Q3 2022 by 15% on uneven supply and slowing demand. And as aforementioned, AAPL has just reported a decline in iPad sales and scaled back its iPhone 14 production. If history is of any guidance and human nature does not change, I anticipate this current contracting phase to last about 3 to 4 years, too, which would mean the contracting phase would bottom and hence end sometime in 2023.
At the same time, the market is always forward-looking and anticipating the next move (like what we are doing here). As a result, their current valuations have already priced in the further contraction ahead, as you can see from the bottom panel of the chart. To wit, HPQ is currently trading at 4.75x P/E and AAPL 22.4x P/E, both representing a multi-year bottom valuation. Note again, these valuations were obtained using prices after the market close on Thursday. Given the volatility these days, these numbers may have changed by the time you read this article.
Next, we will explore other deeper and hidden similarities between HPQ and AAPL. You will see these hidden similarities make them unique investment opportunities.
HPQ and AAPL: Superb ROCE
ROCE stands for the return on capital employed, and I have analyzed the ROCE of both HPQ and AAPL in my earlier articles. The method for analyzing ROCE is detailed in this article, and as noted:
The calculation of their ROCE considers the following items as capital actually employed in their business operation: working capital (including payables, receivables, inventory) and net PPE (property, plant, and equipment), and R&D expenses are also capitalized.
The next two charts directly quote the results. As seen, HPQ was able to maintain a ROCE well over 100% most of the time since 2015 (when its ROCE peaked at 182%). The ROCE has been on average 113.2% in the past 5 years since 2018. Its current ROCE is around 107%, a bit below the historical average but still an astronomical level once we put it under perspective in a little bit. The picture for AAPL is very similar but even stronger. AAPL, too, was able to maintain a remarkably high and stable ROCE over the long term. Its ROCE has been on average 150% over the past 5 years.
Now, let’s put things under perspective by comparing their levels of ROCE against other overachievers such as MSFT. As seen in the 2nd chart below, MSFT’s ROCE in recent years fluctuated in a narrow range between 60% to 70%, with an average of 67%. Such an average ROCE makes MSFT the stock with the second-highest ROCE in the FAAMG group. The FAAMG group has been maintaining an average ROCE of around 50% in recent years.
Under this context, you can see that HPQ and AAPL’s 100%+ average ROCE are truly superb.
Marginal return on capital employed (“MROCE”)
Next, I will also argue that both HPQ and AAPL enjoy incredible scalability too even at their current scale. This argument is based on an analysis of their marginal return on capital employed (“MROCE”).
Detailed background information on MROCE can be found in my earlier article here. And a brief summary is provided here:
ROCE tells us how profitable the business has been or is SO FAR. And MROCE sheds insights into which direction the profitability is likely to go and how scalable it is. What the MROCE concept captures is a basic law in economic activities: the law of diminishing returns. As illustrated in the next chart, a business will first invest its money at projects with the highest possible rate of return. Therefore, the first batch of available resources is invested at a high rate of return - the highest the business can possibly identify. The second batch of money will have to be invested at a somewhat lower rate of return since the best ideas have been taken by the first batch of resources already, and so on. And finally, the end result is a declining MROCE curve as shown.
Warren Buffett, as usual, has the talent to put difficult concepts in more accessible words. And here is his much simpler and shorter way to explain the concept of scalability and also MROCE. The quote is taken from his 1992 Shareholder Letter (the emphasis is added by me):
Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.
The operative here is “incremental capital,” and the MROCE concept is designed precisely to capture the increment aspect. And next, you will see that both HPQ and AAPL are quintessential examples of this requirement. No wonder why Buffett likes both of them, A LOT.
HPQ and AAPL: both highly scalable businesses
The next two charts show the MROCE and ROCE for HPQ and AAPL over recent years. The ROCE data are the same as those shown in the previous charts. The MROCE data are analyzed by the following steps: A) the capital employed (“CE”) was calculated for each year for each company, B) the incremental CE year over year was calculated, C) the incremental earnings year over year were calculated, and D) as the last step, the ratio between B and C was calculated to determine the MROCE.
The results clearly show the consistency of their MROCE and their scalability. More specifically, again, HPQ’s average ROCE over the past 5 years has been 113%. And at the same time, it has also been able to constantly identify lucrative opportunities to deploy incremental capital, as Buffett commented, as reflected in the fact that its MROCE matches (actually slightly exceeds) its ROCE. To wit, its MROCE in the recent 5 years since 2018 has been on average 119.2%, slightly above its average ROCE of 113%. The small difference could be due to rounding off errors or uncertainties in its financials. But the overall agreement is a conclusive demonstration of its profitability sustainability and scalability in my mind.
The case for AAPL is very similar, as you can see from the second chart below. Its ROCE has been averaging 136% in the past 3 years since 2020. And its MROCE is on average 109%, slightly below its average ROCE of 136%. Similar to the case of HPQ, the gap here is partially due to rounding off errors or uncertainties in its financials. Nonetheless, an MROCE above 100% indicates incredible scalability, even when AAPL is already at its current juggernaut scale.
HPQ and AAPL: outsized expected returns
Due to their discounted valuation, strong profitability, and superb scalability, both stocks offer outsize return potential as summarized in the following two tables.
Financially, HPQ is not as strong as AAPL, which explains its lower valuation multiples. But it is in solid shape (B+ financial strength rating). In terms of specific valuation metrics, as can be seen from the following numbers in the table, at its current price level, it's about 24% discounted based on its historical dividends yield and about 28% discounted based on its historical P/E multiples.
Looking forward, for the next 3~5 years, a double-digit annual growth rate is expected (say 10%) due to the ROCE and MROCE mentioned above. At ROCE and MROCE around 100%, only a 10% reinvestment rate, which can easily be sustained by HPQ’s operating earnings, can generate 10% organic growth rates. And the total return in the next 3~5 years is projected to be in a range of 82% (the low-end projection) to about 104% (the high-end projection), translating into a modest 16.2% to 19.5% annual total return.
AAPL is financially strong (A++ financial strength rating) and also less cyclical compared to HPQ (hence its A+ consistency rating). And as a result, its valuation is also less discounted than HPQ. Specifically, it's about 7% discounted based on its historical PE ratios and 10% discounted based on its historical Price to cash flow ratios.
Looking forward, for the next 3~5 years, an double-digit annual growth rate is also expected (say 10%), again considering its 100%+ ROCE and its bandwidth to easily sustain 10% reinvestment rates. And the total return in the next 3~5 years is projected to be in a range of 57% (the low-end projection) to about 62% (the high-end projection), translating into a modest 12.0% to 12.9% annual total return.
Risks and final thoughts
There are certainly risks associated with both stocks. Besides suffering from cyclicality and also overall macroeconomic uncertainties, they also face company-specific risks. For HPQ, it has both challenges and opportunities within its mature business segments such as its PC and printer products. These segments do not dictate HPQ’s earnings as much as they used to, but HPQ will need innovative strategies to revitalize the stagnating topline in these segments. Similar to HPQ, AAPL has been dealing with the slowdown in its personal electronics segment. And both of them have a large exposure to geopolitical risks such as those caused by the Russian/Ukraine situation and also the global supply chain disruptions since both generate a large portion of their profits overseas.
To conclude, HPQ and AAPL both occupy a large position in Buffett’s Berkshire equity portfolio, for very good reasons. Besides their obvious similarities, both share deeper and hidden traits that make them unique investment opportunities. Both of them boast ROCE above 100% and maintain incredible scalability at the same time. Furthermore, their current P/Es have already reached a cycle bottom well before the contracting phase bottoms (which I anticipate to happen sometime in 2023). And the market volatility in Q4 may offer them at even more attractive entry prices.
HP and Apple are truly the quintessential examples of Buffett-style compounders – a rare species that combines both superb profitability and the ability to deploy increment capital at equally profitable levels. No wonder Buffett likes both of them, A LOT.
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** Disclosure: I am associated with Sensor Unlimited.
** Master of Science, 2004, Stanford University, Stanford, CA
Department of Management Science and Engineering, with concentration in quantitative investment
** PhD, 2006, Stanford University, Stanford, CA
Department of Mechanical Engineering, with concentration in advanced and renewable energy solutions
** 15 years of investment management experiences
Since 2006, have been actively analyzing stocks and the overall market, managing various portfolios and accounts and providing investment counseling to many relatives and friends.
** Diverse background and holistic approach
Combined with Sensor Unlimited, we provide more than 3 decades of hands-on experience in high-tech R&D and consulting, housing market, credit market, and actual portfolio management. We monitor several asset classes for tactical opportunities. Examples include less-covered stocks ideas (such as our past holdings like CRUS and FL), the credit and REIT market, short-term and long-term bond trade opportunities, and gold-silver trade opportunities.
I also take a holistic view and watch out on aspects (both dangers and opportunities) often neglected – such as tax considerations (always a large chunk of return), fitness with the rest of holdings (no holding is good or bad until it is examined under the context of what we already hold), and allocation across asset classes.
Above all, like many SA readers and writers, I am a curious investor – I look forward to constantly learn, re-learn, and de-learn with this wonderful community.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of AAPL, HPQ either through stock ownership, options, or other derivatives. 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.
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Comments (1) | AAPL |
https://finnhub.io/api/news?id=039bd6d5f7b26cbbd61335555f7313add2feb370ddaf5b7f8f6cdc8e92bf8eb1 | Off To The RACES: FAANG Crushed | The historic capital that began as a quiet murmur in 2020 and 2021, and rose to full throated roar in 2022, has continued, this time with FAANG crushed. | 2022-10-28T06:59:02 | SeekingAlpha | Off To The RACES: FAANG Crushed
Summary
- The historic capital that began as a quiet murmur in 2020 and 2021, and rose to full throated roar in 2022, has continued, this time with FAANG crushed.
- Meanwhile, energy equities continue to outperform on both an absolute and relative basis.
- Going forward, there's still a lot of room for energy equity revaluation higher, while the much ballyhooed FAANG stocks have further room for multiple compression.
- Investors as a whole are still underweight in the energy sector, so there is further room for a majority of market participants to follow in Buffett's footsteps in embracing the energy sector.
- The real driver of the secular bull market is the capital cycle, and this is underappreciated right now.
- This idea was discussed in more depth with members of my private investing community, The Contrarian. Learn More »
If everybody indexed, the only word you could use is chaos, catastrophe… the markets would fail.
- John Bogle, May 2017
Try to buy assets at a discount rather than earnings. Earnings can change dramatically in a short time. Usually, assets change slowly. One has to know much more about a company if one buys earnings.
- Walter Schloss
Introduction
Watching the after hours price action of Amazon (AMZN) shares last night, when the stock fell over 20% due to lowered guidance, my mind drifted to the ongoing historical capital rotation from growth to value, from loved to unloved, with the latest move in this ratio occurring from the most ballyhooed stocks getting pummeled.
On that note, earlier this week, we saw Meta Platforms (META) fall 25% post their third quarter earnings, and both Alphabet (GOOGL), (GOOG), and Microsoft (MSFT) shares fell sharply too after their respective third quarter earnings results.
As a contrarian, value-oriented investor, the sheer magnitude of the drop in Meta Platform shares, which are down a staggering 70.9% year-to-date in 2022 alone, certainly gets my research interest flowing.
Looking back, this may be the start of a buying opportunity, specifically in META, which I will go into more detail later in a future, different article. Having said that, technology stocks are far from cheap on a relative basis as the following Bank of America (BAC) graphic illustrates, comparing technology stocks to the broader S&P 500 Index (SP500).
Investors looking to buy the dip in technology stocks have to look at the chart above, and at least take a pause, at a minimum. Speaking from the experience of someone who has been too early buying a value trap previously, secular bear markets can be drawn out affairs, with Microsoft's price action from 2000-2009 being a prime example, where the largest market capitalization company went through an extended bear market despite generally robust growth.
Conversely, energy equities remain remarkably cheap, with price to earnings ratios well below the broader market.
Thus, remarkably, after almost three years of significant cumulative outperformance, the more prominent contrarian opportunity may still be in energy equities, and not in the newly discounted technology leaders, which still have further room to see their relative valuation multiples compress. Said another way, buy the dip, just not in the sectors that investors usually apply that approach.
Energy Equities Have Outperformed Significantly In 2022
Energy equities have outperformed significantly year-to-date in 2022, with the Energy Select Sector SPDR Fund (XLE) up 65.4% year-to-date in 2022, which is a significant percentage gain from their 45.3% gain for XLE through April 15th, 2022, which was the last entry in this article series. The last update was actually published on April 15th, 2022, but the percentage gains were through the close of April 14th, 2022.
The very strong absolute performance of XLE YTD compares very favorably to a 19.1% YTD decline in the SPDR S&P 500 ETF (SPY), which was down 7.5% as of April 14th, a 31.1% YTD decline in the Invesco QQQ Trust (QQQ), which was down 14.8% through April 14th, a 33.2% YTD decline in the iShares 20+Year Treasury ETF (TLT), which was down 18.2% through April 14th, and a 60.0% YTD decline in the ARK Innovation ETF (ARKK), which was down 37.6% through April 14th, 2022.
Growth stocks, led by the momentum growth favorites that dominate ARKK, have been severely impaired, held back by their poor starting valuations, something I wrote about in detail on August 10th, 2021, with the article titled, "ARKK Implosion Is On The Horizon." Since that article was published, ARKK shares are down an eye opening 68.8%, which is a further loss from the 51.2% decline in the April 2022 update. For a comparative basis, the S&P 500 Index is down 14.2% (it was down 1% on April 14th, 2022 from the original article's publication for perspective), as illustrated in the image below.
With the benefit of hindsight, obviously, growth stocks have really struggled in 2022, and really since ARKK peaked in February of 2021. This has occurred as rising interest rates across the yield curve, but particularly at the longer end of the yield curve, reduce the appeal of the longest duration assets.
A Historical Capital Rotation Is In Progress, Exemplified By Exxon Mobil Versus Salesforce.com
On the opposite side of the ledger, high free cash flow yielding companies are being rewarded, and many of these free cash flow standouts reside in the commodity equity sector, particularly in the energy sector. Taken together, meaning the downturn in technology stocks, and the surge in out-of-favor commodity equities, a historical capital rotation is underway.
This historic capital rotation is something I have chronicled on a regular basis, documenting the flow of money from the "Haves" to the "Have Nots." These public articles below reference this historical capital rotation.
- "A Historic Capital Rotation Is On Tap" - Published October 18th, 2020
- "A Historic Capital Rotation Is Happening Hidden In Plain Sight" - Published November 25th, 2020
- "The Historic Capital Rotation Is Continuing" - Published December 4th, 2020
- "Goldman Is Trumpeting A New Secular Commodities Bull Market And Investors Should Listen" - Published December 16th, 2020
- "Not All Energy Stocks Are Created Equal" - Published December 24th, 2020
- "A Historic Capital Rotation Is Quietly Marching On" - Published October 29th, 2021
- "A Historic Capital Rotations Is At A Fever Pitch" - Published February 4th, 2022
Pounding in this narrative of a historic capital rotation playing out in front of our eyes as investors hidden in plain sight, with this public article, I outlined how removing Exxon Mobil (XOM) from the Dow Jones Industrial Average (DIA) and replacing the venerable, longest listed Dow Jones component with Salesforce.com (CRM) in August of 2020 would turn out to be a high water marker for the current state of the financial markets.
The share price performance of Exxon and Salesforce.com shares since that removal date says everything that you need to know about the financial markets since August 2020, with the SPDR S&P 500 ETF (SPY) performance, shown in black below, as the reference point. More specifically, XOM shares are up 196.4%, before today's anticipated gains after Exxon's strong third quarter 2022 earnings results, and CRM shares are down 41.1%.
Going further, to show the steady progression of the historical capital rotation, here is the same chart from the April 15th article in this series.
With the benefit of hindsight, almost all market participants were crowded on one side of the boat in 2020 and early 2021, overweighting technology shares, and underweighting the left behind value stocks, particularly the downtrodden commodity equities, and more specifically the energy equities.
RACES Stocks Lead The Way
The best example of this seismic shift in the investment landscape has been in the performance of natural gas equities, which I affectionately coined with the term RACES, which is the first letter of each of the equities highlighted in more detail below. More specifically, these equities are Range Resources (RRC), Antero Resources (AR), CNX Resources (CNX), EQT Corp. (EQT) and Southwestern Energy (SWN). The "C" in RACES by the way, could be Coterra Energy (CTRA), which was formerly Cabot Oil & Gas before their merger with Cimarex, Chesapeake Energy (CHK), or Comstock Resources (CRK), so chose your "C" as you see fit.
Collectively, as you will see further down in this article, these natural gas equities which have trounced their vaunted FAANG peers in performance terms, across a range of time frames dating to January 1st, 2020, as I will illustrate below, which is an updated fifth edition to my February 3rd, 2021 article, "Off To The RACES: Natural Gas Equities Lapping FAANG Stocks, the May 26th, 2021 follow-up, the September 10th, 2021 third edition, and the April 15ht, 2022 fourth edition.
Off To The RACES Stocks Are Significantly Outperforming
The following performance chart shows the total return of Range Resources, Antero Resources, CNX Resources, EQT Corp., Southwestern Energy, and the SPDR S&P 500 ETF from January 1st, 2020 through Thursday, April 14th, 2022.
Looking at the same performance chart below from the April 15th prior update in this series, with performance through April 14th, 2022, offers some clues. More specifically, Antero has appreciated slightly, while Range Resources, EQT Corp, Southwestern Energy, and CNX Resources have pulled back.
Even with the recent pullback outside of Antero Resources, all of these natural gas equities have significantly outperformed the SPDR S&P 500 Index ETF, which has now gained 23.3% year-to-date, which is down from the 40.8% gain SPY posted since January 1st of 2020 in the prior update as the broader equity market has trended lower.
Collectively, through October 27th, 2022, the "Off To The RACES" stocks have an average return of 429.8% since January 1st of 2020. This is down moderately from the 478.1% average return posted in the April 2022 update, and this simple average return is up significantly from the 190.4% average return from the September 2021 update, and the 152.6% average return since January 1st of 2020 published in the May 26th, 2021 article.
Looking back to the first article in the series, the average return of 429.8% is up significantly from the average return of 80.4% from January 1st, 2020 through February 2nd, 2021. This might surprise many investors who have cast aside energy equities to the dustbin of history, yet these cast aside energy equities are significantly outperforming.
FAANG Is Crushed
What are the returns of the FAANG stocks over this time frame since January 1st, of 2020? By the way, I know Meta Platforms is no longer Facebook, however, when I started this series it was still Facebook, so we will stick with the FAANG acronym.
The chart below illustrates this succinctly.
Standing out like a sore thumb among its peers, or what I like to call the last shoe to drop, Apple (AAPL) shares are higher by 101.00 year-to-date. For perspective, looking at the chart in the last April 2022 update, even Apple shares are lower, down from their 128.8% gain shown below, however, the drops have been more severe elsewhere in this technology leading quintet.
Taken all together, the new average return of the FAANG stocks since January 1st, 2020 is now a paltry 19.7% on average, even with the outlier of Apple shares, thus far. This 19.7% average return is less that the 23.3% return in the SPDR S&P 500 ETF over this timeframe. Additionally, this is a sharp decline from the April 2022 average return of 58.0%, which itself was a decline from 96.9% in the September 10th, 2021 update in this series.
Bottom line, the "Off To The RACES" stocks have delivered an 429.8% average gain since the start of 2020 through October 27th, 2022, down moderately from the 478.1% average gain posted in the April 15th, 2022 update, yet significantly ahead of the FAANG average return of 19.7%. FAANG stocks have been crushed, with the 19.7% average return from January 1st, 2020 down significantly from the 58.0% average return that FAANG stocks delivered in the prior update through April 14th, 2022. That return was down from the 96.9% average gain from the September 10th, 2021 update for the FAANG equities. The return gap did not widen with this update, like it has in the past, however, it did not shrink much as FAANG declines offset some weakness in natural gas, and natural gas equities.
A Long Time In Development and The Start Of A Longer-Term Opportunity
Researching, chronicling, and tracking the opportunity in one of the most out-of-favor corners of the market has been a time-consuming initiative over the last couple of years, though it has proved worthwhile in terms of relative and absolute opportunity.
The following partial list of public articles chronicles my thought process on the targeted natural gas equities, including Antero Midstream (AM), and the broader developing opportunity in commodity equities over the past year.
- "Southwestern Energy: A Misunderstood Natural Gas Producer" - Published December 13th, 2019
- "Range Resources Continues Capex Cuts, Validates Appalachia Advantage" - Published January 8th, 2020
- "Antero Resources Is A Generational Buy: Dispelling The Myth Of Antero As High-Cost Producer" - Published February 19th, 2020
- "Antero Midstream Shares Are Significantly Undervalued Too" - Published February, 20th, 2020
- "The Long Oil, Short Natural Gas Trade Is Officially Dead" - Published March 9th, 2020
- "The United States Natural Gas Fund Was Up On A Historic Down Day For Energy" - Published March 10th, 2020
- "EQT Corp. Surges As The Bearish Natural Gas Thesis Is Dead" - Published March 17th, 2020
- "EQT Leading The Forthcoming Move Higher In Natural Gas Prices" - Published July 24th, 2020
- "Antero Resources Is A Generational Buy: Working Through The Near-Term Debt Maturities" - Published July 19th, 2020
- "Antero Midstream Has Outperformed All Other Midstream Firms Year-To-Date" - Published July 29th, 2020
- "Antero Resources Is A Generational Buy: Mapping Out The Free Cash Flow" - Published October 28th, 2020
- "Antero Resources Leading The Way In A Historic Energy Equity Rally" - Published December 11th, 2020
- "Not All Energy Stocks Are Created Equal" - Published December 24th, 2020
- "Antero Resources: Buy The Forgivable Dip" - Published August 2nd, 2021
- "EQT Corp.: Buy The Forgivable Dip At A 20% Free Cash Flow Yield" - Published August 4th, 2021
- "U.S. Steel: A Breakout Stock For 2022" - Published January 26th, 2022
- "Peabody Energy: A Breakout Stock For 2022" - Published January 28th, 2022
If you read through the articles above that chronicle this journey, there was pessimism and skepticism in the commentary sections, especially in the beginning.
This skepticism and pessimism was evident publicly, and privately, where many struggled to embrace such a poor performing group of stocks. In my contrarian mindset, the continued pessimism and skepticism, which still exists today to an extent, think Cathie Wood of ARK Innovation ETF fame calling for a commodity crash in the second half of 2021, and subsequently doubling and tripling down on this call. This is a call I have vehemently disagreed with, and the boldness of investors that have gotten it completely wrong confirms that we're still in the early innings of this opportunity in natural gas equities, commodities, and commodity equities.
On that note, if you look at the relative performance chart of a broad based index of commodities vs. the SPDR S&P 500 ETF, the size and scale of the relative opportunity quickly become apparent.
For perspective here was the last chart posted in the April 15th, 2022 article.
For reference, here was the same chart posted in the September 10th, 2021 update in this series.
Closing Thoughts: More And More Investors Are Starting To Recognize The Potential Of A Secular Commodity Bull Market
With Buffett piling into Chevron (CVX), and Occidental Petroleum (OXY), another stock that was a battleground stock where we were early on, many investors are starting to open their eyes to the developing potential in commodities, and commodity equities. For the moment, the energy sector remains a relatively paltry roughly 5% of the S&P 500 Index, however, as relative outperformance continues, the passive fund flow headwinds will become tailwinds.
The untold story with the rise in energy equities is that this is a supply side story. Going further, the capital cycle is playing out in real time as energy equities collectively emphasize shareholder returns, specifically buybacks and dividends, diverting operating cash flows that used to almost entirely be reinvested back into operations. This, along with still low valuations, has interrupted the normal capital and created a backdrop for a secular bull market.
With the broader equity market still exposed to the potential of a further drawdown, or perhaps seven years of running in place, because of historically poor starting valuations, there's a need for investors to consider alternative asset classes. Importantly, a further drawdown in the broader markets, which could be fueled by rising long-term interest rates rising because of supply side commodity inflationary pressures combined with building wage pressures, could accelerate fund flows into commodity equities.
Why?
Simply put, investors will be looking for non-correlated sectors and non-correlated stocks, especially if the drawdown in both stocks and bonds continues. Notably, this dual decline in stocks and bonds year-to-date in 2022 is impairing the traditionally popular 60/40 portfolio as well as the previous very in-favor risk parity strategies. On this note, commodity stocks, specifically the once loathed, and still generally unloved energy equity sector, certainly fits the bill as a portfolio diversifier, and enhancer, which we have seen play out in spades in 2022.
Wrapping up, quietly at first, and now more rapidly as the capital rotation has broadened in scope, we have seen a passing of the baton of market leadership. Once the last safe-haven equities succumb to the broader bear market selling pressures, perhaps this passing of the baton will be clearer, however market phase changes like this take a long time, meaning years in the process. Will there be ebbs and flows to this process? Unequivocally yes, meaning expect relative pullbacks as investors reposition, and investors of all stripes try to re-orientate around the inflection point that is occurring real time.
At this juncture, most investors are simply just becoming aware of the ongoing bear market and the leadership transition that has been taking place since the broader equity markets bottomed in March of 2020, though relative and absolute price action this year in 2022 has certainly opened more eyes.
Recognizing this changing backdrop after years of study, including being too early, I have been pounding the table on the extremely out-of-favor commodity equities for several years now, and I still think we're in the early innings of what will be a longer-term secular bull market, albeit with significant volatility. Personally, I think we will supersede the capital rotation that took place from growth-to-value during 2000-2007, which also coincided with the last secular commodity bull market which ran from 2000-2008.
Investors skittish of commodity equities should research cast aside financials as they also will benefit from a renewed steepening of the yield curve, which is probably forthcoming following the eventual Fed pause and pivot, whenever it occurs, which could even be a year out at this juncture.
Understanding the bigger picture, then having an understanding of the bottoms-up fundamentals has been the key to outperformance, and this is a path that has not been easy with those participating confirming this reality. However, the road less taken is sometimes the better one, and I firmly believe that today, as traditional stocks, bonds, and real estate continue to offer very poor starting valuations, though they're better than at the start of this year where I opined it was better to be in cash for the next seven years, and very poor projected future real returns from today's price levels. More specifically, the out-of-favor assets and asset classes, including commodities and commodity equities and out-of-favor specific securities, are where the historic opportunity has been, and that's where it still stands, from my perspective.
The Contrarian
For further perspective on how the investment landscape is changing, and where to find the superior free cash flow yielding companies, consider joining our team of battle tested analysts at The Contrarian. Collectively, we have a unique history of finding under-priced, out-of-favor equities with significant appreciation potential relative to the broader market. Additionally, we have a robust investment discussion, alongside an equally robust discussion on portfolio strategy. Collectively, we make up The Contrarian, sign up here to join.
This article was written by
Twenty plus year career as an investment analyst, investor, portfolio manager, consultant, and writer. Founder of Koldus Contrarian Investments, Ltd, which was incorporated in the spring of 2009. Dyed in the wool contrarian investor, who has learned, the hard way, that a good contrarian is only contrarian 20% of the time, but being right at key inflection points is the key to meaningful wealth creation in the markets. I believe we are near a meaningful inflection point, perhaps the biggest one yet, for the third time in the past 15 years.
Historically, I have had huge wins and impressive losses based on a concentrated, contrarian strategy. Trying to keep the good while filtering out the bad.Seeking to run an all weather portfolio with minimal volatility and index overlays to capture my strategic and tactical recommendations along with a concentrated best ideas portfolio, which is my bread and butter, but the volatility only makes it suitable for a small piece of an investor's overall portfolio. The following are a couple of my favorite investment quotes.
"Life and investing are long ballgames." Julian Robertson
"A diamond is a chunk of coal that is made good under pressure."
Henry Kissinger
"Knowledge is limited. Imagination encircles the world." Albert Einstein
I’ve been on top of the world, and the world has been on top of me. I have learned to enjoy the perspective from each view, and use opportunities to persistently acquire knowledge, and enjoy the company of those around me, especially loved ones, family, and friends.At heart, I am a market historian with an unrivaled passion for the capital markets. I have had a long history and specialization with concentrated positions and options trading. Made money in 2008 with a net long portfolio, deploying capital in some of the market's darkest hours into long positions including purchases of American Express, Atlas Energy, Crosstex, First Industrial Real Estate, General Growth Properties, Genworth, Macquarie Infrastructure, Ruth Chris Steakhouse, and Vornado near their lows. Shorting, hedging, and option strategies also helped me in 2007 and 2009, and these are skills that I have developed ever since I started trading heavily in 1996.I enjoy reading, accumulating knowledge, and putting this knowledge to work in the active capital markets, learning lessons along the way.To this day, I continue to learn, and some of these learning lessons have been excruciatingly difficult ones, especially over the past several years, as I made mistakes allocating capital, including a sizable portion of my own capital (I always invest alongside my clients), to commodity related stocks. While all commodity related stocks have struggled since April of 2011, coal companies, which attracted me due to their extremely cheap valuations, and out-of-favor status (I am a strong believer in behavioral finance alongside fundamentals and technicals) have been the worst investing mistake of my career. The focus on the commodity arena has been the biggest mistake of my investment career thus far, yet in its aftermath, I see tremendous opportunity, even larger in scope than the fortuitous 2008/2009 environment.The capital that I accumulated and the confidence gained in navigating the treacherous investment waters of 2008 gave me the confidence to launch my own investment firm in the spring of 2009, right before the ultimate lows in the stock market. At the time I was working as a senior analyst at one of the largest RIA's in the country, and I felt strongly that the market environment was the best time since 1974/1975 to start an investment firm.
Prior to starting my firm, I was a senior analyst for three different firms over approximately 10 years (Charles Schwab, Redwood, Oxford), moving up in responsibility and scope at each stop along my journey. Since I was a paperboy, I have always had an interest in the investment markets. I love researching and finding opportunities. I was a Chartered Financial Analyst, CFA from 2006-2018. Additionally, I have been a Chartered Alternative Investment Analyst, CAIA. After starting in the teaching program at Ball State University, I switched to a career in finance when I turned a small student loan into a substantial amount of capital. I graduated summa cum laude with a degree in finance from Ball State.
Full disclosure, I am not currently a registered investment advisor, though I did serve in this capacity from 2009-2014, while owning Koldus Contrarian Investments, Ltd. Additionally, I held various securities licenses from 2000-2014 without a single formal complaint filed. At the end of 2014, I voluntarily let my state registration expire, as I transitioned the business to a different structure after going through a brutal business environment, divestiture and difficult divorce and custody battle. Prior to this, I had passed, and held, various securities exams and licenses, including the Series 7, Series 63, and Series 65 exams, in addition to others, alongside the CFA and CAIA designations. Unfortunately, I did not file the proper paperwork to withdraw my state registration, and I did not disclose a personal arrangement, and subsequent civil case, between myself and a former close personal friend and client. This arrangement was initiated informally in 2011, after a substantial period of success, as we aimed to be business partners, and it ultimately resulted in a dispute. I was unaware that I was required to disclose these items, and my securities attorney, at the time, did not advise me to do so. Previously, I had managed a portfolio for this gentleman, and we had taken an investment of approximately $7 million in 2009, and grown it to over $25 million at the beginning of 2012. After a very difficult year of performance, an employee of the firm I owned, and friend, resigned in early 2013, and took the aforementioned client to a competing firm. As a result of not filing the proper paperwork, I agreed to a settlement, with a potential $2500 fine in the future, depending on if I choose to reapply to be a non-exempt advisor. Additionally, while going through the difficult divorce and business dispute and divestiture, I did not file the proper disclosure on two of the annual CFA renewals. As a result, the CFA Institute sought a 3-Year Suspension of my right to use the CFA designation, which I appealed, since the primary investigator in the case sought a 1-year suspension of my right to use the CFA designation for a majority of the investigation. A Hearing Panel heard the case, and went against the recommendation of the CFA's Institute's Professional Conduct Department. Long story short, be careful who you trust, especially when substantial money is involved, and always disclose everything properly, which is hard to do when you are going through difficult situations, as this is the last thing you are probably thinking of at the time. In closing, I have had more experience in the markets, business, and life than most, yet I am grateful & thankful for every day. Additionally, I have learned through success and failures that you have to move forward, and if you can do this, your life will form a rich tapestry of stories.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of AM, AR, BAC, CHK, CNX, CRK, CTRA, CVX, EQT, OXY, RRC, SWN, XOM AND I AM SHORT AAPL, SPY, AND TLT either through stock ownership, options, or other derivatives. 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.
Every investor's situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (89)
now FANG crushing RACES,
we haven't heard anything from you for long time.
are you still holding RACES or time to move on while NG is trying to go under $2
when will wave 3 starting?
My feeling is that after Nov 8 it will become clear Fed will slow down then stop rising rates as this was an attempt to manipulate oil prices before the midterm and then the inverse rotation from outperforming energy share to underperforming technology will start again? I have loaded up on fintech, such as STNE, AFRM, NU , SOFI, MELI and on Brazil stocks such as NTCO, BRFS, AZUL this summer from the proceeds of sale of energy shares ( I was 100% in energy shares from March 2020 to June 2022, then rotated to beaten down fintech), but still keeping some energy allocation at about 30%, FTI, PBR, VET and Gazprom (the latter transferred to Russian brokerage to avoid trading restrictions elsewhere). So far, I would have done better if I did not rotate, but it is too early to say, we will be able to tell by the end of next year.
I plead the Fifth on that! I’d like to go heavier into energy; which 2 or 3 tickers are the biggest laggards that are ready to catch up, in your opinion?As always, thank you and enjoy the upcoming holidays with your family!
Your article should be required reading for all SA authors. If they can't package information like you, they should write elsewhere.
Some authors do, but not most.
I’m told constantly that I’m a leading natural gas producer.
I like PAGP. This the the general partner for Plains. PAGP does not report on a k1 as does the partnership. WMB Williams will also be around for a long time though at a more modest dividend %. KMI will also be good long term/
You have brilliantly chronicled this rotation (out of tech and into energy, out of growth and into value) and I think you are the best analyst and PM in the country for thoughtfully identifying it. I bought AR early because of your "generational opportunity" note and it has been a huge winner for our clients. Another great call of yours is the panning of Catherine Wood and ARKK. What I would like to know is where beyond nat gas and oil (energy) that you see deep value.
I believe there is a great rotation in the capital goods cycle which should benefit the Green Infrastructure beneficiaries like green commodity manufacturers. eg BHP, RIO... ALB (for lithium) and also CCJ for Nuclear. I see energy demand for nuclear, hydrogen and LNG. What names do you like there? I like TELL for LNG, but they have had delays and difficulty putting it together. What cheap names do you like there??
Anyone who is not a subscriber, should subscribe to the Contrarian.
Tyson Halsey, CFA
I'm with you in TELL but it is now the longest of long shots. I have great expectations for LEU in nuclear and GTLS in the LNG arena, as well as FLNG for transport. OSSIF is interesting re: pipeline emissions detection.
Not endorsements but cos to look into.
--- Yeah, XOM is blaming inflation when in actuality they are price gouging on an oil price half that of its previous highs. I agree inflation is affecting some industries but then, nearly all of those other industries are dependent on fossil fuels to deliver their product.
This comment displays a deep ignorance or misunderstanding of the O&G industry and its markets. Applied to corn, semi chips, or uranium, it would immediately be seen as specious but somehow it has traction in O&G.
Keep up the good work. LONG AR and a whole lot more.... | AAPL |
https://finnhub.io/api/news?id=9fc3fc2e7f6b2a69027f1a96524dbc6a445caba1e7d47195628823fc1c0ffb3e | Consider Reaping High After Apple's Earnings Release | Apple is likely trading at a 2-year premium, which investors may not be able to utilize again soon. I estimate the value of Apple to be $1.8 tn. Read more here. | 2022-10-28T06:22:57 | SeekingAlpha | Consider Reaping High After Apple's Earnings Release
Summary
- Apple is likely trading at a 2-year premium, which investors may not be able to utilize again soon. I estimate the value of Apple to be $1.8 tn.
- Given its growth potential, I don't see Apple surpassing revenues of $700 bn and FCFF of $160 bn in the next decade.
- The market may be ignoring the changed price of risk and inflation effects on future growth and value. Scaling also becomes more difficult at this size.
- The expanded pricing is inconsistent with the expected future performance.
- Relative peer analysis indicates that Apple will have to outperform in-order to sustain the current pricing, while the outlook indicates a deceleration of the business.
Betting against Apple Inc. (NASDAQ:AAPL) might feel like missing out on a good company, possibly one of the rare companies keeping a portfolio up, but extrapolating past performance is starting to make less sense for a company of this size.
In this analysis, I discuss why the current price premium is about 2 years ahead of the fundamentals, and why the intrinsic value of the company may be $1.8 tn, some 30% lower than the market value.
To be clear, I’m not proposing a short position.
Here is where I see the current value of Apple’s equity:
If the predictions of this analysis are close to reality, then Apple can be assigned a 1-year price target of $123.6, implying a 14.5% downside. As the company keeps executing, the intrinsic value will reach current price levels in up to 2 years.
Now let’s consider the fundamentals and assumptions on which I base this valuation.
Remaining Verticals
The major verticals for the company are within the software segment, including:
Financial services - Apple Pay, buy now pay later, checkout. These services are rivaling companies like Block, Inc. (SQ)
Streaming and media - AppleTV, music. Rivaling Spotify Technology (SPOT), and the media industry.
App store and mobile games. Enabling a vast ecosystem of developers to produce apps for the iOS, in direct competition to Alphabet’s (GOOG, GOOGL) Android, and Meta Platforms' (META) social networks.
Electric vehicle (EV) software - Apple is collaborating with the auto industry to develop compatible operating systems for their EVs that are set to compete with Tesla (TSLA).
On the device and hardware side, the company is focused on scaling their M2 chips, which can be distributed across devices, and may find additional potential in EV or other industry applications. The quality of the chips is cutting edge by itself and may enable the company to have a sustained high margin position in the market for many years.
In the longer term, Apple may opt for a slow onshoring production strategy in order to reduce international exposure, increase the quality of their devices, and benefit from government incentives.
Not Really Growing
The after-earnings update from Apple posted some great results, and investors are applauding the well executed performance. When we switch to the bigger picture, we can see that the company has less room to expand than before.
Looking at the growth chart, we immediately see the first issue, the company is not catching up with inflation (as measured by core CPI), which is understandable, but this flips the game for growth. This is going to become a high bar for companies to pass, and stocks will suffer.
In 2013, Apple made $169.1 bn in revenue, and grew them by 233% to $394.3 bn in the last 12 months (LTM). Even with all the verticals in place, a scenario where they repeat this growth seems unlikely. Given the current landscape and possible verticals, Apple may be in a good position to grow revenue to around $700 bn, roughly 80% in the next 10 years. At this stage of the company, scaling up into new products becomes much more difficult, and Apple is already a well run business, so there may not be too much value to be found from improving it from the inside.
Earnings Outlook
Guidance starts at 25:00 of the earnings call. The company refrained from providing revenue guidance and expects a general deceleration of growth based on a continuing FX impact and an estimated Mac sales decline.
Expected gross margins around 42.75%, opex around $14.8 bn, and an effective tax rate of 16.5%.
The great thing about Apple is that profitability is expected to remain stable and possibly growing. In the chart below, we can see that the company is expecting to keep the elevated gross margins.
Stable profitability helps with reducing the risk of the stock. However, the increased price of risk and growing interest rates are pressuring the valuation, which is a large part of the reason for the mismatch between the market and intrinsic value of the company.
Fundamental Model
Given all of the above, I have constructed the following model:
Revenue growth 4% in the next 12-months, and 7% in the 4 years after that. This makes revenue.
Adjusted EBIT margins (I capitalize R&D) of 35% in year 10, up from the current 32.8%.
Efficient tax rate to reach the statutory rate.
Starting discount rate of 10.7%, but reduced to 8% in year 10 reflecting Apple’s business stability.
Returns of capital 2% higher than the cost of capital at maturity, reflecting lasting competitive advantages of the firm.
The chart below shows the expected performance for Apple, feel free to tweak the model yourself from the link above.
In order to see if this makes sense, we will also take a look at the changes in Apple’s pricing over the years.
Peers and Pricing
Here’s the rub. Pricing multiples have been expanding since 2019, and remain higher than historical levels. However, 2 things have changed which make this pricing inconsistent.
First, the price of risk has changed post 2021, and many companies are feeling the pain.
Second, a higher pricing implies high expected growth across the income statement. Further, it means that the future growth for Apple should be even higher than the historical 5-year revenue CAGR of 11.5%. This may be inconsistent with the available growth verticals for the company, unless Apple moves horizontally and leads a whole new industry such as EVs or financial services - and I mean lead, not participate.
Finally, looking at the peer line-up, Apple seems to be in the bottom right quadrant, implying some relative exposure. The EV to EBIT is close to the 21x peer median, however, the company is somewhat off from the fundamental revenue and profit growth of peers.
Keep in mind that the peer and multiple selection is highly subjective for the chart below, so take it with some reserve.
Conclusion & Possible Investment Approach
Apple is undoubtedly a great company that will keep producing value. However, it seems that the market is not factoring-in the new price of risk driven by inflation and its possible effects on real future growth and profitability. The company is also maturing, and expecting continued high performance may be inconsistent with the available expansion avenues.
The current $1.8 tn value model of Apple has priced-in revenues of $700 bn and unlevered free cash flows of $160 bn in 10 years. Investors that believe that the company can outperform this model will find it reasonable to stick to this company. However, simply reaching this performance is not enough to justify the current $2.3 tn market value for Apple, which is why the stock seems to be trading at a premium of 2 years, and investors may want to consider taking advantage of the high pricing.
Investors may also want to ask themselves, at which target value they will be satisfied with their investment in Apple? Given the current environment, some investors may choose to reap their gains in Apple and look for new opportunities.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (36)
Especially , when levied against a firm with such a long and varied record of massive brand, consistent EPS growth , and careful management .
One of the risks for me being wrong is the price of risk, if inflation and discount rates subside, then valuation goes up - and that is the judgement call that you have to make as an investor.
On the PE, look at the pricing - PE was stable before 2019 and Apple was a great company even then.
But ok, you can argue that inflation is on a different level. You can also use the recommended sticky CPI which is lower, or just the normal CPI which includes food and energy prices. | AAPL |
https://finnhub.io/api/news?id=b927bbaa9e8e86c345e5b63ee392db18eb81d4bec800e1da77a88b304758b649 | Apple: Teaching A Lesson On 'Fearmongering' | Apple beat analyst consensus with regards to both revenue as well as earnings during fiscal Q4. Read why I'm confident to reiterate my buy rating for AAPL stock. | 2022-10-28T03:59:07 | SeekingAlpha | Apple: Teaching A Lesson On 'Fearmongering'
Summary
- Apple beat analyst consensus for fiscal Q4 with regards to both revenue as well as earnings.
- Despite excessive "fearmongering" surrounding iPhone 14 demand, Tim Cook said that Apple's supply remains "constrained" versus demand.
- Apple proved once again that doubting the world's most valuable consumer company is a fool's errand.
- Following another strong quarter from Apple, I am confident to reiterate my "Buy" rating for AAPL stock.
- As a function of higher risk premia for Big Tech in general, and smaller EPS adjustments for Apple specifically, I lower my base case target price to $200.59.
Thesis
I previously argued that it is unlikely that Apple Inc.'s (NASDAQ:AAPL) fiscal Q4 results would disappoint. And indeed they didn't. Despite excessive "fearmongering" surrounding the iPhone 14 demand - see here, here, and here - Tim Cook said that "We continue to be constrained today and so we're working very hard to fulfil the demand."
That said, Apple beat analyst consensus with regards to both revenue as well as earnings; and the company once again proved that doubting the world's most valuable consumer company is a fool's errand.
Reflecting on another strong quarter from Apple, while Google (GOOG, GOOGL), Meta Platforms (META), and Amazon (AMZN) stumbled, I reiterate my "Buy" rating for AAPL stock. But, as a function of higher risk premia for Big Tech in general, and smaller EPS adjustments for Apple specifically, I lower my base case target price to $200.59.
Apple's September Quarter
From July to the end of September, Apple generated record revenues of $90.14 billion, which represents an increase of 8% versus the same period one year earlier. For reference, analyst consensus had estimated Q4 sales at about $88.8 billion ($1.37 billion beat).
The strong topline number was driven by better-than-expected iPhone sales, which increased 10% year over year to $42.6 billion (accounting for about 47% of sales), as well as an exceptionally strong (record) demand for Macs. Interestingly, strong Mac demand was sustained while Gartner estimated PC sales to have fallen by 19.5% in the September quarter. Services also recorded record revenues: the segment increased to $19.2 billion and claimed more than 900 million paid subscriptions.
Tim Cook, Apple's CEO commented (emphasis added):
This quarter's results reflect Apple's commitment to our customers, to the pursuit of innovation, and to leaving the world better than we found it ...
... As we head into the holiday season with our most powerful lineup ever, we are leading with our values in every action we take and every decision we make. We are deeply committed to protecting the environment, to securing user privacy, to strengthening accessibility, and to creating products and services that can unlock humanity's full creative potential.
But Luca Maestri, Apple's CFO, also admitted in the analyst call that (emphasis added):
we believe total company year-over-year revenue performance will decelerate during the December quarter as compared to the September quarter
Profitability Expands
Apple's profitability remained surprisingly strong. During the September quarter, the company generated operating income of $24.89 billion, as compared to $23.79 billion for the same period one year earlier. Net income edged higher to $20.72 billion (versus $20.55 billion in Q4 2021).
Notably, Apple was the only "Big Tech" player that managed to increase EPS in the September quarter. The company generated EPS of $1.29, up 4 percent year over year - while Amazon's net income fell 9 percent, Microsoft's dipped 14 percent, Alphabet's declined 27 percent, and Meta's slumped 52 percent.
This alone should clearly underline Apple's business quality.
Shareholder Returns
During the September quarter, Apple returned more than $29 billion to shareholders - in the form of dividends and share repurchases. If such a number would be assumed for the next four quarters, which is not unlikely given Apple's strong cash flow and balance sheet, Apple's yield would approach 5% - higher than what 10-year treasury yields offer, while also offering exposure to growth opportunity.
With Q4 2022, Apple has also declared a cash dividend of $0.23 per share, which will be paid on November 10.
Valuation Update
I have previously valued Apple at $247.51/share, and I still believe that, long term, such a valuation would make sense. I continue to see the following (potential) value drivers: 1. New market opportunities including VR/AR and the Apple Car; 2. Accelerating strength in Apple's service portfolio; and 3. Continued financial engineering. However, I also need to acknowledge that valuations for Big Tech are falling and other companies - notably Meta and Google - provide deep value opportunities, in my opinion.
That said, I understand that a 7.5% cost of equity does probably not reflect an adequate return requirement, and I upgrade this number to 8.25%. Moreover, I slightly adjust my EPS estimates to reflect analyst consensus adjustments. I continue, however, to anchor on a 4.5% terminal growth rate.
Given the EPS upgrades as highlighted below, I now calculate a fair implied share price of $200.59.
Below is also the updated sensitivity table.
Conclusion
Following the Bloomberg report that Apple is apparently scaling down production of the iPhone 14 product line, investors were wary that Apple's Q4 results would disappoint. But while other Big Tech companies crashed after reporting their September quarter, Apple was up slightly following the Q4 numbers (+0.5% after-hours trading reference).
However, it is also impossible to ignore that Apple stock remains closely correlated to the S&P 500 (SPY). Accordingly, if an investor expects more pain for the S&P 500, then it will be hard to argue that Apple will not suffer in lockstep.
Reflecting on another strong quarter from Apple, I am confident to reiterate my "Buy" rating for APPL stock. However, as a function of higher risk premia for Big Tech in general, and smaller EPS adjustments for Apple specifically, I lower my base case target price to $200.59 (versus $271.51/share prior).
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of AAPL either through stock ownership, options, or other derivatives. 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.
Not financial advice.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (65)
Or when the fed is coming near an end to interest rate hikes...
--
"This is nothing more than a relief rally since earnings didn't implode like other big tech names. The trend is still down."
--
**The trend is still down. Nice one! 😎
My father always drove a recent model Cadillac after he retired and before he passed. He loved them and I enjoyed riding with him when I visited. After he passed the family discovered he owed more on his Cadillac lease, due to flipping every two years, than his house was worth. Personally, I was simply happy that he was happy and in the end the lease co. got their car back.
I get that Apple products may be superior and have the bells and whistles. Being of more modest means myself, I’ve been happy with the utilities I need from less expensive gadgets. Yes, I’m an old fart who considers their products as gadgets.
As long as people can afford them, Apple will command that “luxury” gadget niche market.
If Apple can stay in the good graces of China, they’ll probably do well. My concern as an investor is that to stay in those good graces, they must kiss the feet of the leader of a Communist regime and spit shine the shoes of a US President, when he starts tossing around tariffs.
Not what I consider a promising business model. | AAPL |
https://finnhub.io/api/news?id=84c7419de816d97736c10332aefffea3e2bbfc998c8d338db747e43f8a349e64 | Amazon: Disappointing Quarter Could Prompt Shares To Trade Lower | Amazon's Q3 reporting disappoints, as "recession proof" met "uncharted waters" for consumer spending. Click here to read my earnings analysis of the AMZN stock. | 2022-10-28T02:53:24 | SeekingAlpha | Amazon: Disappointing Quarter Could Prompt Shares To Trade Lower
Summary
- Amazon's Q3 reporting disappointed, as "recession proof" met "uncharted waters" for consumer spending.
- Revenues for the September quarter missed consensus by about $370 million.
- Amazon now expects FY 2022 sales to be between $140 billion and $148 billion - versus analysts' expectations of around $155 billion.
- The e-commerce profitability is very disappointing. And I argue investors should take note.
- I reiterate a "Sell" rating for Amazon stock, and I lower my base case target price to $83.37 from $84.55 prior.
Thesis
I was cautious going into Amazon.com, Inc.'s (NASDAQ:AMZN) Q3 results, as I didn't like the negative implications of an additional Prime Day. And the e-commerce giant's reporting indeed disappointed: revenues for the September quarter missed consensus by about $370 million. But what was even more negative, given "uncharted waters" for consumer spending, Amazon now expects FY 2022 sales to be between $140 billion and $148 billion - versus analysts' expectations at around $155 billion.
AMZN stock has lost as much as 14% following Q3 (pre-market reference). But I argue the stock can go even lower.
Amazon suffers from depressed economic sentiment, which should contrast sharply to the belief that Amazon's business model would be recession-proof. This, paired with a rich valuation, I remain pessimistic about Amazon's near-/mid-term outlook. I reiterate "Sell," and I lower my base case target price to $83.37.
Amazon's Q3 Quarter
From July to the end of September, Amazon generated total revenues of about $127.1 billion, which compares to $110.8 billion for the same period one year earlier, representing a 15% year-over-year increase. Analysts, however, have expected sales to be around $127.4 - thus, Amazon missed by about $300 million.
Amazon's net income came in at $2.9 billion, versus $3.2 billion in the same period a year ago. Moreover, net income decreased despite accounting for a $1.1 billion non-operating gain from re-valuing the Rivian Automotive (RIVN) stake. Operating income for TTM decreased to $12.97 billion.
North America segment operating loss was $0.4 billion, compared with operating income of $0.9 billion in third quarter 2021.
International segment operating loss was $2.5 billion, compared with operating loss of $0.9 billion in third quarter 2021.
AWS segment operating income was $5.4 billion, compared with operating income of $4.9 billion in third quarter 2021.
Honestly speaking, such an anemic profit is very disappointing for a +$1 trillion business. I understand that markets do not focus on Amazon's profitability. But perhaps they should.
Outlook Disappoints
Like Alphabet Inc. (GOOG, GOOGL) ("Google"), Microsoft (MSFT) and Apple (AAPL), Amazon warned of a clouded outlook, saying that the current economic environment:
is uncharted waters for a lot of consumers' budgets.
FY 2022 sales guidance was accordingly disappointing: Amazon now expects revenues for 2022 to be between $140 billion and $148 billion, which is as much as $15 billion lower than the median analyst estimates of $155 billion.
Operating income for Q4 is estimated at around $4 billion, versus analyst consensus of about $5 billion.
Amazon's disappointing quarter was driven by a depressed performance from the e-commerce business. But also "cloud" failed to convince. Sales from the cloud business increased by "only" 28% year-over-year, to $20.54 billion. Arguably, the buy-side was hoping to see growth at about/above 30%.
Still Expensive - Downgrade Target Price
Following a disappointing Q3 from Amazon, I upgrade my residual earnings model to account for lower earnings in late 2022, as well as 2023. However, I keep the cost of capital relatively low, at 8.25, and the terminal growth rate relatively high, at 4.5%(almost 2 percentage points above expected nominal GDP growth).
Given the EPS downgrades as highlighted below, I now calculate a fair implied share price of $83.37, versus about $84.55 prior.
Below is also the updated sensitivity table.
Conclusion
To be fair, Amazon is not the only FAANG that disappointed: Google dropped 10% following Q3, Meta Platforms (META) dropped 25%, and Microsoft fell as much as 7%. I believe, however, that Amazon is in a unique situation as compared to Big Tech peers - the company's profitability is much, much lower, and the valuation much, much richer. Accordingly, I personally would be worried about holding AMZN stock at above $100/share.
The key point for my thesis is that I expect sentiment to change. For a long time, investors did not really care about AMZN's profitability. In fact, as I understand it, it has for a long time been a meaningless metric for Amazon, as the company almost appeared proud of the fact when they recorded negative earnings. Investors have been conditioned to accept it. But as recessionary conditions are biting, and investors will undoubtedly demand more discipline, Amazon's lack of profitability focus may prompt a repricing of the stock - lower.
Following a disappointing Q3, I reiterate a "Sell" rating for Amazon stock and I lower my base case target price to $83.37 from $84.55 prior.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
Not financial advice.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (5) | AAPL |
https://finnhub.io/api/news?id=c0143726d183d761a5a47c3f8cb80053220dab120e302acd12ac8eb3f2930935 | Apple: Currency, China, Europe, All Headwinds | Apple openly states that Q1 2023 will see its revenue growth rates decelerate. Check out the three things that are going to affect AAPL stock here. | 2022-10-27T22:01:58 | SeekingAlpha | Apple: Currency, China, Europe, All Headwinds
Summary
- Apple openly states that Q1 2023 will see its revenue growth rates decelerate.
- Apple is being plagued by 3 headwinds - currency, China, and Europe, with currency impacting revenues by 1,000 basis points.
- Services is no longer the leading growth segment. As Services compares against a very strong period last year, there's no more subdued growth.
- I make the argument that analysts will need to downwards revise Apple's EPS estimates.
- I highlight a limitation to this analysis too.
- Looking for a helping hand in the market? Members of Deep Value Returns get exclusive ideas and guidance to navigate any climate. Learn More »
Investment Thesis
Apple (NASDAQ:AAPL) managed to survive the quarter. Many investors, including me, were very much on the fence about how the results would work out. But Apple managed to reassure investors that it is an extremely high-quality company, despite everything being thrown at it.
As we'll soon turn to discuss, there was one major theme that will be affecting Apple into the next quarter: currency.
Currency is expected to provide a 10% headwind. That's just off-the-chart pressure. For a company with Apple's expected revenue growth rates, this makes the difference between no growth and some growth.
The other consideration, that we'll discuss is Apple's valuation continues to be an overhang, preventing more investors from getting involved with the name.
There's a lot to get through, so let's jump right in.
Q4 Results, What's Happening?
It's perhaps needless to say, but the quarter just passed spans July through September. We know from companies' commentary that throughout July and August the macro environment was more or less stable, but that starting in September, the backdrop deteriorated.
Hence, what happened in the quarter isn't as meaningful as what lies ahead. While this is always the case, with the market always looking forward at least 6 months, this is now more applicable than ever.
As a reminder from what I previously highlighted, there are three critical aspects that I believe will negatively impact Apple going ahead.
- China risk.
- There's Europe.
- There are currency headwinds.
I'll touch on these in reverse order. The currency headwinds are likely to be around 1,000 basis points headwind to topline growth in Q1 2023. For a company the size of Apple, that can make the difference between some growth and no growth.
Europe is facing a serious economic slowdown. Europe has been plagued by exorbitant energy prices, that are capping manufacturing, and dramatically impacting household income spending power.
Again, this won't be reflected in the current quarter, because the situation has only reached a crescendo since the summer.
Next, China is growing at the slowest pace in years. China is no longer the growth economy that drove Apple's revenues higher. Point of fact, China's growth in the quarter was 6%, a drag on company-wide growth of 8%. A reversal of what we've been accustomed to seeing.
With these top 3 considerations in mind, let's press forward.
Revenue Growth Rates at Single-Digits
Apple openly states that revenue growth rates "as-reported" will decelerate from the quarter just reported. That means that we are likely to see Apple's revenues growing by less than 8% y/y in Q1 2023.
Put another way, let's be honest, for now, Apple is no longer a growth company.
Profitability Profile, Bull Case Weakens
For Q4 2022, operating margins were 29% and this time around operating margins compressed by 100 basis points to 28%. Now, keep in mind, that the bull case is that Apple's Services should lead to margin expansion, as Services should grow faster than iPhone sales.
But that's not what we see here. In Q4 2022, Services were up 5% y/y, while the blockbuster iPhone lineup saw revenues from iPhones grow 10%.
Put another way, the core of Apple's bull case, Services, is slowing down.
That being said, as alluded to above, Apple's operations are being impacted by currency. For example, during the call, we are told that Services' revenues on a constant currency basis were up double-digits.
Similarly, looking ahead to Apple's guidance, Apple states that at the midpoint of its gross margin outlook, there should be 100 basis point compression.
AAPL Stock Valuation - 24x Forward EPS
Here's the crux of the matter. Analysts refuse to downwards revise Apple's EPS estimates. Even now, this late into the game, you can see in the red arrow above that for Q1 2023, analysts are not bringing down their EPS consensus estimates. Why?
Because you don't want to be the sell-side house that downwards revises Apple's stock. That's just bad for business.
Even though Apple mentioned that Q1 2021 would see growth rates decelerating, and gross margins compression, plus currency headwinds impacting operating margins.
Looking ahead, analysts are expecting Apple to deliver $6.55 of EPS. This is a figure that I believe needs to be downwards revised by at least 5% if not 10% to approximately $6.00.
That leaves Apple priced at 24x forward EPS. Simply put, I don't believe that paying more than 20x forward earnings for a company with mid-single digits growth is a bargain.
The Bottom Line
For investors that don't own Apple, is this really the time that investors are going to think, the company is reporting so much growth, I have to buy into this growth? I don't believe that's the case.
And on the other side of the spectrum, as I've discussed already, I simply can't make the maths work to justify its valuation.
So, the stock is no man's land. It's not cheap enough for bargain hunters and not fast enough for growth investors.
That being said, here's a limitation to my analysis. I recognize that Apple makes 7% of a weighted S&P 500 ETF (SPY). That means that even if AAPL stock is overvalued, whenever investors buy an ETF, they are forced to buy Apple, meaning that capital flows will continue coming into the stock, offering support to the stock.
Does that mean the story ends here? I don't believe it does. I believe that we are going to start to see more and more investors questioning Apple's valuation.
I believe that when investors start looking around, where you got countless tech companies, doing exciting things with good profitable prospects, that are down 50%, 60%, and sometimes +80% from the prior highs, that will lead investors to take some winnings here and deploy capital elsewhere. However it works out, good luck with the remainder of the earnings season.
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Comments (12)
are good tech companies that are down 40, 50, 80% and that Apple Investors better deploy the money in those?Ps I’m long since 2013 and will stay long into the next decades. They’ll become an dividend aristocrat and a lot of people will tell you by then: “I wish I bought shares in the early 2020’s”
1. China no longer accepts the status quo of Taiwan's status
2. The timeline for China taking action on Taiwan has been stepped up.Is this a concern?I was really surprised that the Taiwan situation didn't come up in the earnings call at all. | AAPL |
https://finnhub.io/api/news?id=8226c9a614a7f9f10a022706277cec91a62775ab15e422e881f0ffcb60694540 | Apple Q4 Earnings Review: The Best That Big Tech Had To Offer | Apple's performance in fiscal Q4 may have been better than feared. See why I believe AAPL stock remains the best-performing stock of the year among FAAMG peers. | 2022-10-27T21:57:58 | SeekingAlpha | Apple Q4 Earnings Review: The Best That Big Tech Had To Offer
Summary
- Considering how disastrous the earnings season has been for Big Tech, Apple's performance in fiscal Q4 may have been better than feared.
- Severe FX headwinds made the analysis tougher this time, but the business fundamentals appear to be in great shape still.
- Apple's rich valuation multiples are justified by the quality execution of the managers, the power of the brand, and the fortress balance sheet.
- Looking for a helping hand in the market? Members of EPB Macro Research get exclusive ideas and guidance to navigate any climate. Learn More »
Maybe "mic dropper" was not the most appropriate phrase to describe Apple's (NASDAQ:AAPL) fiscal Q4 performance in 2022. But the print was far from a disappointment, once I took the time to see what was happening under the hood. In fact, the Cupertino-based company may have delivered the best set of numbers and holiday quarter narrative within the Big Tech universe.
With that, Apple remains the best-performing stock of the year among its FAAMG peers (see below), as well as the most resilient in October so far. I remain an Apple bull for the long haul, understanding that there are enough challenges and uncertainties in the foreseeable future to possibly pressure the share price in the short term.
Apple's numbers: a quick review
On the headline metrics, Apple did well. The revenue and EPS beats were small, but at least they were delivered: top-line growth of 8% vs. 7% projected, and bottom-line YOY increase of 4% vs. consensus 3%.
As I had previewed, the iPhone performed well against very tough comps. Growth of 10% timidly topped my expectations of 12% to 15% ex-FX. The Mac also impressed on the back of channel fill and the launch of the M2-equipped MacBook Air, which I had also anticipated: very strong revenue growth of 25%. The iPad suffered from currency movement and the timing of product launches in 2021.
The sore thumb, although also not much of a surprise, was the services segment. Growth of 5% was uninspiring to say the least, even considering low expectations for an increase of 10% or less. Keep in mind that the segment once saw revenues double in five years, then repeat the feat again in the following five. The growth story in this high-margin segment is now on shaky ground (see the next chart below).
Of course, context is needed here. First, the pandemic and stay-at-home tailwinds may have distorted the revenue trajectory a bit. Also, FX headwinds of over six percentage points matter, without which segment revenue growth would have landed closer to 12%. Lastly, softness in the segment may have been mostly confined to digital advertising, which the internet companies had already warned us about earlier in the earnings season, and gaming (a sizable chunk of the App Store business).
Otherwise, I was satisfied with a gross margin of 42.3% which seemed quite rich (10 bps higher YOY) for an environment of inflated labor and component costs and unfavorable currency movements. And as usual, cash flow production was impressive, with operating CF and FCF rising about 15% YOY.
Given the circumstances of high inflation, rising rates, decelerating economic activity, and very unfavorable FX (Apple is projecting a whopping 10 percentage points of drag on revenues next), guidance for the holiday quarter was far from disastrous. Assuming consensus revenue growth of 3.5% (Apple effectively guided for something less than 8%), my projected fiscal Q1 EPS is $2.10, as the table below depicts, or flat YOY on the back of opex that looks very rich.
Apple is still a buy for the long haul
Was Apple's fiscal Q4 results memorable? Not really. But considering how disastrous earnings season has been for Big Tech, the company's performance may have been better than feared. With the stock down some 20% YTD, this Thursday's "all clear" sent from Cupertino may justify some optimism toward Apple's business and the longer-term performance of the stock.
I reiterate my views on AAPL: I like the product portfolio that seems to support strong demand and the company's recent track record of delivering decent-to-outstanding results in virtually any macro environment. Valuations are a bit rich (see below) for such a weak stock market, but I think that the multiples are justified by the quality execution of the managers, the power of the brand, and the fortress balance sheet.
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Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.
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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.
He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.
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Analyst’s Disclosure: I/we have a beneficial long position in the shares of AAPL either through stock ownership, options, or other derivatives. 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (12)
www.foxbusiness.com/... | AAPL |
https://finnhub.io/api/news?id=13c27d3e01d215116253a48be6270b721c614f378a89f0df7024f9a48fed27b2 | Good Stocks To Invest In Today? 2 S&P 500 Stocks To Watch | Should investors be watching these S&P 500 stocks after there recent financial results? | 2022-10-27T18:10:29 | StockMarket | S&P 500 stocks are widely recognized as some of the best investments available. They offer a unique combination of stability and growth potential, making them an attractive choice for both long-term and short-term investors. The S&P 500 is made up of 500 large-cap stocks that are widely considered to be leaders in their respective industries. Notably, this includes companies such as Tesla Inc (NASDAQ: TSLA), Alphabet Inc. (NASDAQ: GOOGL), and Johnson & Johnson (NYSE: JNJ) to name a few.
S&P 500 stocks tend to be less volatile than smaller-cap stocks, making them a good choice for investors who are looking for stability. At the same time, S&P 500 stocks have the potential to provide significant growth, making them an ideal choice for long-term investors. Whether you’re looking for stability or growth, S&P 500 stocks offer an attractive option for anyone who is considering investing in the stock market.
S&P 500 Stocks To Watch Right Now
- Apple Inc. (NASDAQ: AAPL)
- Amazon.com Inc. (NASDAQ: AMZN)
1. Apple (AAPL Stock)
First, we have consumer technology giant Apple Inc. (AAPL). In short, the company designs develops and sells consumer electronics, computer software, and online services. Moreover, Apple’s hardware products include the iPhone smartphone, the iPad tablet computer, the Mac personal computer, the Apple Watch smartwatch, and the Apple TV among others.
AAPL Recent Stock News
Meanwhile, on Thursday afternoon, the company reported its fourth-quarter 2022 financial results. In the report, the company reported Q4 2022 earnings of $1.29 per share, with revenue of $90.1 billion. Meanwhile, Wall Street’s consensus estimates for the quarter were earnings of $1.26 per share and revenue of $90.0 billion. These revenue figures represent an 8.1% increase versus the same period, a year prior. Furthermore, Apple reported that it estimates Q1 2023 revenue to surpass $134 billion.
Luca Maestri, Apple’s CFO commented, “Our record September quarter results continue to demonstrate our ability to execute effectively in spite of a challenging and volatile macroeconomic backdrop. We continued to invest in our long-term growth plans, generated over $24 billion in operating cash flow, and returned over $29 billion to our shareholders during the quarter.“
AAPL Stock Chart
Shares of AAPL stock closed Thursday’s trading session down 3.05% at $144.80. Though, after the earnings report was announced, Apple stock closed Thursday’s after-hours trading session at $145.35 a share.
[Read More] 3 Dow Jones Industrial Average Stocks To Watch Today
2. Amazon (AMZN Stock)
Following that, let’s take a look at Amazon.com Inc. (AMZN). To begin, Amazon.com Inc is an American multinational technology company that focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence.
AMZN Recent Stock News
Also, on Thursday afternoon, Amazon announced its third-quarter 2022 financial results. Diving in, the company reported Q3 2022 earnings of $0.20 per share and revenue of $127.1 billion. For context, analysts’ estimates for the quarter were earnings of $0.22 per share and revenue of $126.4 billion. In addition, Amazon’s revenue reflects a 14.7% increase on a year-over-year basis.
Moreover, Andy Jassy, Amazon CEO commented about the quarter’s performance, “In the past four months, employees across our consumer businesses have worked relentlessly to put together compelling Prime Member Deal Events with our eighth annual Prime Day and the brand new Prime Early Access Sale in early October. The customer response to both events was quite positive, and it’s clear that particularly during these uncertain economic times, customers appreciate Amazon’s continued focus on value and convenience.”
AMZN Stock Chart
On Thursday, shares of Amazon stock closed the day down over 4% at $110.96 a share. After the company released its Q3 2022 financial results, AMZN stock dropped another 12.73% in after-hour trading on Thursday at $96.84 a share.
If you enjoyed this article and you’re interested in learning how to trade so you can have the best chance to profit consistently then you need to checkout this YouTube channel. CLICK HERE RIGHT NOW!! | AAPL |
https://finnhub.io/api/news?id=c1d1860e58c4958b08f18260cf157961041abad4ab8033c99e0150f467ad1b7e | FBCG Is Showing Cracks | Fidelity Blue Chip Growth ETF's top 5 holdings account for 33% of the portfolio. See why we don't see FBCG as terribly exciting at this time. | 2022-10-27T17:58:10 | SeekingAlpha | FBCG Is Showing Cracks
Summary
- We've been wary about the lag between consumer pessimism and corporate pessimism, where corporates weren't getting the memo.
- We called out major corporations like Google and Microsoft saying that the last earnings season, which was still strong, may be the last before an evident recession.
- It seems that we were right and corporate spending is taking a hit, even among America's most darling stocks, which depend heavily on continued growth for their prices.
- Substantial weighting towards Google, Apple and Microsoft should hurt FBCG, not to mention Nvidia which ultimately is getting hit by the crypto crash.
- An inflation peak could swiftly save this ETF.
- Looking for a helping hand in the market? Members of The Value Lab get exclusive ideas and guidance to navigate any climate. Learn More »
The Fidelity Blue Chip Growth ETF (BATS:FBCG) is a US growth ETF with substantial weighting towards the American megacaps. 33% of the portfolio is accounted for by the top 5 holdings. Here we give our macro comment concerning trends in corporate spending, which have only just now started to decline broadly in the economy with a sign from some of the major advertising-exposed players, as well as some notes on consumer spending in China and crypto, all of which are trends that are going to affect much of this ETF as well as the economy broadly, with crypto being the least impactful of the factors. Whether this is the time to buy FBCG is a different matter - it depends on inflation's response to the current interest rate regime.
FBCG Breakdown
Let's have a quick look at the FBCG major holdings. The top 5 holdings that account for 33% of the portfolio are Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG) (GOOGL) and Nvidia (NVDA).
All of these stocks are staples of value-weighted ETFs, with their large market caps commanding high proportions of value-weighted ETFs that are already skewed towards tech and therefore growth. Almost all of them had very strong earnings seasons in late July/August despite the fact that rates had already risen substantially from the beginning of the year by then, and inflation had been taking their tolls on consumer budgets. At that point there was signs of consumer confidence declines but no declines were happening in businesses that faced enterprises. The issue of declining corporate spending in these major holdings is beginning to appear now, but also other factors that threaten their do-no-wrong status that justifies their high multiples and continued runways for growth despite signs that the economy is dipping.
Important Factors
Google recently reported earnings and pressures have become evident as more companies that sell ads compete for tightening ad budgets. While growth still continues, valuations of the top blue-chip growers are on stilts that can easily be kicked from under them by missed expectations, since horizons are so long for companies' whose fortunes seem certain. Microsoft also didn't see performance come as strongly from Azure. Amazon faces both consumers and producers, and was penalised by markets as a result. While a falling number of consumer sales would come out of the commission that Amazon takes on sales to any vendor on its platform (the marketplace subscription is probably solid unless vendors disappear), the AWS revenues were not able to help the company beat expectations in its latest earnings, following suit slightly with Azure. Markets penalised Amazon even harder due to the AWS disappointment, a segment that was regarded as an assured source of success.
In other words, we saw pass through of consumer spending declines into corporate spending and with consumer spending still affected, these decelerations may continue for the next quarters. Indeed, the general economic picture is not great even for the US, where current account improvements thanks to energy export is helping its finances and therefore the dollar, but consumer spending is distinctly softening.
In the case of Nvidia, the crypto crash has really not helped some of its retail sales that were going into crypto, as we predicted more than a year ago was a risk factor. Moreover, building cycles for new PCs have slowed due to supply chain woes still being digested in retail semiconductor and affecting its videogame markets. There, a disappearance of the casual gamer with the reopening may have created a hole in the market too, and this could be contributing in part to the general bloat we are seeing in semiconductor inventories, which went from being in shortage to suddenly in a glut. The worsening outlook for semiconductors confirmed by reports from heavily exposed economies like Taiwan raise questions about a lot of tech exposures that supply semiconductors or supply that industry.
Apple which isn't exactly a semiconductor company but a consumer staple company at this point, is still contributing to the electronics glut as well as their revise downwards their production plans in China on less than stellar initial reception for the iPhone 14 due to persisting lockdowns in China and bad economic outlook there, where it's following up in India more quickly than usual to keep momentum. China, which commands a lot of global wallet share, growth stock or not, is really on the decline. Apple and other companies are beginning to onshore activity from there, and this could trap China into middle-income status or send it into decline and deleveraging. China's worsening position in apart due to constant lockdowns but also less trust by West-destined supply chains is going to be a big problem global companies that very often depend in large part on the Chinese wallet.
While 50% of the FBCG is in technology, the next 17% is in retail trade, and with the consumer spending declines having been evident from last quarters and only reinforced by spending declines and continued rate hikes in the meantime, these stocks aren't particularly well positioned either.
Bottom Line
A recession affects the whole economy, but FBCG is exposed to American growth stocks which is a market that value growth higher than no other, and therefore those stocks depend a lot on expectations. In some cases, even the crypto declines will matter for business fundamentals, but in most cases, declines in consumer spending will impact fundamentals even of enterprise facing businesses that have now started to feel the burn. Moreover, China's economic woes, largely self-inflicted and liable to fester due to high leverage in the housing markets there, are going to affect a lot of tech companies in particular, especially the biggest ones that have used China as their latest growth markets, as their wallet share declines.
Consumer confidence has been lower for a while now, essentially showing itself last quarter. The depression in corporate spending has only just started, and could go on for another couple of quarters in all likelihood, even if inflation peaks in the meantime.
However, if inflation peaks as supply chains loosen up and bottlenecks like logistics see some easing, then markets will anticipate the Fed pivot and will jump regardless. A return to form will mean an even stronger reversion for the stocks in FBCG which has these higher Beta elements. That could save this ETF. However, unless you want to speculate on peak inflation, this ETF is not terribly exciting.
Thanks to our global coverage we've ramped up our global macro commentary on our marketplace service here on Seeking Alpha, The Value Lab. We focus on long-only value ideas, where we try to find international mispriced equities and target a portfolio yield of about 4%. We've done really well for ourselves over the last 5 years, but it took getting our hands dirty in international markets. If you are a value-investor, serious about protecting your wealth, us at the Value Lab might be of inspiration. Give our no-strings-attached free trial a try to see if it's for you.
This article was written by
Formerly Bocconi's Valkyrie Trading Society, seeks to provide a consistent and honest voice through this blog and our Marketplace Service, the Value Lab, with a focus on high conviction and obscure developed market ideas.
DISCLOSURE: All of our articles and communications, including on the Value Lab, are only opinions and should not be treated as investment advice. We are not investment advisors. Consult an investment professional and take care to do your own due diligence.
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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (2) | AAPL |
https://finnhub.io/api/news?id=ee05c98d00d86bcc22c99ea0a08c48d2c1caea53cbc1696c3ad9d7f152d8f5b7 | 'Tim Apple' Saves Capitalism From Itself | Read why Apple delivers, again, with earnings. Growth accelerated, margins were rock steady and the balance sheet remains a fortress. What's not to like? | 2022-10-27T13:26:24 | SeekingAlpha | 'Tim Apple' Saves Capitalism From Itself
Summary
- Apple delivers, again.
- Growth accelerated, margins were rock steady and the balance sheet remains a fortress. What's not to like?
- The market's worries through the day - the stock sold off gradually as emotion rose - are being shaken off in post-market trading.
- We re-iterate our Accumulate rating. We believe the stock can hit $185 and maybe even $215 in the next 12-18 months.
- This idea was discussed in more depth with members of my private investing community, Growth Investor Pro. Learn More »
DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note’s date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
Looks Like A Nice Guy, Rolls Like A Tough Guy
Tim Cook is an unlikely hero. Seems like a nice guy, right? The sweater and all. But beneath the friendly-uncle routine lies a cold heart of ice. Guy runs an oligopolistic consumer business that everyone loves. Lawsuits about excess App Store fees? Noise. Atrocious rate of genuine innovation in their lead product? Pshaw. Nobody cares. I can get my iPhone 27 in ... a funky kinda blue color? Where do I sign? 72 month contract you say? No problem!
Apple the company is a machine, and Cook's ability to run the thing without presenting as the modern equivalent of the mill owner in the heart(less)lands, is to his endless credit. The stock is holding up the S&P and the Nasdaq on its shoulders and it just printed a great set of earnings that can drive the indices higher in the coming weeks and months.
We previewed the earnings here, if you missed it.
Following the earnings print today, here are the numbers, valuation, and our latest stock chart with price targets and proposed stop-loss levels.
Allow us to walk you through the numbers as we see them.
- Most importantly of all, and unlike every single other Big Tech name, revenue growth accelerated. This quarter was +8% vs Q4 FY9/21, up from +2% Q3 '22 vs Q3 '21. Others - your Microsofts (MSFT) for example - have delivered earnings or revenue "beats," ie the company exceeded expectations they had worked to damp down for some weeks; here the company actually grew faster vs. the same quarter last year than it achieved in the last quarter. This acceleration in a weak economic environment is indicative of a company winning share ie. winning share of the consumer dollar. Given the product set is high-end and expensive, this tells you that the consumer isn't as badly off as many claim, and it tells you that AAPL's sales and marketing execution remains strong.
- Gross margins were essentially flat ie. the company's variable input costs relative to revenues were unchanged. Remember we live in an inflationary environment where everything costs more. And remember that AAPL is in large part an assembler of stuff, hence the lowish gross margins vs. say a software company. That gross margins held steady tells you that the company's procurement and supplier management is working well.
- Accounting margins - EBITDA in our table above - also remained essentially flat (down 1% on a TTM basis). This means that, for instance, labor costs remained tightly controlled in the quarter.
- Cash flow margins - unlevered pretax free cash flow in our table above - were also flat on a TTM basis. Capex increased materially (>50% higher than in the last quarter) but careful management of working capital - meaning, collecting cash faster and paying cash out more slowly - meant that the capex spike didn't dent cash flow margins. Again, indicative of very strong management here.
If the above sounds easy? It isn't. Check most every other Big Tech company to see how not to do this.
Now, despite the strong growth and margin profile, valuation remains acceptable from a buyer's perspective.
We believe that's a perfectly sensible buy on fundamentals. The technicals support the fundamental analysis in our view. The chart looks to be putting in an early 1-up, 2-down move within an overall 5th wave higher to complete the cycle that began in the 2018 lows.
Here's our latest chart. You can open a full page version, here.
In short?
Fundamentals very strong; valuation acceptable to buyers; technical perspective on the stock, bullish.
As a result we continue to rate Apple Corporation stock at Accumulate, with a minimum bull target of $185, a bullish bull target of $215, and a proposed stop-loss zone in the $130 zip code, just below the recent pivot low.
Cestrian Capital Research, Inc - 27 October 2022.
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Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (96)
www.foxbusiness.com/...
Then sell it or short it and miss out on HUGE future $$$$.
--
"So why did my broker tell me to sell all my Apple stock😩😩😩. "
--
**Congrats for not following your broker's advice!! Most brokers want activity, buying and selling, in your account and buying and holding AAPL doesn't translate to activity. It just makes you wealthy. 😎
I am just a old man who don’t know very much about stocks, but one thing I do know , Apple is the only thing my children, grandchildren, & their friends will own. I was at West Point last weekend visiting my granddaughter & all her friends had Apple phones.
Go Army Beat Navy.
--- Assembler? No; Foxconn is the assembler, Apple is the designer, not just of its appearance but also of the chips it uses and the motherboards on which they're mounted. Those parts are not all, "off the shelf generic" parts.And how about we forget that "three wave theory", it doesn't seem to be working as some wish it did.
Expect another $10 up over the next couple of weeks | AAPL |
https://finnhub.io/api/news?id=4f1e1f51fc039d7fa959ce9622527918d36c094414d60f6eaad9d661818458ff | Apple Inc. (AAPL) Q4 2022 Earnings Call Transcript | Apple Inc. (NASDAQ:NASDAQ:AAPL) Q4 2022 Earnings Conference Call October 27, 2022 05:00 PM ET Company Participants Tejas Gala - Director-Investor Relations & Corporate Finance Tim Cook... | 2022-10-27T12:46:03 | SeekingAlpha | Apple Inc. (AAPL) Q4 2022 Earnings Call Transcript
Apple Inc. (NASDAQ:AAPL) Q4 2022 Earnings Conference Call October 27, 2022 5:00 PM ET
Company Participants
Tejas Gala - Director-Investor Relations & Corporate Finance
Tim Cook - Chief Executive Officer
Luca Maestri - Chief Financial Officer
Conference Call Participants
Shannon Cross - Credit Suisse
Erik Woodring - Morgan Stanley
Ben Bollin - Cleveland Research
Kyle McNealy - Jefferies
Jim Suva - Citigroup
Amit Daryanani - Evercore
Harsh Kumar - Piper Sandler
Krish Sankar - Cowen & Company
Operator
Good day, and welcome to the Apple Q4 Fiscal Year 2022 Earnings Conference Call. For your information, today's call is being recorded.
At this time, for opening remarks and introductions, I would like to turn the call over to Tejas Gala, Director of Investor Relations and Corporate Finance. Please go ahead.
Tejas Gala
Speaking first today is Apple's CEO, Tim Cook; and he'll be followed by CFO, Luca Maestri. After that, we'll open the call to questions from analysts. Before turning the call over to Tim, I would like to remind you that approximately once every six years, we add a week to the December quarter to realign our fiscal periods with the December calendar. So this December quarter will span 14 weeks rather than the usual 13 and will end on December 31.
Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expense, other income and expense, taxes, capital allocation and future business outlook, including the potential impact of COVID-19 on the company's business and results of operations. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast.
For more information, please refer to the risk factors discussed in Apple's most recently filed annual report on Form 10-K and the Form 8-K filed with the SEC today, along with the associated press release. Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.
I'd now like to turn the call over to Tim for introductory remarks.
Tim Cook
Thank you, Tejas. Good afternoon, everyone, and thank you for joining the call today. Over the past year, despite a range of challenges facing the world, our teams have come together in incredible ways to drive unparalleled innovation and deliver again and again for our customers.
For the September quarter, we reported record revenue of $90.1 billion, which was better than we anticipated despite stronger-than-expected foreign currency headwinds. We set an all-time revenue record for Mac and September quarter records for iPhone and Wearables, Home and Accessories. Services notched a September quarter record as well with revenue of $19.2 billion and more than 900 million paid subscriptions.
We reached another record on our installed base of active devices, thanks to a quarterly record of upgraders and double-digit growth in switchers on iPhone. Across nearly every geographic segment, we reached a new revenue record for the quarter. And we continue to perform incredibly well in emerging markets with very strong double-digit growth in India, Southeast Asia and Latin America.
I'm also happy to report that during the quarter, silicon-related supply constraints were not significant. I want to acknowledge that we are still living through unprecedented times. From war in Eastern Europe to the persistence of COVID-19, from climate disasters around the world to an increasingly difficult economic environment, a lot of people and a lot of places are struggling. Through it all, we've aimed to help our customers navigate through the challenges while giving them the tools to drive progress for themselves and their communities.
At Apple, creativity and collaboration have always been at the core of who we are. That spirit of ingenuity and teamwork helped us provide our customers with incredible innovations this year and led to another yearly revenue record.
In fiscal 2022, Apple achieved revenue of $394 billion, representing 8% annual growth. We set records for iPhone, Mac, Wearables, Home and Accessories and Services while growing double digits in emerging markets and setting records in the vast majority of markets we track.
Customers are loving our iPhone 14 lineup. Loaded with camera upgrades for sharper photos, Action Mode for smoother videos and new safety features like Crash Detection and Emergency SOS via Satellite, iPhone is even more indispensable to our daily lives.
iPhone 14 and iPhone 14 Plus come with a new dual-camera system, industry-leading durability, incredible power and amazing battery life. And our iPhone 14 Pro models are packed with even more groundbreaking innovations, including a new camera system as well as always-on display and the Dynamic Island, which offers a whole new way to interact with iPhone.
Just yesterday, our most advanced iPad and iPad Pro ever landed in stores. With its all-screen design, advanced cameras and faster wireless connectivity, the tenth generation iPad looks and performs better than ever. For creatives, iPad Pro, now turbocharged by the blazingly fast M2 chip, is the perfect device to make something amazing.
Our Mac customers have already been raving about the power of M2 since the arrival of our newest MacBook Air and MacBook Pro this summer. Their incredible long battery life, stunningly rich display and lightning fast speeds are a signature part of the Mac experience and helped drive an all-time record revenue for Mac during the September quarter.
In Wearables, Home and Accessories a wave of innovation spurred 10% year-over-year revenue growth during the September quarter. New features in Apple Watch Series 8, including temperature sensing capabilities, retrospective ovulation estimates and crash detection are helping to keep customers healthier and safer.
And the updated Apple Watch SE is a great way for users to start their Apple Watch journey, delivering advanced features at a new low price. The biggest, brightest and boldest Apple Watch ever made, Apple Watch Ultra pushes the boundaries of what a smartwatch can do.
Packed with innovations like advanced navigation tools and the new Oceanic+ app, which turns it into a dive computer, Apple Watch Ultra has something for athletes and adventures on land and sea.
The second generation of AirPods Pro powered by the new H2 chip are receiving rave reviews for delivering an unmatched wireless earbud audio experience, while canceling up to twice as much noise over the previous model. There's no better place to discover the rich spatial audio capabilities of AirPods Pro than Apple Music, the largest music catalog anywhere now with more than 100 million songs.
And there's no other company that fuses best-in-class hardware with cutting-edge software and services to create a truly integrated and seamless experience. With iOS 16, we're giving customers more ways to personalize their iPhones through a customizable lock screen and focus filters.
New features in Messages and Mail enable users to connect and collaborate like never before. Stage Manager in iPadOS 16 and macOS Ventura, helps users stay more productive with smoother multitasking. And watchOS 9 is empowering customers to live a healthier day through updates to the Sleep App, a new FDA-cleared AFib history feature and the new Medications app.
Across our Services, we continue to see enthusiasm and strong engagement from our subscribers. Apple TV+ hits like Severance, Bad Sisters and Blackbird have taken center stage on screens around the world. And baseball fans were glued to their seats this season watching Friday Night Baseball. Meanwhile, Apple TV+ productions continue to earn accolades. At the 74th Primetime Emmy Awards in September, Apple brought home 9 statues, including a second consecutive win for Best Comedy Series for Ted Lasso. And soon, we're going to give audiences an even better entertainment experience when the all-new Apple TV 4K hit stores next week.
We're also bringing Fitness+ to more customers than ever by making our entire library of over 3,000 studio-style workouts and meditations available to iPhone users in 21 countries, even those without an Apple Watch. These updates are arriving just in time for a new Artist Spotlight series with workouts featuring the music of Taylor Swift and a new workout program, Yoga for Every Runner featuring and design with one of the world's top ultramarathon athletes, Scott Jurek.
While Fitness+ helps subscribers stay active, Apple Card is designed with our customers' financial health in mind. For the second year in a row, Apple Card has been ranked highest in customer satisfaction for midsized credit card issuers by J.D. Power. And our users' favorite Apple Card benefit just got even better with the upcoming addition of a new high-yield savings account to help them save and grow their daily cash rewards.
Turning to retail. Last month, our team members welcomed customers to the all-new Apple Jamsil in South Korea. And through today at Apple Creative Studios, we partnered with non-profits in cities around the world to help young diverse creatives pursue their passions and connect with local mentors. And our retail teams have done exceptional work, helping customers explore our latest products and features. As we approach the holiday season with our product lineup set, I'd like to share my gratitude to our retail, AppleCare and channel teams for the work they are doing to support customers.
At Apple, we're proud of the ways we are able to help customers be productive, get healthy, stay safe and unlock their creative potential. We also understand we have important responsibilities to the communities we serve. That's why we continue to invest in education, racial equity and justice and the environment. And we are making important progress toward a more inclusive and diverse workforce.
Through our Community Education Initiative, we're working alongside more than 150 partners to help students around the world learn new science and technology skills. This summer, we joined with community partners to support coding academies across the United States from Code Academy in Nashville to One Summer Chicago to the Coding 5K Camp for Girls right next door in San Jose.
We've also just expanded our racial equity and justice initiative into the UK for the first time. Alongside the South Pink Center, we're helping aspiring creators develop their own voices and position themselves for long-lasting careers.
Back in the US, we welcomed a new class of Black, Latino and indigenous entrepreneurs to Apple's second Impact Accelerator. This group of innovators is focused on using green technology to mitigate the effects of climate change and serve communities most affected by it.
At Apple, we care deeply about protecting the planet for future generations. To that end, in support of our 2030 environmental goals, we have asked all of our suppliers to become carbon-neutral across their entire Apple-related footprint by the end of the decade. We are also providing them with resources based on what we learned achieving net-zero carbon in our own global operations.
Across our entire product lineup, we also continue to source more materials through recycling while taking less from the Earth. Every iPhone 14 is made with 100% recycled rare-earth elements in all magnets, including those used in MagSafe.
And in a first for Apple Watch and iPad, we're using recycled gold in the plating of multiple printed circuit boards in our newest devices. While we're working to reduce the footprint of our hardware, we're making changes to our software to be more environmentally-friendly with the soon-to-be released Clean Energy charging feature for iPhone.
Our 2030 goal is a reflection of our relentless focus on the future at Apple. The world continues to be unpredictable as old challenges evolve and new ones emerge. What remains constant is the ability of our teams to create great products, services and experiences while being a force for good in the world.
Whatever challenges lie ahead in the new year, we're moving forward, as we always have, investing for the long-term to deliver incredible innovations for our customers like only Apple can.
And now, I'll hand it over to Luca for more details on our performance.
Luca Maestri
Thank you, Tim, and good afternoon, everyone. We are very pleased to report record financial results for the September quarter that capped another record fiscal year for Apple despite a challenging and volatile macroeconomic backdrop.
We reached a September quarter revenue record of $90.1 billion, up 8% year-over-year despite over 600 basis points of negative foreign exchange impact, with new September quarter records in the Americas, Europe, Greater China and rest of Asia Pacific. Importantly, in constant currency, we grew nicely in each of our geographic segments, with strong double-digit growth outside the US.
Products revenue was $71 billion, up 9% over last year despite FX headwinds and a record for the September quarter. And it was a September quarter revenue record for iPhone and Wearables, Home and Accessories and an all-time revenue record for Mac.
Overall, our installed base of active devices continue to grow nicely. It reached an all-time high for all major product categories and geographic segments at the end of the quarter, thanks to extremely strong customer satisfaction and loyalty and a high number of customers that are new to our products.
Our Services set a September quarter revenue record of $19.2 billion, up 5% over a year ago despite over 600 basis points of negative impact from foreign exchange. We reached September quarter revenue records in the Americas, Europe, Greater China and rest of Asia Pacific and also in many Services categories, including all-time revenue records for cloud services and payment services.
Company gross margin was a September quarter record at 42.3%. It was down 100 basis points from last quarter due to unfavorable foreign exchange and a different mix, partially offset by leverage. Products gross margin was 34.6%, up 10 basis points sequentially, with improved leverage and favorable mix partially offset by foreign exchange. Services gross margin was 70.5%, down 100 basis points sequentially, primarily due to foreign exchange. Net income of $20.7 billion, diluted earnings per share of $1.29 and operating cash flow of $24.1 billion were all September quarter records.
Let me now get into more detail for each of our revenue categories. iPhone revenue grew 10% year-over-year to a September quarter record of $42.6 billion, despite significant foreign exchange headwinds. We set September quarter records in the vast majority of markets we track, and our performance was particularly impressive in several large emerging markets, with India setting a new all-time revenue record and Thailand, Vietnam, Indonesia and Mexico more than doubling year-over-year.
Thanks to our strong iPhone lineup, we set a quarterly record for upgraders and grew switchers double digits. This level of sales performance, along with unmatched customer loyalty, drove the active installed base of iPhones to a new all-time high across all geographic segments. And the latest survey of US consumers from 451 Research indicates iPhone customer satisfaction of 98%.
It was a great quarter for Mac. We achieved an all-time revenue record of $11.5 billion, up 25% year-over-year, despite significant FX headwinds. There were three key items that helped drive this performance. First, we benefited from the launch of our new MacBook Air and MacBook Pro powered by the M2 chip. Second, we were able to satisfy pent-up demand that carried forward from the significant supply constraints we faced during the June quarter. Third, as our supply position improved, we were able to fill the channel.
Importantly, our investment in the category has attracted both upgraders and customers new to Mac and helped our installed base reach an all-time high. In fact, we set a quarterly record for upgraders, while nearly half of customers buying Macs during the quarter were new to the device.
iPad revenue was $7.2 billion, down 13% year-over-year due to significant negative foreign exchange and a challenging compare due to the launch of new iPads a year ago. Despite this, the iPad installed base reached a new all-time high, thanks to incredible customer loyalty and a high number of new customers. In fact, over half of the customers who purchased iPads during the quarter were new to the product.
Wearables, Home and Accessories revenue was $9.7 billion, growing 10% year-over-year, driven by the launch of Apple Watch and new AirPods Pro. This level of safe performance along with very strong new tool rates, drove our installed base of devices in the category to a new all-time record. For instance, two-thirds of customers purchasing an Apple Watch during the quarter were new to the product.
Moving to Services, as I mentioned, we set a September quarter record in aggregate and in most geographic segments, generating $19.2 billion in revenue in spite of very large foreign exchange headwinds.
It is important to remember, that we achieved double-digit constant currency growth in Services on top of growing 26% during the September quarter a year ago. However, certain services were impacted by macroeconomic headwinds, including foreign exchange.
Digital advertising and gaming are areas where we've seen some softness. Throughout the quarter, we continued to observe several trends that reflect the strength of our ecosystem and our long-term opportunity in the category.
First, our continued installed base growth across each geographic segment and each major product category represents a great foundation for future expansion of our ecosystem.
Second, we saw increased customer engagement with our Services during the quarter. Both our transacting accounts and paid accounts grew double digits year-over-year, each setting a new all-time record. The percentage of accounts that pay for our services continues to increase, and we still see plenty of opportunity ahead of us.
Third, paid subscriptions showed very strong growth. We now have more than 900 million paid subscriptions across the Services on our platform, up more than 155 million during the last 12 months alone and double what we had just three years ago.
We continue investing in new content and features, across our service offerings. For example, we added several popular sports titles to Apple Arcade. We're also excited about our global partnership with Major League Soccer, where starting next season, fans can stream every single MLS match through the Apple TV app.
This momentum helped us achieve over $78 billion in Services revenue during fiscal 2022, a new record and up 14% year-over-year. We continue to invest confidently and believe strongly in the long-term potential of our Services business, which is already the size of a Fortune 50 business on its own, and has nearly doubled during the last four years.
It was not only a record year for Services but also for our entire company. During the past four quarters, we grew our business by 8% or $29 billion, reaching more than $394 billion of revenue. We grew diluted earnings per share by 9% and generated over $111 billion of free cash flow, up 20% year-over-year.
It was also a strong year for our enterprise business, as we set new annual records for iPhone, iPad and Mac during fiscal 2022 and grew strong double-digits year-over-year as our devices and services continue to help more-and-more companies empower their employees and serve their customers.
For instance, Ford Manufacturing employees are using iPad and iPhone to help further improve the quality of its game-changing Ford F-150 Lightning electric trucks. iPhone's powerful A-series chip and advanced camera systems, along with third-party iOS apps, are enabling Ford to automate the visual quality inspection process in real-time to help address issues before they impact customers.
And Cisco expanded its Macs as a choice program and is now offering it to all its employees to help attract and retain top talent. And when given this choice, employees have chosen Macs twice as often as other options.
In addition, many enterprise customers are taking advantage of the high residual value of our products and simple trade-in process to standardize the refresh cycles for their fleets of Apple devices. This allows employees to upgrade to the latest devices regularly while making it highly predictable and cost effective for the business.
Let me now turn to our cash position. Our business continues to generate very strong cash flow, which enabled us to return over $29 billion to shareholders during the September quarter. This included $3.7 billion in dividends and equivalents and $25.2 billion through open market repurchases of 160 million Apple shares.
We ended the quarter with $169 billion in cash and marketable securities. We repaid $2.8 billion in maturing debt and decreased commercial paper by $1 billion while issuing $5.5 billion of new debt, leaving us with total debt of $120 billion. As a result, net cash was $49 billion at the end of the quarter as we continue to make progress toward our goal of becoming net cash neutral over time.
As we move ahead into the December quarter, I'd like to review our outlook, which includes the types of forward-looking information that Tejas referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we are not providing revenue guidance but we are sharing some directional insights based on the assumption that the macroeconomic outlook and COVID-related impacts to our business do not worsen from what we are projecting today for the current quarter.
Overall, we believe total company year-over-year revenue performance will decelerate during the December quarter as compared to the September quarter for a number of reasons. First, we expect nearly 10 percentage points of negative year-over-year impact from foreign exchange.
Second, on Mac, in addition to increasing FX headwinds, we have a very challenging compare against last year, which had the benefit of the launch and associated channel fill of our newly redesigned MacBook Pro with M1. Therefore, we expect Mac revenue to decline substantially year-over-year during the December quarter.
Specifically on Services, we expect to grow but to be impacted by the macroeconomic environment increasingly affecting foreign exchange, digital advertising and gaming. We expect gross margin to be between 42.5% and 43.5%. We expect OpEx to be between $14.7 billion and $14.9 billion.
We expect OI&E to be around negative $300 million, excluding any potential impact from the mark-to-market of minority investments and our tax rate to be around 16.5%. Finally, today, our Board of Directors has declared a cash dividend of $0.23 per share of common stock, payable on November 10, 2022, to shareholders of record as of November 7, 2022.
With that, let's open the call to questions.
Tejas Gala
Thank you, Luca. We ask that you limit yourself to two questions. Operator, may we please have the first question?
Question-and-Answer Session
Operator
We'll go ahead and take our first question from Shannon Cross calling from Credit Suisse. Please go ahead.
Q – Shannon Cross
Thank you very much. It's great to talk to you on the call again. I'm wondering, can you just talk a bit about how you're thinking about this iPhone generation? On the positive side, you've raised prices. It seems to be mixing up. On the negative side, investors are concerned about impacted demand from the higher prices, what Huawei meant to you in prior years versus what could happen now. There are just some pressures out there. So I'm curious if you can kind of talk to what you're seeing initially in iPhone demand and how you think it will move through. With the caveat that I understand, things are pretty uncertain out there. And then I have a follow-up. Thank you.
Tim Cook
Shannon, it's Tim. Welcome back. iPhone grew 10% in the Q4 timeframe to $42.6 billion. Customer demand was strong and better than we anticipated that it would be. And keep in mind that this is on top of a fiscal year of 2021 that had iPhone revenue grow by 39%, and so it's a tough compare as well. And so we were happy with it.
In terms of the new products, the 14 and the 14 Pro and Pro Max, the -- it's still very early. But since the beginning, we've been constrained on the 14 Pro and the 14 Pro Max and we continue to be constrained today. And so we're working very hard to fulfill the demand. It's difficult to say what the mix will be until we can satisfy the demand because we don't really -- we're not able to determine the accurate mix until then. And so we -- but we're working very hard to do that.
We were really pleased with the broadness of the iPhone strength last quarter. We had three of the top four smartphones in the U.S. and the UK, the top three in Urban China, the top six in Australia, four out of the top five in Germany and the top two in Japan. And customer satisfaction for the iPhone remains very, very strong at 98%.
And so we feel very good about how we performed in Q4. And certainly, the start of this generation would suggest that we're going to be constrained for a little while on the 14 Pro and 14 Pro Max. But we're working very hard to try to remedy that.
Shannon Cross
Thank you. And then, Luca, can you talk a bit about gross margin puts and takes? Just how we should think about, I mean, 10 basis points of currency this coming quarter is, I don't want to say unprecedented, but maybe it is. So I know you have hedges, but how do we think about it flowing through? And then what other -- components seem to be very favorable. But what else should we throw into the mix as we look forward?
Luca Maestri
Yeah. Well, let me start with gross margin in Q4 and then I'll get to Q1. It was a September quarter record for the company. We did 42.3%, and that is in spite of, as you mentioned, very significant negative FX in -- for example, for Q4, on a sequential basis, FX was negative 70 basis points and on a year-over-year basis it was negative 170 basis points. Essentially every currency around the world has weakened against the dollar.
Now, we have guided Q1 to 42.5% to 43.5% in spite of the fact that we have, on a year-over-year basis, 330 basis points of negative exchange. Sequentially, it's 120 basis points unfavorable. So obviously, the strong dollar makes it difficult in a number of areas. Obviously, our pricing in emerging markets makes it difficult, and the translation of that revenue back into dollars is affected. But on the positive side, we are seeing commodities behave fairly favorably for us.
And so we believe we can offset the foreign exchange – the negative foreign exchange that we're seeing. And I think that the guidance that we provided reflects that. It takes into account, of course, FX. It takes into account some level of inflationary pressures. But I think the outcome is, I think, is a good one.
Shannon Cross
Great. Thank you very much.
Tejas Gala
Thanks, Shannon. Can we have the next question, please?
Operator
Yes, sir. Our next question is coming from Erik Woodring with Morgan Stanley. Please go ahead, sir.
Erik Woodring
Hey, guys, thanks very much for taking my questions. I have two as well. Maybe if we could just start. Luca, we saw quite the divergence in iPad and Mac performance this quarter. Both were relatively constrained from a supply perspective. So maybe can you just elaborate on some of the most impacted -- important factors that contributed to kind of the divergence in performance and whether after we get through the December quarter, those can reverse or normalize? And then I have a follow-up.
A – Tim Cook
Yeah, Erik, it's Tim. I'll take your question. On – if you look at the Mac, the Mac, it was the best quarter we've ever had in the history of the company. It was helped by the product launch of the MacBook Air with M2. It was helped that in the previous quarter, in the June quarter, if you remember, we lost output from the factory for a significant portion of the quarter. And so we had a backlog exiting our Q3 headed into Q4. We were able to satisfy all of that demand during Q4 and filled the channel for the Mac. And so that led to an incredible Mac quarter.
If you look at iPad, iPad had sort of the opposite happening from a launch point of view. The comp from a year ago, we launched iPads in September. We launched iPads this year in October. The other point to remember is that the iPad Pro had just launched before the quarter started in the year-ago quarter so it was our first full quarter of iPad Pro. So it was an exceptionally strong iPad quarter a year ago, and the launches were really key to that performance. And so that's the reason iPad contracted during this quarter.
Erik Woodring
Okay, that's helpful. Thank you, Tim. And then maybe, Luca, if I were just to ask you, obviously, Tejas at the beginning of the call talked about the 14-week quarter. Maybe can you just elaborate a little bit on how you think that 14-week quarter impacts different line items, whether it's products or certain segments within the product business or the Services stand-alone? Just where we should see that 14-week quarter provide a bit more of a tailwind versus maybe not have an impact at all? And that's it for me. Thanks.
Luca Maestri
In general, we have a few more days in the quarter that we're going to -- are going to affect both our revenues and our costs. Not every week is equal because obviously, we have certain peaks during the course of the quarter.
Think about Black Friday or the Christmas holiday. But, in general, we're adding a few days of sale and additional OpEx as well on the cost front. So that's what happens to us every approximately six years as we need to align our weekly calendar to the fiscal calendar.
Erik Woodring
Super. Thanks, guys.
Tejas Gala
Thanks, Erik. Can we have the next question, please?
Operator
Yes, sir. The next question is coming from Ben Bollin calling from Cleveland Research.
Ben Bollin
Good afternoon, everyone. Thank you for taking the question. Tim, I was hoping we could talk a little bit about services, pieces within the portfolio. It looks like there's been some price adjustments as of late with respect to Music, TV+ and the One bundle. I'm curious how you think about balancing the consumer price versus your own costs and kind of the associated follow-through. And then I have a follow-up.
Tim Cook
Yes. If you look at the price increase that you referenced, Ben, on Monday of this week, we announced a price increase on Apple Music and on Apple TV+ and then the corresponding Apple One, that is the consolidated bundle that includes both of those.
On -- there's really two different situations here. With Music, the cost of licensing increased. And so we are paying more for music. The good thing about that is the artist will also get more money for their songs that are enjoyed on streaming. And so there's some bit of good news there, I suppose.
And then on Apple TV+, if you look at when we first priced it, we only had a very few shows. We were at the beginning. We are very focused on originals only, and so we had four or five shows or so in the beginning and priced it quite low.
We now have a lot more content and are coming out on -- with more each and every month. And so, we've increased the price to represent the value of the service. And of course, Apple One is just the consolidation of those two price changes.
Ben Bollin
Okay. And then, another item. Any preliminary thoughts around capital intensity into fiscal 2023? Last couple of years, CapEx has been relatively stable. Can you talk to the big constituents of the CapEx figure and maybe any moving pieces and how we could think about that to 2023? Thank you.
Luca Maestri
Yes, Ben. So when we look at our CapEx, as you correctly said, I mean, we've been fairly stable, and I think our capital intensity is really very good. We have three major buckets in CapEx for the company. We have certain dedicated tools for the manufacturing facilities. We had some spend around data centers, and we have spend around our office facilities around the world. We obviously monitor all of them. There is nothing unusual that we see for the next 12 months.
Ben Bollin
Okay. Thanks, guys.
Tejas Gala
Thanks, Ben. Can we have our next question, please
Operator
Yes, sir. Our next question is coming from Kyle McNealy calling from Jefferies. Please go ahead.
Kyle McNealy
Hi, thanks very much. Just wanted to see if you could give us a sense for what drove the Wearables result and the strength there this quarter. Was it from the maybe strong iPhone attach rates or the new products that you have available that were announced this quarter, or maybe you're still getting some benefit from customers that are more willing to come into the store now and try things on versus the pandemic when that was kind of shut down?
Tim Cook
Yes. Kyle, it's Tim. The -- if you look at Wearables, we grew 10%, which we were very happy with. If you look at the individual pieces of that, Apple Watch was a contributor. And in particular, the new lineup was a contributor, including the Apple Watch Ultra and the Apple Watch Series 8 and the SE. The Ultra is -- was supply constrained and continues to be supply constrained during this quarter thus far. And so we're working hard to satisfy the demand bearing, get those products to customers.
We also announced and launched the AirPods Pro in September. And the reviews for the product have just been off the charts in terms of the noise cancellation features and the sound quality. We're getting great, great reviews from there. In terms of what played the other way, the headwinds, obviously, FX was a headwind that affected Wearables, Home and Accessories, just like it affected the rest of our products and services. And we also had effect from the business in Russia, obviously, or the impact there. So that's sort of the pro and the con.
The other thing that I should mention is that about two-thirds of the Apple Watches that we sold were to customers that had not previously owned an Apple Watch. And so the -- we're still very much selling to new customers here, which is very, very good for the future.
Kyle McNealy
Okay, great. One more quick one on Mac. I wanted to see if you could quantify at all how much the channel fill and how much came from satisfying back orders from the June period for Mac. We're just trying to get a sense for where the baseline is, if there's any sense you can give us on that. What would it have grown if not for those factors? Anything you can give us would be great. Thanks.
Tim Cook
Yes. I would just say that all three of the reasons that I gave were key in achieving the 25%. The M2 MacBook Air, the launch of the new product, the -- satisfying the back orders from the previous quarter and then filling the channel, all of those were key contributors.
Kyle McNealy
Okay, Tim. Thanks.
Tejas Gala
Thanks, Kyle. Can we have our next question, please
Operator
Yes, sir. The next question is coming from Mr. Jim Suva calling from Citigroup.
Jim Suva
Thank you and it's great to see that you talked about your suppliers going carbon-neutral, something -- a small statement I really took to heart. Thank you. My question is on the Services. Could it possibly be impacted more by FX than product, meaning the Jim Suva family has Apple One and TV+ and all that, and we pay typically on annual, but then when we go into the store to buy new Watches and iPad, the price is adjusted more quickly. So could it be that Services growth was impacted a little bit more by FX and down the road, we could see growth reaccelerate, or am I just reading too much into the FX impact that could be different from Services versus product? Thank you.
Luca Maestri
Jim, it's Luca. No, you're right. Obviously, the FX impact on our business depends on the geographic mix of the sales that we do. And so yes, it can be -- Services and products can have slightly different effects on foreign exchange. And so, if we look at our Services business in constant currency, we would have grown double digits. And so we're very pleased with that.
As I mentioned, there were some areas that we could see some softness in digital advertising. Of course, you know that part, and gaming on the App Store was affected. But we were very happy with what we saw in terms of the behavior of our customers with the engagement with Services. And I mentioned a number of things during the prepared remarks, the fact that, obviously, that installed base is growing, that's a positive and it's a great foundation for the future.
We are seeing more transacting accounts and more paid accounts, they're both growing double digits. Paid accounts are growing faster than transacting accounts, so the penetration of paid accounts is increasing. We have a great subscription business, 900 million paid subs now on the platform and growing very fast. We doubled in 3 years. So when we look at all those dynamics, that's the part that is really interesting to us because we really believe that the engine for Services growth is there and foreign exchange is a temporary thing and – but the fundamentals are very good.
Jim Suva
Thank you. Congratulations for your team.
Tejas Gala
Thanks Jim. Can we have the next question, please.
Operator
The next question is coming from Amit Daryanani from Evercore. Please go ahead.
Amit Daryanani
Thanks for taking my question. I have 2 as well. The first 1 really is around the iPhone trajectory. There's been a fair amount of focus in terms of what's going to happen to iPhone demand, given the macro worries. It would be really helpful to understand though, given the strength you're seeing, where do you think channel inventory is for iPhones today versus where it would be from a historical perspective? And do you see the channel getting to an optimal level by end of December quarter? Because evenly right now given the lead time data, it looks like your revenue trajectory in iPhones is more driven by the supply you have versus demand. So any color on the channel inventory would be helpful.
Tim Cook
Yes. If you look at where we ended, Amit, in the September quarter, we exited below our target inventory range on iPhone and that's -- that in and of itself is not too unusual in the quarter. We start the ramp and demand is robust and so forth. And so I wouldn't call it that abnormal from the past.
Q –
Got it. And then I guess, Tim, you folks have been talking about digital advertising a fair bit over the last few quarters, I think. Is there any metrics, any vectors you can talk about kind of to give us a sense of how big those businesses or what vectors are you focused on? And really, if you could talk about, do you think Apple can build an advertising business at scale without sacrificing consumer privacy?
Tim Cook
So our -- first and foremost, we focus on privacy and so we would not do anything that stepped away from that. We feel that privacy is a basic fundamental human right, and so that's sort of the lens that we look at it under. Our specific advertising business is not large and relative to others and so forth. But we don't release the exact numbers on it, but it's clearly not large.
Tejas Gala
Thanks, Amit. Can we have the next question, please.
Operator
Yes, sir. We'll now move on to Mr. Harsh Kumar calling from Piper Sandler. Please go ahead.
Harsh Kumar
Yeah. Hey, thanks guys, First of all, fellows congratulations on stellar performance. There's a lot of large-cap companies that are getting ripped around, so we appreciate the steady cadence here. Tim, I wanted to ask you about inflation pressures and labor problems here in the US and globally. And maybe talk about what steps can Apple take to mitigate those? And maybe Luca, on that end, FX is becoming a pretty significant headwind. I was curious what -- if at all, if there's anything that can be done to mitigate that.
Tim Cook
I'll let Luca talk about FX. In terms of the people piece, we're focused on taking care of our teams and offering them the best benefits and best compensation so that we can empower them to do the best work of their lives. And so that's what we're focused on in terms of our teams.
In terms of inflation, there's clearly wage inflation. There's inflation related to logistics as well. If you compare it to pre-pandemic kind of levels, that has not returned to pre pandemic levels by any means.
And there's certain silicon components that are -- have inflationary pressure as well. And so that's not an all-inclusive list of where we see it, but it gives you some ingredients of where we see inflation pressure. And we've obviously taken that into consideration in the gross margin guidance that Luca gave earlier in the call.
Luca Maestri
Yes. And on foreign exchange, you're right. I mean, it's obviously a very significant factor that is affecting our results, both revenue and gross margin. What do we do about situation like this, one where we have a very strong dollar? Of course, we hedge our exposures. We try to hedge them in as many places as possible around the world. For example, I think we've been probably the first company that started hedging our exposure in China several years ago.
There may be a few currency, small ones, where we don't hedge because the cost is prohibitive or the market is not there. But in general, we tend to hedge because it gives us significant level of margin stability. Obviously, over time, that protection reduces because the hedges roll over and we need to buy new contracts. But that's the primary tool that we use to offset some of the FX pressure.
Of course, when we launch new products, in particular, we look at the FX situation. And in some cases, for example, customers in international markets had to -- they saw some price increases when we launched the new products, which is not something that, for example, US customers have seen. And that's unfortunately the situation that we're in right now with the strong dollar. So that's the way we try to deal with that.
I have to say that one of the things that we've really appreciated the most during the quarter was the fact that in spite of this very strong dollar and the difficult FX environment, we have seen very strong performance in many international markets, particularly some very large emerging markets where even in reported currencies, so in US dollars, we're seeing very strong double-digit growth in places like India, Indonesia, Mexico, Vietnam, many places where we've done incredibly well. And obviously, in local currency, those growth rates are even higher.
It's important for us to look at how these markets perform in local currency because it really gives us a good sense for the customer response to our products, the engagement with our ecosystem and in general, the strength of the brand. And I have to say, in that respect, we feel very, very good about the progress that we're making in a lot of markets around the world.
Harsh Kumar
Thanks, Tim and Luca. I had a follow-up. Luca, in your prepared remarks for the guidance, you mentioned that for the December quarter, you expect the performance to decelerate relative to September. So September was a year-over-year about, call it, 8%. Should I think that, that 8% number will go down on a year-over-year basis as we look at December? Maybe you could provide some color on what you're thinking. And are we still looking -- are we looking at a positive number, or are we thinking maybe that the growth rate will be negative on a year-over-year basis?
Luca Maestri
What we said is that we're going to be decelerating from September, so September was 8%, so it's going to be a lower percentage than 8%. We're not providing guidance for the reasons that we've explained. There's a lot of uncertainty there. And so we see how the quarter progresses. Keep in mind the 10 points of exchange. Certainly, in normal times, we will be talking about very different numbers, but that's where we are right now.
Harsh Kumar
Thank you guys.
Tejas Gala
Thanks, Harsh. Can we have the next question please.
Operator
Yes, sir. Next question is coming from Krish Sankar calling from Cowen & Company. Please go ahead.
Krish Sankar
Yeah. Hi. Thanks for taking my question. I had two of them. First one, either for Tim or Luca, on cash and capital allocation. Given there's some correction and valuation for some of the private and public companies, does it change your thought process on the time line to get to cash-neutral? In other words, would you be more aggressive with acquisitions, or you think holding on to more cash due to interest income becomes more attractive versus your prior investment goals? And then I had a quick follow-up.
Tim Cook
This is Tim. In terms of acquisitions, we averaged about one per month, I believe, in across fiscal year 2022. And so we're constantly looking in the market. And what's out there. And what things would be synergistic. And which things would provide either intellectual property or talent or preferably both that we would need. And so we're constantly looking at acquisitions of all sizes.
Luca Maestri
In terms of cash deployment, obviously, we like to look at the capital return program over the long arc of time. And we have done, since the beginning of the program we've done over $550 billion of buyback at an average repurchase price of $47. So the program has been incredibly successful.
We are still in a position where we have net cash. And we said all along, we want to get to cash-neutral at some point. Our cash generation has been very, very strong over the years, particularly last year. I think, I mentioned in the prepared remarks, we did $111 billion of free cash flow. That's up 20% year-over-year. And so we will put that capital to use for investors.
Krish Sankar
Got it, got it, very helpful, Tim and Luca. And then a quick follow-up for Luca on the December guidance, thanks for the color on that. I'm just kind of curious, the extra week in the quarter, is that not helping offset some of the FX, or in other words, the 10 percentage point negative impact from FX will be much higher if that's a 13-week quarter?
Luca Maestri
No, I wouldn't say that because those are percentages. So yeah, no, the 10 points wouldn't be different. 13 or 14 weeks would be the same.
Krish Sankar
Got it. Got it. Thanks a lot Luca.
End of Q&A
Tejas Gala
Thank you, Krish. A replay of today's call will be available for two weeks on Apple Podcasts, as a Webcast on apple.com/investor and via telephone. The number for the telephone replay is 866-583-1035. Please enter confirmation code 7086300, followed by the pound sign. These replays will be available by approximately 5:00 p.m. Pacific Time today.
Members of the press with additional questions can contact Josh Rosenstock at 408-862-1142. Financial analysts can contact me with additional questions at 669-227-2402. Thank you again for joining us.
Operator
Once again, this concludes today's conference. We do appreciate your participation.
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Comments (1) | AAPL |
https://finnhub.io/api/news?id=8df9c30ddb850b486d632c7f7899416440646a0f58ee10756ce386300ee4f608 | EU wants 40-man antitrust team to enforce new tech rules, official says | EU antitrust regulators are looking to establish a 40-man team and hire a technology expert to enforce tough new rules aimed at reining in the powers of Big Tech, an EU official said on Thursday. | 2022-10-27T11:13:04 | Reuters | EU wants 40-man antitrust team to enforce new tech rules, official says
BRUSSELS, Oct 27 (Reuters) - EU antitrust regulators are looking to establish a 40-man team and hire a technology expert to enforce tough new rules aimed at reining in the powers of Big Tech, an EU official said on Thursday.
The rules known as the Digital Markets Act (DMA) sets out a list of do's and don'ts for Alphabet (GOOGL.O) unit Google, Meta (META.O), Amazon (AMZN.O), Apple (AAPL.O), Microsoft (MSFT.O) and other gatekeepers which control access to their sites and the data there.
Reuters exclusively reported in July that the European Commission was considering creating a new directorate to allay concerns that it may struggle to get deep-pocketed and well-advised tech companies to comply with the new rules.
A 12-man unit headed by antitrust veteran Thomas Kramler who is currently handling the Apple and Amazon antitrust investigations and a 9-person strong taskforce will move to the new directorate, the official said.
The EU competition enforcer aims to hire 19 more people for the directorate and a chief technology officer to focus on data, the official said.
The new unit will need the green light from the college of commissioners from the 27 EU countries in the coming weeks before it can be set up.
Enforcement of the DMA will be done jointly with the Directorate-General for Communications Networks, Content and Technology which has also set up a new unit for the task.
The Commission has previously said some 80 enforcers would be needed.
Our Standards: The Thomson Reuters Trust Principles. | AAPL |
https://finnhub.io/api/news?id=b47683abd189f2ec51f8e7fb407ef11fa5df7432d12fd83b3f36e35ba99e8d29 | Is Apple A Buy After FQ4 2022 Earnings? Keep Your Eyes On Services | Apple has been a closely watched stock this earnings season. Read more to find out if AAPL stock is a buy after Q4 earnings. | 2022-10-27T11:00:09 | SeekingAlpha | Is Apple A Buy After FQ4 2022 Earnings? Keep Your Eyes On Services
Summary
- Apple has been a closely watched stock this earnings season as investors look to the consumer bellwether for hints of what's to come amid mounting macro uncertainties.
- The company posted upbeat third quarter results, mixed with tempered growth in core iPhone and Services sales.
- Yet, the company's earnings beat and sustained 70%+ margins in Services despite lighter-than-expected growth continue to underscore the critical role of the segment for Apple.
- While Apple stock's outperformance this year compared to the broader market and peers potentially increases its vulnerability to further volatility, its robust fundamentals continue to support the $3 trillion thesis.
- Looking for more investing ideas like this one? Get them exclusively at Livy Investment Research. Learn More »
Apple Inc. (NASDAQ:AAPL) has long been watched as the bellwether for consumer strength amid rising recession risks in recent months, and its latest resilience demonstrated in the September quarter with a double beat, paired with positive commentary on the business's strengths, sets a positive tone for fiscal 2023 despite looming macro uncertainties.
Apple's September-quarter results suggest that affluent spend on premium products remains resilient, despite risks of overall consumer confidence deterioration in the near term with buckling budgets amid rising interest rates and inflation. This is further corroborated by stronger iPhone 14 Pro model sales compared with relatively lackluster take-rates on the new smartphone family's base model equivalents.
We believe Apple's resilience demonstrated in the September quarter is also a result of prudent business management imposed at the decision-making level. This includes pulling forward the iPhone 14 launch to improve fiscal 2022 performance while allowing Apple to take advantage of earlier-than-expected holiday-season shopping trends this year as consumers spread out spending habits as budgets tighten amid an inflationary environment. Time and again, the value of Apple's prudent management at the decision-making level has shone through, playing a critical role in mitigating some of the impact from worsening consumer weakness observed in recent months that could have led to softer fundamentals.
Meanwhile, management's allusion to "strength of [Apple's] ecosystem, unmatched customer loyalty, and [an] active installed base of devices [reaching] a new all-time high" kicks off fiscal 2023 with a strong positive note, underscoring the value of its pervasive ecosystem of high-demand hardware and complementary services that have become increasingly entwined with many aspects of daily personal settings, big and small. It is also consistent with rising investors' concerns about the impact of a slowing economy in China - a critical market for Apple that showed signs of cracking after the company unleashed a rare round of discounts to attract demand over the summer.
But sustained growth in the higher-margin Services segment continues to demonstrate the value of Apple's sprawling influence over the consumer end-market. This is further corroborated by Apple's earnings beat, underscoring the strength of Services' margins despite the tough consumer backdrop during the September quarter.
While the stock has not lost as much of its value compared to its tech peers and the broader market amid this year's selloff, which raises concerns that it may become more "vulnerable" to further multiple contraction in the near-term given increasingly fragile market sentiment, we believe it will continue to fare better than most given the underlying business' robust fundamentals. Specifically, the robust momentum in Services maintained throughout the rising competition and deteriorating consumer sentiment in the third quarter continues to support its potential in ultimately accounting for half of Apple's valuation over the longer term, which reinforces the stock's $3 trillion thesis. Paired with Apple's upbeat F4Q22 results and management's positive tone on the forward prospects despite looming macro challenges, any near-term market volatility would likely continue to create compelling entry points for capitalizing on longer-term upsides.
Profitable Growth is Key - And Services is Here For It
Apple's Services segment demonstrated slower-than-expected but sustained growth in the September quarter, with sales increasing 5% y/y (inclusive of FX headwinds) and margins maintaining in the 70%-range despite inflationary pressures and consumer weakness. As discussed in our previous coverage on the stock, Apple's Services segment is becoming increasingly core to the company's long-term growth and profitability trajectory, especially with improved technological advancements in recent years and overall consumer weakness in the near-term lengthening upgrade cycles on devices.
This is also music to investors' ears, as preference migrates from growth to profitability amid a souring macroeconomic outlook.
In 2017, Apple - under the leadership of Tim Cook - vowed to double its services revenue by 2020. Since then, the segment has delivered with a multi-year compounded annual growth rate ("CAGR") of more than 20%, boasting close to $68.5 billion in annual revenues during fiscal 2021, and approaching $80 billion in the current fiscal year ending this week. Earlier this year, Wall Street predicted that Apple's services segment amounts to a $1.5 trillion value on its own, similar to our own predictions which will be discussed in further detail below.
Although services sales growth has decelerated from its heights last year due to the moderation in demand from pulled-forward subscriptions during the pandemic era alongside broad-based macro weakness, the segment continues to boast robust double-digit expansion, reinforcing the bullish thesis surrounding Apple's sustained long-term growth and profitability trajectory.
Source: "Apple Services Is On A Critical Mission"
We see Services' critical role in safeguarding Apple's bottom line continuing into the upcoming holiday season, despite light growth and a slight miss as expected during the fiscal fourth quarter. We see our previously discussed base case where Services will continue to lead growth alongside hardware sales as a highly likely scenario as Apple navigates through macro challenges in the near term. And the company's recent decision to raise prices on some of its core Services offerings - including Apple TV+, Apple Music and the Apple One bundle - will likely give the segment's momentum another leg up heading into fiscal 2023, as opposed to weighing further on weakening consumer sentiment since Apple has a strong value proposition to do so.
Apple TV+
Apple raised the monthly Apple TV+ subscription rate from $4.99 to $6.99, and annual subscription rate from $49 to $69, which went into effect earlier this week. While the price hike for Apple TV+ is not small - a whopping 40%+ - it remains competitive relative to rival streaming platforms spanning Netflix (NFLX), Disney+ (DIS), and HBO Max (WBD), to name a few, including their respective ad-supported tiers that are / will be marketed as a "cheaper" alternative.
We also believe Apple has the right value proposition for jacking up Apple TV+'s pricing, which will effectively help reduce potential churn in the aftermath. Specifically, Apple TV+ was "introduced at a very low price because it started with just a few shows and movies." But now, it has grown into an extensive library of "award-winning and broadly acclaimed series, feature films, documentaries, and kids and family entertainment," which is further corroborated by its rapidly rising global market share of more than 6%, putting rival platforms on notice.
Yet, at the new price tag of $6.99 per month, Apple TV+ - which is currently ad-free and offers unlimited access to its entire catalogue of scripted and non-scripted content, alongside live sporting events such as "Friday Night Baseball" - the streaming platform still beats equivalents in the pricing segment. This includes Netflix and Disney+'s upcoming ad-supported tier priced at $6.99 and $7.99 per month, respectively, and HBO Max's ad-supported tier priced at $10 per month, with some not even offering access to live sporting events, which is a key demand driver in streaming that Apple TV+ is benefiting from. This continues to underscore Apple TV+'s pricing advantage amid weakening consumer sentiment, with its latest price hike still more competitive than similarly-priced offerings by peers, while contributing meaningfully to the Services segment profit margins over the longer term.
Apple Music
The monthly subscription rate for Apple Music will increase from $9.99 to $10.99 for individuals, and the annual subscription rate from $99 to $109. This would effectively make the service more expensive than key rival Spotify's (SPOT) equivalent which is currently priced at $9.99 per month still.
The price hike was implemented to compensate for increasing content licensing costs for creators. Although the price increase for Apple Music subscriptions may seem like it will be another blow to the service's already laggard market share (~15%) compared to Spotify's (>30%), we believe it will give Apple a leg up from a business and valuation perspective.
Specifically, Spotify currently reels from narrowing profit margins due to the same cost increases identified by Apple, underscoring that similar price hikes will likely be coming soon anyway. As such, we view the increase to Apple Music prices as a strategic move that will not only contribute positively to the Services segment's bottom line but also without the risks of material churn despite consumer weakness.
Apple One Bundle
The Apple One bundle - which allows up to six service subscriptions at a discounted price - has also implemented price increases across all of its variants offered. The standard bundle (individual subscription for Apple Music, TV+, Arcade, and iCloud+ with 50GB storage) will have its monthly subscription rate increase from $14.95 to $16.95; family bundle (five-people subscription for Apple Music, TV+, Arcade, and iCloud+ with total 200GB storage) from $19.95 to $22.95; and Premier bundle (same as family bundle, plus News+ and Fitness+) from $29.95 to $32.95.
The Apple One bundle has been a key contributor to overall growth observed in Apple's service subscription volumes and overall traction since its introduction in fiscal 2021, attracting new users to pay for subscription services that they otherwise would not have subscribed to without the bundle discount. The bundle discount - even after the recent price increase - adds another positive touch to the service-specific value propositions for subscribers as discussed in the earlier section, which we view as a critical factor to mitigating risks of churn, while further bolstering Services growth.
The pricing advantage in Apple's Services segment is expected to contribute positively towards its longer-term valuation of about $1.5 trillion alone. Not only would it further improve the segment's profit margins - an increasingly prominent driver of Apple's free cash flows - but also help bolster the funding needed to support further expansion into additional services and upgrades that will aid penetration into a broader subscriber base over the longer term.
Near-Term Investment Risks to Consider
China Risks: China's economy continues to reel from sporadic COVID disruptions and a worsening property crisis that sees no respite in sight. This has led to further deterioration in its economy, with retail sales growth decelerating rapidly to a mere 2.5% in September. This has accordingly introduced demand risks to one of Apple's most core operating regions - China currently accounts of about a fifth of the company's consolidated sales and a quarter of the consolidated income. Concerns of said demand risks are further corroborated by the rare sighting of a direct pricing discount on certain devices introduced over the summer in China. Even during seasonality promotions - like back-to-school, Black Friday, and/or holiday-season sales - Apple has hardly ever offered direct pricing discounts, opting for gift card rebates on bundle purchases and/or gift-with-purchases instead.
In addition to demand risks, Apple also faces supply risks and geopolitical risks in the region. On the geopolitical front, fraying U.S.-China relations has recently led to a myriad of direct impacts on operations within the private sector - spanning an export ban of advanced technologies to China levied by the U.S. government, and an order to "dump foreign PCs" levied by the Chinese government on state-owned enterprises and public agencies. This means Apple could potentially experience restrictions on key manufacturing technology availability in its core assembly base in China in the future, while also risking loss of a meaningful market for its hardware sales across China's public sector.
And on the supply front, sporadic COVID lockdowns and other regulatory headwinds have already led Apple to shift to a "China-plus-one" strategy that includes building out supply chains in "nations aligned with Washington" such as India. However, the strategy could take years to materialize, meaning Apple will still be exposed to risks of having to shoulder supply chain cost inefficiencies in China, while also forking out billions simultaneously to build new supply chains in additional regions, adding pressure on its hardware profit margins.
Yet, we believe Apple has a few levers to pull still that can compensate for the said risks. On the supply front, Apple's importance to suppliers worldwide gives it leverage needed to compensate for supply-risk-driven cost efficiencies stemming from China. This is consistent with Apple's power in price negotiations with key suppliers like Taiwan Semiconductor (TSM), as well as previous observations that the tech giant's "size and importance to suppliers" was able to help it secure key components better than peers during the peak of supply shortages. Meanwhile, on the demand front, increasing momentum in Services as discussed in the foregoing analysis is expected to partially shield Apple from hardware demand risks in China within the foreseeable future, especially with robust market share gains observed across core operating regions like the U.S. and Europe.
Macro Risks: FX and consumer slowdown are the biggest macro risks facing Apple today. FX risks are inevitable given the company's massive overseas operations amid a surging dollar environment as the Fed remains fixed on an aggressive rate hike trajectory to counter runaway inflation. And on the consumer slowdown front, Apple's upbeat showing for the September quarter also supports continued resilience relative to peers spanning PC/smartphone makers and service providers that have been losing market share.
In our view, we believe Mac and iPad sales are most susceptible to the near-term consumer slowdown, despite better-than-expected performance in the fiscal fourth quarter. First, the segments have already benefited from pulled-forward demand in the pandemic era, meaning forward momentum will likely remain moderate, especially with the looming economic downturn. Second, lost sales driven by supply chain constraints (most prominent in iPad segment) will likely see some of it becoming permanent instead of delayed due to consumers dialing back on discretionary spending amid deteriorating economic conditions. Lastly, previous expectations for stronger commercial IT spending that have benefited enterprise demand for Apple devices will likely moderate as well as budgets pullback to brace for near-term macroeconomic uncertainties. Worsening market trends are also contributing to anticipated challenges on Mac and iPad demand within the foreseeable future - the latest tally of global PC shipments in the calendar third quarter showed an accelerated decline this year, falling 6.8% y/y in 1Q22, 15% y/y in 2Q22, and 20% y/y in 3Q22, with 4Q22 numbers expected to worsen as consumers shun big-ticket items due to weakening spending power.
Yet, momentum in Services paired with Apple's pricing advantage as discussed in the foregoing analysis remains a key business strength that is expected to partially cushion some of the near-term impact on the macro-driven slowdown in product demand. Product upgrades, such as the latest introduction of a new Mac and iPad line-up retrofitted with next-generation Apple silicon, will likely help salvage product demand as well. This is further corroborated by Apple's rapid climb to the top, dethroning legacy PC makers like Lenovo (OTCPK:LNVGY), HP (HPE), and Dell (DELL) to become the industry leader in the first half of the year.
Lengthening Product Cycle Risks: Improving technology at Apple is also lengthening the upgrade cycle on its line-up of devices, which will potentially stagger the Products segment's growth outlook over the longer term. But Apple still has many levers to pull from a pricing and technology point-of-view to counter risks of growth slowdown due to lengthening product cycles in our opinion. For instance, Apple's transition to in-house designed silicon is a key advantage that will help attract demand stemming from both upgrades and switches and partially offset the growth slowdown in Products given their lengthened lifecycles. The company's potential introduction of a device subscription service would also drive improved economics for its Products segment over the longer term.
Nonetheless, hardware sales are expected to imminently grow slower than Apple's services sales, given product revenue cycles are comparatively lengthier. For services, recurring revenues stemming from subscriptions come on a monthly or annual basis. But for products like iPhones and Macs, their lifecycles have grown from two years in the past to now about three to four years and more than five years, respectively, thanks to continuous technological improvements. To put into perspective, the standard iPhone 14 starts at $799, which translates to about $266 in revenue per share if broken down based on a three-year lifespan. Comparatively, an annual subscription for the Apple One Bundle starts at [$203.40 per year (or $16.95 per month)], which is not too far off from the average annual revenue per iPhone, while boasting significantly more profitable margins. And while Apple's iPhone sales may be benefiting from broader industry tailwinds stemming from 5G transition, its large installed base is bound slow in growth based on the law of large numbers, signalling the double-digit multi-year CAGRs it once enjoyed are no more. It is no wonder that the company has been reportedly working on the launch of a product subscription model to safeguard better economics over the longer term.
Source: "Apple Services Is On A Critical Mission"
Final Thoughts
Market sentiment is becoming increasingly fragile, with many investors looking to the performance of large and mega caps - especially Apple - for hints on what forward consumer sentiment might look like and what they mean for the broader tech sector and the economy overall ahead of rising recession risks. This is especially true given Apple, along with its mega-cap peers spanning Alphabet (GOOG/GOOGL), Microsoft (MSFT), and Amazon (AMZN), account for "nearly a fifth" of the S&P 500's value today, or more than 30% of the tech-heavy Nasdaq 100 (Apple alone is the largest influence, accounting for 15% of the weight of the Nasdaq 100).
While Apple's valuation remains lofty at "23x forward earnings, above both its long-term average and the market overall," which potentially exposes it to further volatility as market sentiment remains fragile over coming months in anticipation of a cascading economy, we believe its strong F4Q22 performance and positive tone heading into fiscal 2023 reinforces the company's fundamental strength. This means any market-driven volatility in the Apple stock over the near term will continue to create a compelling risk-reward opportunity.
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Comments (15)
The minute the fed stops increasing rates and the U.S. dollar weakens AAPL , among many other int'l stocks, will soar.Also, the new phone was only represented by 8 days in this just announced quarter.
Unlike years ago the iPhone is the number 1 staple. People can not function w out it . Banking, financial services, social media, etc…..
If they want they go buy NBC or CBS to tomorrow
Be better entry points for Apple in Q4 and 2023. Staying away for now. | AAPL |
https://finnhub.io/api/news?id=6b473bb01d8938eaff3a9c6178eba7104d6b3488c8464fb290e234587d965431 | Is Amazon A Buy After Q3 2022 Earnings? The Cloud Is Dissipating | For Amazon, a 'dissipating cloud' does not necessarily imply a positive connotation. Read what investors should know about AMZN stock here. | 2022-10-27T10:51:21 | SeekingAlpha | Is Amazon A Buy After Q3 2022 Earnings? The Cloud Is Dissipating
Summary
- For Amazon, a "dissipating cloud" does not necessarily imply a positive connotation.
- AWS, Amazon's cloud, has been key to supporting the stock's valuation this year, as its core commerce business reels from both an internal mismanagement on utilization and looming consumer weakness.
- But even then, the strength of the cloud is going, with AWS showing more prominent signs of structural deceleration during the third quarter.
- This might expose the stock to further downtrends in tandem with broader market declines within the near term, as investors adjust expectations, creating a compelling risk/reward opportunity for Amazon's ultimate recovery once cyclical headwinds subside.
- Looking for more investing ideas like this one? Get them exclusively at Livy Investment Research. Learn More »
Amazon's stock (NASDAQ:AMZN) has lost more than 30% of its market value this year. Investor confidence in the stock has been weak since Amazon’s core commerce business took a sharp turn from the pandemic-era boom to underutilization earlier in the year. The inefficiencies had left Amazon in a scramble for aggressive cost-cutting opportunities – spanning abandoned capacity expansion to swift shutdowns of unprofitable projects. And now a looming economic downturn risks spurring further consumer weakness ahead, casting a shadow over any possibilities for a rapid recovery in its core commerce business within the near term. This is further corroborated by management’s conservative view on prospects in the current quarter, projecting 2% to 8% revenue growth inclusive of FX headwinds, despite cautious market optimism for a seasonality-driven boost in the current quarter.
Meanwhile, AWS has largely been the backbone of any bullish thesis supporting the stock this year, making up for the core commerce moat’s shortfall as a result of both earlier mismanagement on capacity and utilization, and impacts of the unexpected economic downturn that has come down hard and fast. Yet, the AWS cloud that has largely shielded Amazon from a greater selloff is showing signs of dissipation. While AWS take-rates in the third quarter remained resilient, with cloud spending amongst the IT environment still viewed as critical to stay economically and operationally competitive, there are growing signs of market share erosion – which has long been expected given the massive magnitude of the segment and long streak of double-digit growth that appears to be falling behind that of peers. While Wall Street as long been unanimously bullish on Amazon, we believe that link is starting to weaken, especially as AWS’ impressive growth streak is starting to show early signs of moderation.
Amazon's stock currently trades at a whopping 70x forward earnings, while the large-cap peer group trades at an average of about 28x. However, it is important to consider that the company’s margins have been battered this year due to non-cyclical factors (e.g., utilization mismanagement), which has contributed to a significant diversion between its earnings and sales valuation multiples. By taking Amazon’s sales multiples (e.g., forward EV/sales and forward price/sales) as a gauge for its market value relative to peers instead, which makes a better reflection of its normalized business performance relative to peers’, the stock remains undervalued, supporting longer-term upside potential.
However, given Amazon’s dissipating cloud strength, and ongoing consumer weakness that will continue to put pressure on its core commerce business within the near term, the stock will likely be subject to greater vulnerability to volatile market sentiment over coming months until the macro-overhang subsides. This is especially true given investors’ increasing preference for profitability under the current market climate – meaning that while core commerce’s profit margin improvement in the third quarter is welcomed, it will need to ratchet up further at a sustained pace to keep up with anticipated deceleration in AWS, and alleviate the latter’s burden of having to carry Amazon’s consolidated valuation prospects.
Is AWS At Risk?
AWS is currently the leading public cloud service vendor, accounting for about a third of the global market share. It also continues to lead its key rivals, namely Microsoft’s Azure (MSFT) and Alphabet’s Google Cloud Platform (GOOG / GOOGL), by wide margins. Specifically, Azure is a distant second, commanding about 20% of the global cloud market, and GCP about 10% in third place.
AWS has been a key driver of Amazon’s valuation given its impressive growth and margin expansion trajectory, acting as a key “barometer” of the company’s future prospects – especially in recent quarters, compensating for the growth slowdown and deteriorating profit margins in the core commerce segment. Despite Amazon’s likely conservative outlook for AWS implied through modest consolidated growth for the current quarter – which we view as a welcomed and reasonable move to temper investors’ expectations given the business’ massive size, and consistent with Azure’s modest guidance earlier this week. It is important to recognize that cloud spending remains resilient given “secular shift and prioritization for corporates”.
Yet, after sustaining more than six quarters of consecutive 30%-plus y/y growth, the segment is starting to show signs of structural deceleration, with third quarter growth coming in at 28% on a constant currency basis compared to the same period last year – an imminent occurrence given its massive magnitude of growth and business volume achieved in recent years. AWS’ multi-year compounded annual growth rate in the past five years has moderated to about 26%, while Azure’s is at the 40%-range and GCP at the high-30%-range.
And while AWS remains the unmatched market leader by wide margins, the gap is gradually narrowing. Specifically, recent third-party data shows that spending intentions for Azure and GCP are on the rise, as corporates turn to a multi-cloud strategy for benefits that include “risk mitigation, reliability/redundancy, multi-function availability, and mostly importantly, cost-efficiencies”.
Given AWS is already the dominant public cloud service vendor on the market, it is hard for it to take further advantage of increasing multi-cloud momentum. In a recent sentiment check survey performed by RBC Capital Markets, about 57% of corporates looking to ramp up investments in cloud have noted AWS as a potential beneficiary over the next 12 months, compared with 73% for GCP and 71% for Azure. AWS is also starting to lose share to key rival Azure amongst large enterprise cloud spending – the latter has taken over AWS as the leading public cloud service provider for enterprises generating more than $5 billion in annual revenues, acquiring more than 50% share in the cohort while AWS only captures a little more than 30%. And while AWS remains the market share leader in the largest cloud spending segments – namely, medium-sized enterprises with annual revenues spanning $1 billion and $5 billion, and small enterprises with annual revenues of less than $1 billion – rivals Azure and GCP are catching up fast. AWS currently commands about 60% of global cloud market share across medium-sized enterprises, while Azure accounts for more than 40%; and across small enterprises, AWS commands about a 40% share while Azure and GCP account for 30%.
Implications of a Potential AWS Slowdown
What these trends, paired with tempered expectations from management’s forward guidance provided, imply is that AWS is likely headed towards the beginning of moderation, with its high-flying growth coming to a gradual deceleration as it continues to take advantage of secular demand for cloud-computing solutions over coming years. Meanwhile, the rapid growth it once enjoyed will now likely rotate to peers as they benefit from the increasing adoption of a multi-cloud strategy across the corporate sector, effectively narrowing their respective market shares’ distance from AWS’.
With AWS being Amazon’s core profit engine, the increasing pace of moderation will likely bode unfavourably for the stock’s near-term performance – especially as its core commerce segment also reels from souring consumer sentiment ahead of a cyclical downturn. This means whatever Amazon is doing now to improve its core commerce’s growth and profit margins – whether it is slashing budgets for non-profitable projects, dialing down the pace of fulfilment capacity expansion, slowing the pace of hiring, and/or improved value proposition to drive increased Prime demand – needs step it up a notch further, as AWS’ strength may not overshadow core commerce’s near-term weakness much longer to uphold Amazon’s valuation prospects.
Looking ahead, these trends may also push investors to look for new areas of growth and profitability in the company – especially advertising, which represents another secular demand environment as digital ad formats rapidly displace traditional channels like linear TV, radio and paper. As discussed in our previous coverage on the stock, Amazon’s advertising business benefits greatly from its first-party data advantage, which reduces reliance on third-party user data that now faces “signal [loss] dynamics” stemming from Apple’s (AAPL) privacy policy changes implemented last year. The value of this competitive advantage is further corroborated by resilience and momentum demonstrated in Amazon’s advertising business (+30% y/y; +9% q/q) in the third quarter despite cautions advertiser spending ahead of a looming economic slowdown, which reinforces robust forward prospects. Recent market research has also echoed similarly favourable trends for Amazon’s growing advertising business, a high-margin revenue stream that will continue to contribute positively to the company’s bottom-line over the longer-term:
Retail media advertising will increase from $31 billion this year to $42 billion in 2023. The bulk of it comes from Amazon’s product search but all other large retailers are now developing advertising sales through keyword search or display ads on their apps and websites. Retail media is mostly fuelled by consumer brands reallocating below-the-line, trade-marketing budgets from in-store towards digital retail networks, as a greater percentage of retail sales comes from e-commerce. Furthermore, retail-owned media networks are mostly immune from the privacy-based limitations on data usage and targeting, that display or social media owner’s face, because they can leverage their own first-party data.
Source: Magna Advertising Forecast, U.S. Fall Update (September 2022)
Final Thoughts
We remain optimistic that Amazon will be able to maintain and restore strength to its core commerce moat, though the undertaking may take longer-than-expected given near-term macro headwinds beyond the company’s control. In the meantime, AWS will continue to be the core saviour of Amazon’s valuation. But considering it may not be able to hold onto the role much longer ahead of imminent deceleration, Amazon's stock might become more susceptible to further downtrends in tandem with the souring near-term market outlook. In the near- to medium-term, we believe investor expectations for core commerce improvements will increase despite anticipated consumer weakness to make up for potential deceleration in AWS, with more focus diverted towards momentum in Amazon’s ad sales, an emerging core profit engine. For now, Amazon's stock will likely become less protected from increasingly fragile market sentiment over coming months as expectations adjust, which could potentially create better entry opportunities for eventual upsides once consumer headwinds subside.
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Comments (6) | AAPL |
https://finnhub.io/api/news?id=83fbfddafc6375ad6631ea5668fd0f96fc82225469daab39cf92caa73cb15d2f | CII: Monthly Distribution And Trading At A Discount | This year has been tough for a lot of investments, CII included. CII has been holding up relatively better thanks to the call writing strategy it implements. Read more here. | 2022-10-27T06:53:30 | SeekingAlpha | CII: Monthly Distribution And Trading At A Discount
Summary
- This year has been tough for a lot of investments, CII included.
- CII has been holding up relatively better thanks to the call writing strategy it implements.
- Call writing can be slightly defensive, but it does give up the upside if things rip higher.
- This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Learn More »
Written by Nick Ackerman, co-produced by Stanford Chemist. This article was originally published to members of the CEF/ETF Income Laboratory on October 16th, 2022.
BlackRock Enhanced Capital And Income Fund (NYSE:CII) continues providing steady distributions to investors monthly. The call writing strategy it employs on its underlying holdings has helped this fund in two ways. It has helped generate capital gains to offset declines, and it provides capital to pay out the distribution.
At this point, they've realized enough gains to cover their distribution and more. Combining that with a reasonable NAV distribution yield, the fund looks set to continue paying the same payout for the time being. That's something that not every equity fund can say in this bear market.
The Basics
- 1-Year Z-score: -1.14
- Discount: 4.49%
- Distribution Yield: 7.19%
- Expense Ratio: 0.9%
- Leverage: N/A
- Managed Assets: $767.5 million
- Structure: Perpetual
CII has a simple objective and strategy; it "seeks to provide investors with a combination of current income and capital appreciation" by "investing in a portfolio of equity securities of the U.S. and foreign issuers." They will also "employ a strategy of writing call and put options."
This type of flexibility allows them to really invest wherever they'd like. However, the portfolio tends to overweight the large and mega-cap tech names. That is pretty standard for most straightforward equity funds.
However, CII will also write calls on the underlying positions. They have a soft target of overwriting 30 to 40% of their portfolio. With the current overwritten portion at 50.46%, they are beyond the upper range. This could be suggesting they are being quite bearish. At this point, being more bearish has definitely paid off.
The overwritten portion at this higher level matters because they can collect more premiums from the additional options they are writing. On the other hand, if the market starts to rip higher - these positions will either be closed, or the underlying position will be called away if the market runs up too high too fast. Either way that would limit the upside and potentially reduce the premium they collected to close out the calls.
In this volatile market, it certainly could be the case. We saw how things rose quite rapidly through the summer. In hindsight, all these gains were given back, but that might not be the case at some point.
On the other hand, there is quite a bit of thinking that we could be in for a flat market once interest rates stabilize. A call writing strategy can also be beneficial if rates stabilize and the market moves sideways. Rates stabilizing will only seem to happen if inflation declines.
Performance - Remaining Slightly Defensive
Previously we noted how this fund was holding up better than the broader indexes. This remains to be the case since we last covered the fund on a total return basis. Unfortunately, it was still a loss during this period, regardless. That last update was on June 24th, 2022. So it participated in the July rebound, then dropped to new lows.
Here's what the YTD performance looks like as we progress through the year. Since SPY doesn't utilize an option writing strategy, it isn't exactly a benchmark. What it is, though, is a great way to provide a context of the moves for CII.
At this time, the discount is a bit wider than when we previously touched on the fund too. We are now getting closer to its longer-term average discount level, which can make it more attractive based on the valuation. However, it is still above the average level.
I would also consider how much valuations have come down across the board again. Below is the S&P 500 P/E chart. We are still above the median of 14.90 and the mean of 15.98.
The other part is that if the "E" starts declining materially, that is something to watch. Of course, that's exactly what is expected to happen when/if we hit an actual recession in 2023. For now, the forward earnings of the S&P 500 are expected to continue climbing.
This remains relevant for CII because CII is essentially a basket of holdings with similar weightings to the S&P 500. Not exactly a mirror, but we will touch on that more below. Then they slap a call writing strategy on it to further differentiate the fund. The overwhelming majority of the portfolio is invested in large caps and U.S.-based companies.
Distributions - Attractive And Sustainable
The current distribution rate of CII is 7.19%. The NAV distribution rate comes to a reasonable 6.87% level. They cut their quarterly distribution several times after the GFC. They then trimmed it sometime around 2016 too. Since then, they've raised it three times, but it has been relatively conservative in the CEF space.
What made them conservative previously also now makes them more sustainable at this time. They are still below their longer-running average distribution yield, even after the declines this year.
They've also covered their payout via realized capital gains in the first six months of this fiscal year. Of course, we've seen losses in the NAV YTD anyway due to the unrealized losses on the portfolio.
At this point, they've realized so much in gains that they might even be subject to a year-end special. At this point, it would likely come next year, as BlackRock has already announced its year-end specials. The only fund really getting a "special" is BlackRock Enhanced Equity Dividend Trust (BDJ). BlackRock Health Sciences Trust II (BMEZ) has announced they are paying "spillback" distributions too, but it is simply the normal monthly distribution amount at this point.
Therefore, CII could see a year-end special given their capital gains at this point, but if it does happen, it might not be until next year. However, they could announce more as we wind down closer to year-end too. Alternatively, they could have realized significant losses in the second half of the year, which would offset these realized gains.
To generate these realized gains, they had leaned into selling positions that still had appreciated previously. On top of this, they had a healthy portion of premiums generated from their written options. Note that they paid out roughly $26.35 million and earned $21.23 million in options premiums in the first six months. These are important to point out because these are gains that can be generated no matter what the market is doing.
CII's Portfolio
As I mentioned already, the fund is invested quite heavily in large caps and U.S.-based companies. So when it comes down to it, the portfolio is quite "boring." That being said, they still have reported a fair bit of portfolio turnover. In the first six months, it came in at 14%. That would put it similar to last year's 27% turnover rate if the trajectory holds through the second half of the year.
The limited exposure they carry to Europe on the western side of the continent, away from the more volatile eastern portion where Russia's invasion is ongoing. This can be viewed as more neutral, considering the uncertainty on that side of the continent.
Additionally, the portfolio weighting shows how diversified the fund is. Holding the tech sector in the highest weighting isn't too surprising when we look at the top holdings. These sorts of weightings reflect similarities to the S&P 500 overall.
However, tech made up 26.4% of the S&P 500 at the end of September 2022. That could have also been another reason CII is holding up better than the broader market.
When looking at the fund's top positions at the end of September, we see more similarities between this fund and the S&P 500. Mainly, we see that the mega-cap tech names make an appearance.
As usual for CEFs this year, Meta Platforms (META) has been removed or fallen so far that it doesn't show up as a top holding anymore. At the end of June, they had held 85,039 shares valued at around $13.7 million. So it very well could still be a position.
Previously it was Netflix (NFLX) that was often left out of the top holdings list in CEFs that was generally associated with the mega-cap tech names. Considering the NFLX and META declines have been similar at this point, it would have been best to avoid META altogether. Of course, we only know that in hindsight now.
We still have Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG) and Apple (AAPL) making up the top positions. They contribute to a hefty 20.61% of the portfolio.
Here's a look at the performance to put into perspective the declines between these tech behemoths (or what were once tech behemoths.) I'll even include NFLX for fun, even though it was never a position for CII in the last few years.
Conclusion
CII isn't necessarily a screaming buy at this point, but I do find it fairly attractive, considering the overall declines and the discount opening up. Ideally, the discount would be even wider before getting even more excited. If we are in for a flat market over the coming years, CII could benefit from its option writing strategy. On the other hand, if we rip higher, it could leave this fund behind in terms of performance. Since the fund is positioned above their target of the portfolio overwritten portion, it seems that the managers are not worried about a rapidly rising market.
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I provide my work regularly to CEF/ETF Income Laboratory with articles that have an exclusivity period, this is noted in such articles. CEF/ETF Income Laboratory is a Marketplace Service provided by Stanford Chemist, right here on Seeking Alpha.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of CII, BDJ, BMEZ, MSFT either through stock ownership, options, or other derivatives. 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (40)
How about waiting on CII for a better price? Thanks. I know you & @jasonjones like it among others.
According to Morningstar today, CII still owns 13,712,539 shares of META. | AAPL |
https://finnhub.io/api/news?id=04e704735059ed38b6082f6fd70f4794490168377ef3e1a8e669d6a82f69d69a | 11 Biggest Malls in Europe | In this article, we take a look at the 11 biggest malls in Europe. You can skip our detailed analysis of the European mall industry and go directly to 5 Biggest Malls in Europe. Market Outlook The European retail industry is valued at $3.6 trillion as of 2021 according to Statista. There are roughly 10,000 […] | 2022-11-28T15:27:13 | Yahoo | 11 Biggest Malls in Europe
In this article, we take a look at the 11 biggest malls in Europe. You can skip our detailed analysis of the European mall industry and go directly to 5 Biggest Malls in Europe.
Market Outlook
The European retail industry is valued at $3.6 trillion as of 2021 according to Statista. There are roughly 10,000 malls in Europe as of 2021, with the United Kingdom taking the biggest share with over 1,500 malls, per their report.
The European mall industry’s economic outlook is not very different from those of other regions when it comes to the mall's traditional purpose. Malls in general are declining in popularity, owing to factors like E-Commerce.
The online sales already make up 15% of total shopping in most of Europe. The average retail growth is around 4% while online sales grow by an average of a far higher 20%. In fact, the pandemic lockdowns accelerated the E-Commerce growth to 43% in 2020, adding massive amount of value to stocks like Amazon.com, Inc. (NASDAQ:AMZN), Walmart Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT).
Moreover, the persistent inflation around the world and the central banks' rate hikes in response have put the mall industry on a slippery slope, as consumers cut back on spending. This has led European REITs to start adapting to a changing shopping landscape.
An Adapting Industry
One of the ways the industry is adapting is extended diversification, with European malls adding more and more experience and service-based incentives, like museums, art galleries, government offices and theme parks etc.
Florencio Beccar, the fund manager of CBRE Global Investors' European Shopping Center Fund, was quoted by NBC News at the purchase of a German mall that came with a medical facility. He said that purchasing malls with services like medical facilities and others is a major advantage to offset decline in physical retail.
In addition to that, many REITs are moving towards logistics, which is another way the European mall industry is trying to adapt and survive. According to CBRE research, every $1 billion addition in online sales requires an additional space of 1.3 million square feet in warehouses, raising the demand for fulfillment centers.
Insofar as Europe is concerned, a Prologis report showed that every additional 1 billion euros in online sales resulted in an average increase in warehouse demand of almost 72,000 square meters in Britain, Germany, and France, during the studied period of 2007-2012.
Logistics also has a cost advantage. Retail space costs around $20 per square foot while the same for logistics costs only $6.5. Its yield is also two percentage points higher on average than retail.
This has resulted in malls across the world in general and malls in Europe in particular, attempting to transition and rezone the spare retail spaces in their buildings for the logistics business.
Simon Hope, the global head of capital markets for the UK-based property consultant Savills, confirmed the trend with NBC News, saying, “logistics is the new retail.”
Key Players
There are thousands of malls in Europe but some of the most prominent names in the industry are Mega Belaya Dacha in Russia, Westfield Centro in Germany, Bluewater in the UK and Istanbul Cevahir in Turkey.
As far as mall-owning REITs are concerned, Klépierre SA (OTCMKTS:KLPEF) is the biggest mall owner in Europe. It owns 155 malls across 16 European countries.
Now that we know the state of the mall industry in Europe, let’s move on to the 11 biggest malls in Europe.
Pixabay/Public Domain
Our Methodology
For our list of the 11 biggest malls in Europe, we’d be ranking them based on their total area. We’ve gotten the data from the malls’ websites. We’d also be discussing factors like total retail space, number of retail stores and restaurants, as well as number of anchor tenants etc.
11. Puerto Venecia (Port Venice)
Location: Zaragoza, Spain.
Total Floor Area: 200,000 m²
Puerto Venecia is the biggest shopping mall in Spain. It is located in Zaragoza city. The mall has a total floor area of 200,000 square meters. It is divided into different segments. There’s a boulevard, a gallery, leisure and restaurant space and a lake.
The mall is home to over 150 retail stores and 45 restaurants. Prominent stores include NIKE, Inc. (NYSE:NKE), Apple Store by Apple Inc. (NASDAQ:AAPL), Xiaomi Corporation (OTCMKTS:XIACY) tech store, Primark, H&M and ZARA. Notable among its featured restaurants is Taco Bell.
For leisure, the mall offers facilities like cinema, gaming center and lake boating. In 2013, it won the Mapic Award in the category of Best Retail and Leisure Development.
Port Venice has significantly expanded beyond retail ever since online shopping has taken to the skies in Spain as a result of global reach of companies like Amazon.com, Inc. (NASDAQ:AMZN), Walmart Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT).
10. Bluewater
Location: Dartford, England.
Total Floor Area: 200,000 m²
Bluewater is one of the biggest malls in the UK, with a total floor area of 200,000 square meters. It is located in Stone, in the borough of Dartford, Kent. The mall offers a retail space of 155,000 square meters.
It has 330 retail stores and three anchor tenants, namely, Marks and Spencer Group plc (OTCMKTS:MAKSY), House of Fraser and John Lewis & Partners. It also features 40 restaurants and cafes like KFC by Yum! Brands, Inc. (NYSE:YUM), and McDonald’s Corporation (NYSE:MCD). It serves roughly 27 million people annually.
Bluewater is owned by four corporations: Land Securities Group plc (LSE:LAND.L), Prudential plc (NYSE:PUK), M&G Real Estate and Federated Hermes, Inc. (NYSE:FHI).
9. Trafford Center
Location: Greater Manchester, England.
Total Floor Area: 207,000 m²
Trafford Center is another huge mall and entertainment complex in the UK. It is located in Dumplington, Trafford, Greater Manchester. The complex has a total floor area of 207,000 square meters, with a retail space of 185,000 square meters. It has 200 stores and six anchor tenants.
Trafford Center features many stores. Few prominent examples are stores from Apple Inc. (NASDAQ:AAPL) and The Gap, Inc. (NYSE:GPS). Its restaurants and cafes include names like McDonald’s Corporation (NYSE:MCD), KFC by Yum! Brands, Inc. (NYSE:YUM), and Starbucks Corporation (NASDAQ:SBUX).
The mall also features many attractions like The Tinsel Town, Big Wheel and Ice Skating. There are also facilities that exclusively exist to make the experience convenient for families. For instance, the mall offers ‘fun buggies’ for children so parents can shop more easily.
8. MEGA Khimki
Location: Khimki, Russia.
Total Floor Area: 210,000 m²
MEGA Khimki, located in Khimki, Russia, is the Khimki branch of MEGA Family Shopping Centers. These are managed by IKEA Centers Russia. It has roughly 200 retail stores and features three anchor tenants, namely, Auchan, OBI and Leroy Merlin.
Other prominent brands include The Gap, Inc. (NYSE:GPS) and Starbucks Corporation (NASDAQ:SBUX). However, after the Ukraine War, the majority of western brands have stopped doing business in Russia. MEGA also offers many experience-oriented facilities like Cinema and Sports centers.
7. Westgate Shopping City
Location: Jablanovec, Croatia.
Total Floor Area: 226,000 m²
Westgate Shopping City is the largest mall in Croatia and the seventh largest on the list of biggest malls in Europe. It has a floor area of 226,000 square meters, out of which, 100,000 square meters are allotted to retail stores. It has a family-oriented shopping and entertainment theme.
There are many facilities apart from retail and dining like inline skating, cinema and park. The notable brands that have opened stores in Westgate include TEDI, Pepco, H&M and New Yorker. Aside from shops and restaurants, Westgate features leisure and entertainment facilities like multi-screen cinemas.
6. Westfield London
Location: London, England.
Total Floor Area: 240,000 m²
Westfield London is the biggest mall in the UK and one of the biggest malls in Europe. It is the London chapter of Westfield malls, and is located in White City, London. It has a total floor area of 240,000 square meters. It is owned by Westfield Corporation. The mall features six anchor tenants and over 450 retail stores.
Some of its important stores belong to companies like NIKE, Inc. (NYSE:NKE), Apple Inc. (NASDAQ:AAPL), LEGO, and Adidas. Insofar as restaurants and cafes are concerned, some prominent brands providing service at the mall are Nando’s, Burger King and Starbucks Corporation (NASDAQ:SBUX).
Westfield London also offers many leisure and entertainment attractions. One that stands out is The Upside Down House. Other attractions include a cinema, bars, bowling alley and a mini-golf course.
Many of the products available at the mall are usually also available at online shopping platforms like Walmart Inc. (NYSE:WMT), Amazon.com, Inc. (NASDAQ:AMZN) and Target Corporation (NYSE:TGT).
Click to continue reading and see 5 Biggest Malls in Europe. Suggested articles:
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Disclosure: none. 11 Biggest Malls in Europe is originally published on Insider Monkey. | AAPL |
https://finnhub.io/api/news?id=18511e90b63cdc5788ead886b0d773231c5b1c0763893ad1d326f20e27c023d0 | Elon Musk asks Tim Cook ‘What’s going on here’? after Apple pulls its Twitter ads—setting up a clash of tech titans | Not only did he claim Apple has “mostly stopped” its advertising on Twitter, but he reiterated his criticism of Apple's 'internet tax'. | 2022-11-28T15:25:51 | Yahoo | Elon Musk asks Tim Cook ‘What’s going on here?’ after Apple pulls its Twitter ads—setting up a clash of tech titans
Elon Musk has some problems with Apple and its CEO, Tim Cook—and as Twitter’s new owner, Musk is tweeting all about it.
On Monday, Musk said that Apple has “mostly stopped” advertising on Twitter. He asked: “Do they hate free speech in America?” He then added, “What’s going on here @tim_cook?”
If what Musk said is true, and Apple has stopped advertising on Twitter, it would be a huge blow to the platform's revenue—and one more major advertiser to leave the service after Musk’s recent acquisition, following others like Volkswagen, Pfizer and Chipotle.
Earlier this month, Musk acknowledged the problem, tweeting that “Twitter has had a massive drop in revenue,” and blaming activist groups for allegedly pressuring advertisers.
“Nothing has changed with content moderation and we did everything we could to appease the activists,” Musk wrote. He added: “Extremely messed up! They’re trying to destroy free speech in America.”
In the first quarter of this year, Apple was the top advertiser on Twitter—spending $48 million on ads—according to the Washington Post, which cited a document compiled from Twitter’s internal data. That accounted for more than 4% of Twitter’s overall revenue for that quarter.
Musk also claimed that Apple has “threatened to withhold” Twitter’s app from Apple’s App Store “but won’t explain why.” He didn’t provide more details about any ban.
Apple did not immediately respond to Fortune’s request for comment.
However, Apple’s App Store head, Phil Schiller, deactivated his personal Twitter account this month.
On Monday, Musk also asked his nearly 120 million followers about Apple’s “secret” tax.
“Did you know Apple puts a secret 30% tax on everything you buy through their App Store?” he wrote, referring to the cut Apple takes on subscriptions and other purchases made through iOS apps.
It's not the first time Musk has criticized Apple for its 30% cut. Earlier this year, before buying Twitter, he tweeted: “Apple’s store is like having a 30% tax on the Internet. Definitely not ok,” and that it's “literally 10 times higher than it should be.”
But still, Musk seems to be enjoying the fight, posting a meme with two roads: one that pays 30% and one that goes to war (as he put it), with a car speeding in the direction of war that he’s titled “Elon.”
Previously, another tech mogul complained about Apple’s 30% commission—Meta CEO Mark Zuckerberg. Last year, he said the 30% Apple takes makes it “harder” for creators to make money from their work.
In a prior blog post, Fidji Simo, then head of Facebook’s app, wrote: “We hope Apple will consider permanently changing its requirement for apps to use its payment processing platform as well as reduce the associated 30% tax. Such a high tax places a disproportionate and unnecessary financial burden on small businesses, particularly those that rely on other platforms, such as Facebook, to connect with their audience because they lack the resources to develop their own app.”
Zuckerberg and Cook have had their differences in the past. Last year Apple released a privacy feature that required users to specifically opt into letting apps like Facebook or Instagram track them across other apps. It was a huge blow to Facebook’s online ad business, which partly depended on the data to gauge its users’ interests.
This story was originally featured on Fortune.com
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Sick with a new Omicron variant? Be prepared for this symptom | AAPL |
https://finnhub.io/api/news?id=f7f4d394cf44cb796f4a6f445ed688be7214663e95e380c0154e552f80d5f842 | Elon Musk: Apple threatened to yank Twitter from App Store | Elon Musk accused Apple Inc of threatening to block Twitter Inc from its app store without saying why in a series of tweets on Monday that also said the iPhone maker had stopped advertising on the social media platform. | 2022-11-28T15:07:53 | Reuters | Elon Musk: Apple threatened to yank Twitter from App Store
Nov 28 (Reuters) - Elon Musk accused Apple Inc (AAPL.O) of threatening to block Twitter Inc from its app store without saying why in a series of tweets on Monday that also said the iPhone maker had stopped advertising on the social media platform.
The billionaire CEO of Twitter and Tesla said Apple was pressuring Twitter over content moderation demands.
The action, unconfirmed by Apple, would not be unusual as the company has routinely enforced its rules and previously removed apps such as Gab and Parler.
Parler, which is popular with U.S. conservatives, was restored by Apple in 2021 after the app updated its content and moderation practices, the companies said at the time.
"Apple has mostly stopped advertising on Twitter. Do they hate free speech in America?," Musk, who took Twitter private for $44 billion last month, said in a tweet.
He later tagged Apple Chief Executive Officer Tim Cook's Twitter account in another tweet, asking "what's going on here?"
Apple did not immediately respond to requests for comment.
"It wasn't clear to me how far up the Apple food chain that idea went internally and without knowing that, it isn't clear how seriously to take any of this," said Randal Picker, a professor at the University of Chicago Law School.
The world's most valuable firm spent an estimated $131,600 on Twitter ads between Nov. 10 and Nov. 16, down from $220,800 between Oct. 16 and Oct. 22, the week before Musk closed the Twitter deal, according to ad measurement firm Pathmatics.
In the first quarter of 2022, Apple was the top advertiser on Twitter, spending $48 million and accounting for more than 4% of total revenue for the period, the Washington Post reported, citing an internal Twitter document.
Twitter did not immediately respond to a Reuters request for comment on the report.
'GO TO WAR'
Among the list of grievances tweeted by Musk was the up to 30% fee Apple charges software developers for in-app purchases, with Musk posting a meme suggesting he was willing to "go to war" with Apple rather than paying the commission.
The fee has drawn criticism and lawsuits from companies such as Epic Games, the maker of 'Fortnite', while attracting the scrutiny of regulators globally.
The commission could weigh on Musk's attempts to boost subscription revenue at Twitter, in part to make up for the exodus of advertisers over content moderation concerns.
Companies from General Mills Inc (GIS.N) to luxury automaker Audi of America have stopped or paused advertising on Twitter since the acquisition, and Musk said earlier this month that the company had seen a "massive" drop in revenue.
Ad sales account for about 90% of Twitter's revenue.
The self-described free speech absolutist, whose company has in the past few days reinstated several Twitter accounts including that of former U.S. President Donald Trump, has blamed activist groups for pressuring advertisers.
Ben Bajarin, the head of consumer technologies at research firm Creative Strategies, said that Musk may be reading too much into a regular process Apple goes through in app review.
"App review from Apple is not perfect by any means and a consistently frustrating process for developers but from what I hear it is a two-way conversation," he said.
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https://finnhub.io/api/news?id=d68b773c47eee6aaf77e9c20f31451920534564bcd0f4e2c579e1af14bece841 | Elon Musk claims Apple is ‘threatening’ to boot Twitter from its app store | Twitter relies on Apple marketplace to attract new users | 2022-11-28T14:57:04 | Yahoo | The Independent’s journalism is supported by our readers. When you purchase through links on our site, we may earn commission.
Elon Musk claims Apple is ‘threatening’ to boot Twitter from its app store
Twitter relies on Apple marketplace to attract new users
Elon Musk is starting a Twitter war of words with one of the social media app’s most important partners: Apple.
On Monday, Mr Musk claimed Apple was considering booting Twitter from its App Store, which would be a massive hit to the social media site.
“Apple has also threatened to withhold Twitter from its App Store, but won’t tell us why,” Mr Musk tweeted.
Earlier in the day, Mr Musk highlighted other apparent tensions with Apple, claiming that “Apple has mostly stopped advertising on Twitter” and suggesting they “hate free speech in America.”
The Independent has contacted Apple for comment.
Mr Musk has previously criticised the app store, claiming in a tweet earlier this month that its fees are “obviously too high” and amount to a “duopoly” of Apple and Android using their market control to enforce a “hidden 30% tax on the Internet.”
Those criticisms heated up on Monday, with Mr Musk seeming to imply in yet another tweet he would rather “go to war” than continue paying such a fee.
Earlier this month, Apple CEO Tim Cook told CBS News that he had his eye on how Twitter was handling content moderation now that Musk is at the helm. Apple imposes moderation standards limiting apps that feature inflammatory and adult content from accessing its app store.
“They say that they are going to continue to moderate,” Mr Cook said. “I’m counting on them to continue to do that.”
In an op-ed in The New York Times earlier this month, Yoel Roth, the former head of trust and safety at Twitter, described the complicated balancing act of Twitter maintaining its reputation as open forum and occasional home of adult content, and keeping its place in the Apple ecosystem.
“Failure to adhere to Apple’s and Google’s guidelines would be catastrophic, risking Twitter’s expulsion from their app stores and making it more difficult for billions of potential users to get Twitter’s services,” he wrote. “This gives Apple and Google enormous power to shape the decisions Twitter makes. Twitter will have to balance its new owner’s goals against the practical realities of life on Apple’s and Google’s internet — no easy task for the employees who have chosen to remain.”
Mr Musk has announced plans to let numerous accounts that were previously banned from Twitter back on the platform.
He’s already started with one of the most polarising accounts, that of former president Donald Trump, who was kicked off the site for inciting violence after January 6.
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https://finnhub.io/api/news?id=174f8379e9dd20287d94fe70eace1ed9c02ced95de818354069aec7b22b81107 | New Disney CEO Dismisses Apple Rumor; TV Outlook Gloomy | Bob Iger told employees talk of a merger is 'pure speculation' and pledged a renewed focus on creativity. | 2022-11-28T14:55:29 | Yahoo | New Disney CEO Dismisses Apple Rumor; TV Outlook Gloomy
Bob Iger told employees talk of a merger is 'pure speculation' and pledged a renewed focus on creativity.
Bob Iger told employees talk of a merger is 'pure speculation' and pledged a renewed focus on creativity. | AAPL |
https://finnhub.io/api/news?id=4ba98f41d0617912cbfad785e9dcbd9314183ed4385f3f99e2d629184c42c027 | Elon Musk calls out Tim Cook, Apple amid exodus of top Twitter advertisers | Twitter has lost half of its top 100 advertisers since Musk has taken over, according to Media Matters for America. | 2022-11-28T14:54:00 | Yahoo | Elon Musk calls out Tim Cook, Apple amid exodus of top Twitter advertisers
Twitter has lost half of its top 100 advertisers since Musk has taken over, according to Media Matters for America.
Twitter has lost half of its top 100 advertisers since Musk has taken over, according to Media Matters for America. | AAPL |
https://finnhub.io/api/news?id=7ee4bdd082bee3c413ce840212b0933ab06d6db2fac8bdf6e6791ed8ce7b2d6b | Elon Musk Declares War on Apple | The dispute between the world's richest man and the world's biggest corporation spills into the open. | 2022-11-28T14:46:00 | Yahoo | TheStreet.comElon Musk Declares War on AppleNovember 28, 2022 at 2:46 PM·5 min readElon Musk Declares War on AppleThe dispute between the world's richest man and the world's biggest corporation spills into the open.Continue reading | AAPL |
https://finnhub.io/api/news?id=0cfb2522de4a85759a55f990ed9b54fb3ce265ff9a4e7cd3d7b193406f462193 | Warren Buffett Gains Ground as Elon Musk Stumbles | Warren Buffett's net worth has risen by over a billion dollars so far in 2022, a performance that far outpaces many tech giant CEOs such as Elon Musk and Jeff Bezos. Buffett's net worth had risen to $110 billion as of Nov. 28, according to the Bloomberg Billionaires Index. The gain, in a brutal year for stocks, has helped Buffett close the gap with Musk, the world's richest man, who is now running Twitter and electric vehicle manufacturer Tesla . | 2022-11-28T14:38:00 | Yahoo | Warren Buffett Gains Ground as Elon Musk Stumbles
Warren Buffett's net worth has risen by over a billion dollars so far in 2022, a performance that far outpaces many tech giant CEOs such as Elon Musk and Jeff Bezos. Buffett's net worth had risen to $110 billion as of Nov. 28, according to the Bloomberg Billionaires Index. The gain, in a brutal year for stocks, has helped Buffett close the gap with Musk, the world's richest man, who is now running Twitter and electric vehicle manufacturer Tesla . | AAPL |
https://finnhub.io/api/news?id=5432338c0346a13df707246e0a9e65153f121c1c13a066ec98c88d954e6f0d52 | China's COVID protests continue, dragging on major indices. | Yahoo Finance Live's Jared Blikre and Dave Briggs examine China's most recent protests tied to COVID lockdown policies and how it may affect brands like Apple. | 2022-11-28T14:12:20 | Yahoo | China's COVID protests continue, dragging on major indices
Yahoo Finance Live's Jared Blikre and Dave Briggs examine China's most recent protests tied to COVID lockdown policies and how it may affect brands like Apple.
Video Transcript
JARED BLIKRE: All right, Dave, a number of movers, catalysts today, but it started out with China. We had some Fed speakers, but your big takeaways with respect to that grand country over there that we need so much.
DAVE BRIGGS: Well, the protests spreading to now, I think, seven or eight cities across the country, really pushing back against the strict COVID lockdowns, COVID-zero policy. My strange question is, I think these will largely die out. I don't think they have enough momentum. I don't think they have enough people involved in them.
But I can't help but wonder if companies like Apple will start to rethink production, rethink the supply chain. We got a glimpse at the conditions of the iPhone factory there in China, and it ain't good, Jared.
JARED BLIKRE: No.
DAVE BRIGGS: Now we like our iPhones cheap, and we like them quick, but I can't help but wonder at some point, if the consumer will choose they want to be on the side of human rights. Probably not. We probably want them cheap and fast. But will Tim Cook think otherwise?
JARED BLIKRE: Yeah, I think it's all a question of what gets covered and exactly how-- what the fallout from there is. But we don't know enough. And really, the media reports have been scant so far. | AAPL |
https://finnhub.io/api/news?id=127c80149a7bb818a18cdd6374db95ec37c0165ac53c3ef09178a8184ea53a95 | Stock Market Closes Lower After Fed Official Says Inflation Could Last Into 2024 | The stock market closed lower Monday after Fed officials gave separate speeches across the country that said inflation could last into 2024 and that financial markets may be underestimating the number of rate hikes. | 2022-11-28T13:48:19 | Yahoo | Stock Market Closes Lower After Fed Official Says Inflation Could Last Into 2024
The stock market closed lower Monday after Fed officials gave separate speeches across the country that said inflation could last into 2024 and that financial markets may be underestimating the number of rate hikes. | AAPL |
https://finnhub.io/api/news?id=4ec0c2b096976aecf7aad8d32ff585ea46dcc770e7f002e4f7b0e2ece39d90b1 | Greenhaven Road Capital Main Fund Q3 2022 Investor Letter | Greenhaven Road Capital Main Fund is down again in the third quarter of 2022, bringing YD returns to approx. -59%. Click here to read the full fund letter. | 2022-11-28T13:45:00 | SeekingAlpha | Greenhaven Road Capital Main Fund Q3 2022 Investor Letter
Summary
- Greenhaven Road Capital is a long-biased, concentrated hedge fund. We invest only in our very best ideas – typically 15 long positions or less and a handful of opportunistic short positions.
- Greenhaven Road Capital Main Fund is down again in the third quarter, bringing year-to-date returns to approximately -59%.
- I believe we own durable companies with low churn, secular tailwinds, strong balance sheets, and operating leverage and that there is a large disconnect between the prospects of these companies and their share prices.
- Of our largest holdings, six share a set of common characteristics that I believe set them up for operational and financial success, even in a very challenging environment.
- At the macro level, IF there is a silver lining, it’s that the markets usually bottom before the economy does and many of the types of companies we own peaked earlier and have fallen harder than the overall market, which may set them up for bottoming earlier.
Dear Fellow Investors,
The Fund[1] is enduring its worst drawdown since inception. We were down again in the third quarter, bringing year-to-date returns to approximately -59%. Returns vary by entity and class so please check your individual statement for actual returns. As somebody with the vast majority of my net worth invested in our funds, I feel every percentage point, as do my parents, children, and other family members invested alongside us.
In spite of this very large drawdown, we are still compounding at over 960 bps per year since the January 2011 inception of the Fund, outperforming the Russell 2000 annually by approximately 160 basis points. $100,000 invested in the Fund on Day One would be worth nearly $300,000 at quarter-end[2].
While we have given back a large portion of the sizable gains that we had accumulated in recent years, we have made money over many years in many different ways. Historically, we have drawn down in line with or more than the market during market drawdowns and earned outsized returns when it recovers. There is no guarantee that will happen again, and I acknowledge that there is a long road to recovery from here, but I do not believe that our capital is impaired permanently.
In fact, as I will hammer home in various ways throughout the letter, I believe we own durable companies with low churn, secular tailwinds, strong balance sheets, and operating leverage and that there is a large disconnect between the prospects of these companies and their share prices. The latter have been decimated, but the businesses have not, and I believe that, even in the face of economic headwinds, they are well-positioned to remain fundamentally sound.
If I could re-do 2022, I would make at least two changes. At the end of last year and the beginning of this year, I sold two of our highest multiple holdings and invested in Teladoc Health (TDOC), believing that swapping out of the highest multiple holdings into a lower multiple holding would provide protection in the event of multiple compression. However, the reality is that the multiple compression on currently loss-making (unprofitable) companies has been severe regardless of starting multiple, and TDOC’s lower relative starting point afforded us far less protection than I expected.
We are no longer shareholders today but continue to follow the business and may return someday given its market size, product portfolio, and valuation. Secondly, with the benefit of hindsight, Digital Turbine (APPS) should have been sized smaller. The combination of the cyclical nature of the advertising business, the execution risk in combining companies, and the fact that too large a portion of 2022 growth was to come from two customers (AT&T and Verizon) created many potential air pockets that have had a negative impact.
Fed actions are raising the cost of capital and actively pushing the economy towards recession. These dynamics pose potential threats to growth companies, particularly those that are not profitable today. I believe that our companies are well-suited to navigate an environment of rising rates and a recession, but that has not insulated their shares from the weight of macro sentiment. Unrelenting multiple compression has been the most frustrating part of 2022 for me.
Except for Digital Turbine, our holdings’ price declines have been driven by a decline in the multiple investors are willing to pay for shares, not a rapid deterioration of the underlying businesses or their future prospects. In fact, I believe the businesses themselves remain quite healthy, executing on their business models with the management teams that initially formed our investment theses. If the stock market were closed or not subject to daily pricing, I believe the mood would be positive as these companies are fundamentally strengthening. Progress is being made on sales, products, and margins/profitability.
As the charts below show (in order from left to right), multiple compression has been the most severe for stocks with the highest growth expectations. Growth stock multiples are approaching the financial crisis lows, and small cap P/E multiples are approaching 30-year lows. These dynamics have placed our portfolio in the bullseye of multiple layers of multiple compression, outpacing the overall market. Small, growthy, and misunderstood has been a very difficult neighborhood to live in during 2022.
Another challenge of 2022 is that correlations have increased, particularly among software companies, which have been rising and falling as a group. This is not a good environment for “stock picking” as both good and bad companies are declining together. Below is a chart showing the daily correlations of software stocks rising to historical highs.
So, we have a very negative environment with rising rates, compressing multiples, and correlations approaching one. European banks such as Credit Suisse and UBS are rumored to be on the brink of failure, Russia continues to wage war and is highlighting their possession of tactical nuclear bombs, oil is expensive, and inflation is elevated around the world. Why remain invested in this cesspool of despair? Should we just cut our losses and go to cash?
One reason to remain invested is that timing the market is very difficult and can lead to missing some of its best days. In fact, in the period from 12/31/1979 to 6/30/2022, eight of the ten BEST days of market performance happened within a week of the ten WORST days. Sometimes they occurred before and sometimes after, but missing the best days has a large impact on returns. Over the 42-year period above, if you took a starting investment of $20,000 and stayed invested the whole time – experiencing the worst days, but also capturing the best days – your ending balance would be approximately $2.1M.
If by attempting to time the market / cut your losses you happened to miss the five best days, your ending balance would be 38% lower at $1.3M. If you missed all ten best days, it would be less than half.
If we are going to remain invested and the environment is challenging, there had better be a logic to what we are holding. The stock market is forward-looking, so while fundamental results have not been impacted to date, perhaps we are on the precipice. Owning a not-yet-profitable company certainly calls for a cautious approach ahead of and during a potential recession.
Can our companies survive a recession? Is there a payoff if multiples stop compressing? Will we be rewarded when correlations come down and investors are looking for the babies that were thrown out with the bathwater? Of our largest holdings, six share a set of common characteristics that I believe set them up for operational and financial success, even in a very challenging environment. I will layout these qualities and then how they are manifested in our individual holdings:
Low Churn – Predictable / stable demand makes it easier to manage a company through a downturn as it significantly reduces the likelihood of revenue falling off a cliff.
Secular Tailwinds – Even in a recessionary environment, secular tailwinds can provide company-specific growth despite a shrinking GDP.
Positive Product Lifecycle Dynamics – A combination of new products or products that are early in their adoption curve can provide growth, even in a weak economy.
Operating Leverage – When combined with revenue growth, operating leverage should lead to accelerated profitability. We don’t own companies with broken unit economics that are growing for growth’s sake. Instead, we own companies with strong unit economics that are scaling and, over time (as they hold down general and administrative, development, and marketing expenses), the companies’ profitability growth should exceed their overall growth rate.
Strong Balance Sheets – None of these companies are reliant on the markets to fund their operations. They have years of cash to operate and are either profitable or quickly approaching profitability.
For all the companies that we own, even the ones with all the attributes listed above, a recession would be unequivocally negative… but a weakening economy and a weakening job market should not grind them to a halt. I consider them wellsuited to navigate such an environment and likely to continue to grow revenues and improve margins even amid the headwinds.
Let’s look at the companies individually. Accepting that there likely will be a recession, I still believe it makes sense to remain invested.
PAR Technology (PAR)
PAR provides technology to quick serve restaurants (QSRs) such as Dairy Queen. Unlike the “mom and pop” restaurant on the corner, QSR customer volumes are very stable, and this type of restaurant generally benefits as consumers “trade down” in a recession. PAR’s core point of sale system (Brink) has a 4% churn rate, meaning that 96% of customers renew every year. It also has a backlog of contracted revenue equal to more than 15% of current recurring revenue, which provides an additional cushion to an already very stable revenue base.
On the product front, PAR is introducing a payments product that has an 80% attach rate amongst new customers. The plan is to roll this out to a significant portion of their base as customers’ contracts with existing payment processing providers roll off. PAR has also indicated that they will be rolling out multiple new products next year and recently acquired an online ordering company, MENUU (sic), which is also rolling out to a pipeline of enterprise customers in 2023.
PAR’s product development strategy is to make each of their modules even more valuable when used in conjunction with other PAR products in order to facilitate cross-selling and take advantage of the large customer base. The net effect is that the product line-up is getting better and better and the base to cross-sell into is getting larger and larger. This product cycle provides significant opportunities, which are layered on top of PAR’s stable customer base and a contracted backlog.
In any economic scenario where restaurants remain open, I believe it is highly likely that revenues grow in 2023. Might the growth rate be lower than the 30%+ the company is projecting currently? Yes, but there is a lot of momentum and opportunity, and, in my mind, it is a question of not if there is growth, but how much. They should exit a recession stronger; the question is, how much stronger?
PAR benefits from secular tailwinds more modestly than some of our other holdings do, but their end customers (QSRs) are eager to find ways to reduce labor costs and consolidate technology vendors, simplifying their overall operations and getting a clearer and more accurate picture of their business. Using PAR’s products – and especially using them in combination – can provide a clear path to improving and simplifying operations, therefore yielding a very high ROI for restaurant chains that choose to adopt them.
PAR is projected to reach profitability by the end of next year. Under existing management, they have grown software revenue more than 8X (acquisitions included) while growing employees 2X.
I believe the company should be able to grow revenue far faster than overhead and new product development, leading to profitability, and can likely end 2023 as a Rule of 40 company, which typically would be afforded a higher multiple. (In such a company, growth rate + profit margin > 40%.) PAR has also dramatically improved gross margins on their software products as they have invested in their legacy products, adding 3,000 basis points of gross margin over the last four years.
The runway is long, the customer base is sticky, and the trajectory to profitability is clear. If the growth is as durable as I believe it to be, the recent multiple compression will matter less and less over time as the power of compounding works.
Elastic Software (ESTC)
Elastic has not disclosed churn, but at their recent investor day, they disclosed that the software (which powers search for a wide range of customers, including UBER, and also provides observability and security solutions) has been downloaded over 3 billion times.
While we cannot extrapolate cleanly to the number of active users because one user can do multiple downloads as versions are updated, the active users should dwarf the company’s 19,000 paying customers. One thing is clear – once a customer is “landed,” they tend to spend more in the subsequent years. Elastic’s net revenue retention has hovered around 130% for several years.
Elastic benefits from the secular tailwinds of ever-growing amounts of unstructured data and employs a usage-based pricing model: the more data used, the more they can charge. The fastest growing portion of their business is related to security products, and there does not appear to be a slowdown in cyber threats coming any time soon.
There are also two tailwinds on the product front. The first is that they have succeeded in stopping AWS (Amazon Web Services) from selling a confusingly named competitive product (Elasticsearch). Secondly, the gap between the quality of their free offerings and paid offerings has only widened, nudging users towards paid.
The company has added 2,000 basis points of operating profits in the last four years and has indicated that this progression should continue. They are currently break-even and cash flow positive with a rock-solid balance sheet. ESTC shares are trading at less than 5X 2023 revenue with a long runway for 30% growth and ever-improving margins and profitability.
A recession will not be good for Elastic, but their products are mission critical and the company will benefit from both secular and product tailwinds.
KKR (KKR)
Private equity firm KKR is designed to weather an economic downturn. One-third of capital is permanent and cannot be redeemed. Over eighty percent of AUM has 8+ year lock-ups at inception, and the firm is currently sitting on over $100B in “dry powder” which means it is committed and will be called when KKR is ready to invest it (which is not up to LPs’ discretion). This capital will start paying management fees upon investment. We can argue about the likelihood and timing of KKR realizing incentive fees, but management fees are almost certainly going up as capital is called.
KKR benefits from the secular tailwinds of the continued migration to private equity. Typically, funds get successively larger and with scale comes increased profitability. The industry has grown in the teens, and KKR has grown management fees at an average of 27% per year for the past decade. On the product front, they have 30+ funds (more than 20 of which are less than 10 years old) across geographies and asset classes (private equity, credit, growth, real estate, infrastructure) and are increasingly selling to new types of clients, including insurance companies and high net worth individuals.
So, in summary, they have new funds and new geographies and are selling into new channels, all built on a base of very attractive historical returns and an excellent brand. This is a dynamic business with an enormous amount of opportunity in front of them, even if GDP shrinks by 3%. Management fees will go up as contractually committed “dry powder” capital is called, even if the ten-year bond yield rises further and parts of our economy decelerate.
You don’t get fired for selecting KKR. Fundraising may slow down, but extrapolating from 2008 when KKR had far fewer products, far fewer limited partners, and far fewer channels to sell into, the market is likely not giving KKR enough credit for the progress that has been made.
Cellebrite (CLBT)
I wrote about Cellebrite extensively in the last letter. Their software is used by law enforcement to manage digital investigations with products that enable law enforcement to access data on cell phones without knowing the passcode. 90% of their revenue is from government sources and 10% from large companies – they have zero exposure to the individual consumer and have reported customer churn of 2%. Governments need their products.
Cellebrite benefits from several trends. As the company disclosed in their initial investor presentation, data stored on devices has grown between 2,000X – 8,000X in last 17 years. Annual cell phone sales have gone from 300M in 2010 to 1.6B last year. Apps and encryption are increasing, as is complexity, and the use of crypto currencies further complicates the financial tracking of crimes. This combination of trends heightens investigators’ need to have powerful tools to gather, organize, and analyze data in digital investigations.
Beyond their initial suite of useful offerings, Cellebrite is expanding their product lines to meet these diversifying needs. Our digital lives increasingly reflect our real lives, and it is implausible that texts, geo locations, emails, photographs, and other digital communications will play less of a role in criminal investigations, even in a recession.
The company is profitable, has 80%+ gross margins, and self-funded for more than a last decade. They are currently investing heavily in product and sales, which has led to depressed earnings in the short term, dragging EBITDA margins to between 7-9% this year (guidance).
However, EBITDA margins were as high as 21% just two years ago and the company has guided to 25-35% long-term, so I consider it highly likely that profitability will revert to higher margin levels as these investments are harvested. Cellebrite shares ended the quarter trading at approximately 2.5X recurring revenue, which is growing 30%+. At EBITDA margins of just two years ago, shares would be trading at approximately 10X EBITDA.
Boutique brokerage firm Cowen has a $10 price target on Cellebrite, more than 150% higher than its latest quarter-end price. Embedded in this target is a 5X multiple on 2023 revenues with revenue growth at 20%. Given the company’s current investment in sales and product, historical growth rates, and focus on government agencies as their end customers, neither the sales growth nor the multiple strike me as particularly aggressive.
The combination of a very strong and stable customer base, an expanding product portfolio, and large investments in new products and sales set Cellebrite up well to navigate the headwinds of a slower economy and higher interest rates. If public market investors do not recognize this, private equity firms have a long history of buying software businesses like Cellebrite at far higher multiples.
APi Group (APG)
The majority of APi’s business relates to fire safety, specifically the inspection, maintenance, and repair of fire safety systems. Such systems are a non-discretionary purchase, tying into the “forced buyers” theme of our last letter. If you are a landlord and want to have people in your building, having a functioning fire suppression system is a requirement.
Since APi Group’s focus is on the inspection and repair of existing fire suppression systems, not new installation, they are not beholden to new commercial construction. The company has a history of 7% organic growth in the fire suppression business and also has a specialty contracting business serving telecom and utility companies building large products for natural gas distribution, potable water distribution, and 5G rollout.
Currently, the overall company has a record-high $3.2B project backlog. While some of this would likely be burned off in a weaker economy, it is highly unlikely that revenue is falling off a cliff given the statutory nature of the majority of their revenue, history of organic growth, and this backlog.
On the margin front, APi Group made a substantial acquisition of Chubb’s (CB) fire and safety business from Carrier Group.
Chubb has a large European footprint, and APi management believes there is an opportunity to bring Chubb margins up to APi margins. This progression can be seen in the financials and the guidance given to date. The overall fire safety business should see margins and earnings rise as one-time issues related to supply chain roll off and new pricing absorbs the inflation on materials costs.
I believe that normalized EBITDA for the business is approaching $1B as supply chain issues roll off, inflation is passed through to end customers, and the Chubb acquisition is optimized. This figure is significant relative to their quarter-ending $3.1B market capitalization, $6.4B enterprise value, and minimal capital requirements. Similar private market companies have traded hands at 3X the multiples of APi Group.
While APG may never trade at 18X-20X EV/EBITDA of private market transactions, there is support for multiple expansion as the market recognizes the transition to a more asset light, lower capital intensity, and more stable inspection and repair business.
Hagerty, Inc. (HGTY)
Specialty insurance company Hagerty is a new investment for the Fund and therefore has a longer write-up as an appendix to this letter. Their insurance product, which primarily focuses on classic and collector cars, has low churn and, of course, auto insurance is legally mandated if you want your car on the road. Hagerty has better unit economics than other auto insurers, with significantly lower customer acquisition costs and lower loss ratios. The company’s large, contracted partnership with State Farm should grow their policies by 30% next year.
On the product front, they are in the early innings of rolling out online and offline marketplaces for collector cars and they also have an upcoming positive contractual change in the revenue share agreement with Markel (MKL) for their reinsurance business. The net effect of these contractual events and new products should position Hagerty very well for 2023 despite economic volatility.
Degree of Difficulty
In my career, I have been in a senior role at two operating companies. The first was a manufacturing business selling to small retailers. Predicting revenue was difficult because the business was cyclical. If we got GDP growth right AND we had no inventory issues AND there were no outlier marketing campaign results, we could get close. Managing expenses when you don’t know demand is hard; if your input costs fluctuate widely, it is even harder. In the other business, 95% of the revenue was tied to government contracts, so an elementary schooler could project it accurately.
Predictable and stable revenue is an advantage, as management is left to manage expenses and capital allocation. With low churn, the businesses we own in Greenhaven’s portfolio are far closer to the stable revenue side of the spectrum. For example, given their history of >100% revenue retention, Elastic’s business will grow even if they don’t add customers – they are managing expenses and investments in future product. These planes are landable even with inflation, rising rates, recessions, and wars.
What Happens when The Multiple Compression Stops?
We are in the painful position of owning a number of companies that have endured rapid multiple compression this year. It is worth noting that, over time, multiple expansion or contraction contributes less to returns than revenue growth or margin improvement – both of which I believe are drivers in our portfolio companies. On the following page is an analysis of those stocks in the S&P500 in the top quartile of returns for a 19-year period.
I acknowledge that multiples can certainly go lower as rates rise and/or panic further infuses throughout the market psyche. Year to date, we have experienced the rapid multiple compression but have not had the benefit of time to realize the positive benefits of growth and operating leverage.
Shorts
During the quarter, the Fund remained short some major indices. We also shorted a flying taxi company (not a joke), an EV charging company, and a computer hardware company.
Outlook
The wall of worry is quite high. In fact, it is hard to find anything to be positive about other than how extremely bearish everybody is. At the macro level, IF there is a silver lining, it’s that the markets usually bottom before the economy does and many of the types of companies we own peaked earlier and have fallen harder than the overall market, which may set them up for bottoming earlier. At the company level, when I return to the fundamentals – the low level of churn, secular tailwinds, product life cycles, unit economics, balance sheets, and operating leverage – I am far more sanguine.
Multiples may continue to compress and GDP may shrink, but we continue to fight this battle with companies that I believe are well financed, have durable growth, and can prosper. This chapter is not fun, which is an understatement especially for our LPs who joined us in the past 12 months. The gap between my perception of long-term value and what Mr. Market is willing to pay us right now is extremely wide. We have taken more than our share of “medicine” … but the final chapter has not been written.
Sincerely,
Scott Miller
New Investment – Hagerty (HGTY)
A SPAC trading at over 200X forward earnings run by a man who almost became a priest should be either the set-up to a bad joke or a pitch for a short investment. However, out of the rubble of SPAC-ageddon emerges a very interesting company: Hagerty, Inc. (HGTY).
Earlier this month, we held an Annual Meeting for LPs that included a “Fireside Chat” with Hagerty’s CEO. The interview is worth watching as it covers much of the ground of this write-up and provides additional details.
Hagerty stood out to us when they disclosed their historical and prospective investors during their “de-SPAC” process. State Farm, the largest auto insurance company in the U.S., invested $500M in the SPAC deal at $10 per share, and specialty insurance company Markel not only owned 25% of Hagerty prior to the de-SPAC, but also invested an additional $30M in the deal at $10 per share. Two sophisticated insurance companies investing in another insurance company… It was unlikely the trailing P/E ratio that convinced State Farm to part with half a billion dollars and have their CEO join Hagerty’s Board, so we decided to do some digging.
Today, 92% of Hagerty’s revenues are insurance-related. I will describe the other pieces of the business shortly, but the economic engine that powers the company is automobile insurance. More specifically, the company specializes in a particularly niche insurance category: classic and collectible cars. Hagerty insures everything from 100-year-old cars requiring a crank to start to Mazda Miatas from the 1980s and modern “Super Cars” (McLarens, Bugattis, Lamborghinis, etc.) that are currently in production.
What differentiates a Hagerty policy from the traditional policy you have on your Ford / Toyota / etc.? Hagerty policies aren’t for “daily drivers.” Instead, they are insuring people’s prized possessions like the old convertible that the owner only drives on sunny Sundays to a farmers’ market. People treat their “toys” well, and this shows up in Hagerty’s numbers with their loss ratio (amount paid out for claims) coming in around 41% vs. 70%+ for a typical auto insurer.
In capitalism, profit pools typically get competed away, but Hagerty has not seen this happen to date despite being in existence since the mid-80s. The low loss ratio is not a new phenomenon – it has consistently been nearly half the industry average. Can that persist going forward?
Pricing and servicing a policy for a collector car has its pitfalls. To cite one of the company’s simple examples, take the Chevrolet Camaro from 1969, considered the finest year for classic Camaros. Over 240k Camaros were produced in 1969; however, they were made in 147 different variants. The least valuable version is worth approximately $11,000 while the most valuable version is worth over $1M. An insurance underwriter better understand which version they are insuring.
In addition, unlike most automobiles, the value of classic/collector cars tends to appreciate each year. Both the insurance company and the customer need to understand the rate of appreciation for the model in order to avoid a situation where the insurance proceeds are insufficient to replace a beloved car. Classic cars also face service challenges. If one needs to replace the windshield on a 1915 Model T Ford, trying to file (let alone complete) a claim with the 800-number of a mega insurer will likely be a frustrating experience.
Hagerty has a whole team dedicated to helping its members source specialty parts, a service of extremely high value to customers. Large insurers are not equipped to service this niche market well – they have neither the data nor the operational support for this niche product that ultimately equates to a small percentage of their overall insurance book.
The typical owner of classic/collector cars loves their cars but also has many other items needing insurance (homes, boats, daily drivers, etc.). Consequently, nine of the top ten insurers (not Geico) partner with Hagerty to price and service insurance to their policyholders with classic and collectible cars. Why would they partner with a company some would see as a competitor?
Hagerty provides more accurate pricing and better service and reduces the likelihood of losing excellent customers by mishandling a classic/collector car policy that is only a small, but emotionally charged portion of the overall relationship. By not offering homeowners, umbrella, and other insurance products, Hagerty avoids channel conflict, meaning that those that would otherwise be Hagerty’s competitors are instead their partners, creating a favorable competitive dynamic within the industry that provides at least a partial explanation for the persistence of the company’s low loss ratio.
For more than a decade, Hagerty has grown at three times the rate of the overall auto insurance industry, fueled by high retention rates (90%+), effective marketing (more on that later), and the partnerships described above. What is not obvious when first studying the company is that existing partnerships tend to be a source of ongoing growth. Many auto insurance agents are independent, meaning, for example, that they may represent Allstate (ALL) as well as other companies.
Hagerty has a partnership with Allstate, but agents do not have to use Hagerty or switch their customers off an inferior Allstate classic car policy on to an Allstate/Hagerty policy. That means that the book of business on classic cars not with Hagerty has continued to grow at the same time as the mutual policies have. This semi-captive audience is a source of value because Hagerty has a “hunting license” within that population and slowly converts over agents and policies. The fact that nine of the top ten insurance companies are partners does not mean that future growth is stunted – Hagerty is still early in the penetration of those customer bases.
The market size for classic and collectible cars is larger than I would have thought. Hagerty estimates that there are over 43M registered classic and collectible cars. That number grows each year as new collector cars (McClaren, Ferrari, etc.) are produced and other cars “age into” the category (25 years old or more). Hagerty currently has ~2M cars insured, so there is a long runway for growth.
In addition to acquiring customers through the partnership model, Hagerty also acquires customers directly. Unlike many large insurers that blanket the NFL television broadcasts with commercials every fifteen minutes, Hagerty focuses on content and events that tap into classic car lovers’ passion for cars. They now own several of the largest classic car shows in the United States in addition to the second-largest (by circulation) automobile magazine, a YouTube channel focused on classic cars with over 2M subscribers, and an automobile valuation tool that is widely used.
Hagerty also operates a “Drivers Club,” which provides roadside assistance and weekly emails to over 2M members. This diverse set of assets is intended to fuel peoples’ passion for cars – insurance is rarely, if ever mentioned directly. However, these offerings serve as very effective customer acquisition tools. By our math, Hagerty’s customer acquisition costs are less than half the industry average.
To further monetize their core insurance business more effectively, Hagerty entered the reinsurance business in 2017-18 with the creation of HagertyRe. Since its acquisition of Essentia in 2013, Markel was Hagerty’s captive reinsurance partner whose primary function was to provide their balance sheet and credit rating to support the underlying growth of Hagerty’s insurance book. The reinsurance business is very attractive for both Hagerty and Markel due to the low loss ratios experienced in the underlying book of business.
To illustrate this point, let’s see how $100 of premium flows through the reinsurance business. First, Hagerty gets to keep ~$42 as a commission for servicing the policy. $32 of that is a base commission and $10 is a contingent commission that is earned if loss ratios stay within a pre-determined range. The next ~$41 will be paid out to policyholders because of accidents incurred. (We are now up to ~$83 out of the $100 premium.)
Next, ~$6 will used on operating expenses and reinsurance costs. The net result is that, for every $100 in premium received, HagertyRe earns ~$11 in operating profit. That sounds great by itself, but there is more: for every dollar retained in HagertyRe’s business, it can write $3-4 in premiums. In other words, the return on every incremental dollar retained in the reinsurance business is 30-40%.
For the past two decades, Hagerty has been led by CEO McKeel Hagerty. His parents started the company in their Michigan home in the 1980s, initially focusing on insuring wooden boats on the Great Lakes. Recognizing that people love their toys and, if done properly, insuring the toys was a good business, they added collector cars and began to expand beyond Michigan.
On paper, their son is not a person you would select for the job. On paper, he is a tenth-round draft choice. He was an English and Philosophy major in college and then then decided to enter seminary, studying to be a Russian Orthodox priest and pursuing higher education. However, since it came under the leadership of McKeel and his sister Kim (who held various roles before retiring in 2014), Hagerty has grown the company from 30 employees to over 1,700 today while launching the partnership model, entering the media business, beginning the Driver’s Club, creating their specialty valuation tool, and buying up classic car shows.
McKeel has a very folksy demeanor, but this is no simple small-town boy. In 2016, he was elected to serve as the global chairman for YPO (Young Presidents Organization, the world’s largest CEO organization) and has traveled the world interacting with business leaders. The company has a strong culture and has been voted among Fortune’s Best Places to Work for the past four years. If one peels back the layers, this business has been assembled methodically and is about to enter its next phase of growth.
Insuring cars with low loss ratios, low customer acquisition costs, and low churn is an excellent business. Creating and supporting a marketplace for classic and collectible cars might be an even better business. For a marketplace business, there are three important components – the supply side (goods), the demand side (customers), and a trusted intermediary. Hagerty has these pieces. They can feed the demand side through their media properties and leverage email relationships with over 2M Hagerty Drivers Club members.
They also have a top-of-funnel position controlling the valuation tool that is used across the industry. On the supply side, Hagerty owns the software used by over 200 leading classic car dealers to manage their inventory and also owns several car shows that have traditionally hosted in-person auctions as part of their programming. Through their recent acquisition of Broad Arrow Group, Hagerty also acquired the management team that led the automobile auction and financing business at Sotheby’s. As an insurance company and the name behind the valuation tool most widely used in the classic car space, Hagerty is starting from a position of trust.
While Hagerty has been laying the groundwork to enter the auction business for several years, they only completed their acquisition of Broad Arrow Group last quarter and have since held two auctions selling a total of $70M+ of classic cars. They also began to offer classified ads, but the real volume will come over time, as an alternative to Bring-A-Trailer (a popular auction platform for classic and enthusiast vehicles) was recently announced and will debut next month.
The company’s data suggests that, of the cars that Hagerty insures, $12B in market value traded hands in a combination of auctions and private transactions over the last 12 months. In addition to monetizing a passionate car-loving community that Hagerty has assembled, the marketplace provides an opportunity to both improve retention and acquire new customers since the moment of purchase is an ideal time to attach a new insurance policy. Given that a Hagerty member selling their single classic/collector vehicle is the largest cause of churn, Hagerty is simply better positioned to monetize and execute such transactions than traditional auction houses or marketplaces.
Short-term financing is yet another ancillary business that will emerge from the marketplace business. Hagerty, which has the industry leading valuation tool, insurance relationships with millions of owners, and a strong balance sheet, is in prime position to provide short-term loans to facilitate transactions (typically at 50% loan to value). Frequently, these loans are essentially bridge financing until a collector can sell another car, a transaction which Hagerty again is well-positioned to capture vs. competitors. The flywheel at Hagerty is spinning – what would once have been a simple car insurance policy can now turn into a buyer’s commission, a seller’s commission, listing fees, and financing fees.
While the marketplace business has the potential to be quite large, it is in its infancy and will likely not be a source of large profits in 2023 or 2024 as Hagerty invests in growing the business. Fortunately, Hagerty has two contractual events that will occur in 2023. The first is that State Farm will onboard 470,000+ policies to Hagerty. This is part of their 10-year contractual relationship and $500M PIPE investment.
The State Farm opportunity has not contributed any revenue for the past two years, instead actually only contributing costs as massive systems integrations and upgrades have been undertaken. Those costs are now dropping off as the partnership becomes revenue-generating next year. The second contractual event will be the change in reinsurance revenue share between Markel and Hagerty, increasing Hagerty’s share of revenue from 70% up to 80%.
One would think that the upcoming contractual events and burgeoning marketplace opportunity would be well understood and reflected in the HGTY share price, but to us that seems to not be the case. One more casual indication of investor apathy is that, on the website Seeking Alpha, fewer than 500 people “follow” Hagerty vs. more than 42 million for Apple (AAPL) and hundreds of thousands for many companies you know.
It was a SPAC, screens expensive (in part because State Farm has been all expense no revenue) and has a small free float (less than $3M trades daily). Until last week, Hagerty had only one sell side analyst who, in their initiation report, did not even give financial projections beyond 2022 for 2023. Last week, a new analyst initiated coverage and did include 2023 projections, but these somehow appear to ignore the State Farm policies and the marketplace revenue, which are both 2023 events.
Hagerty has grown at 3X the overall insurance industry and, with increased penetration of their partnerships, the realization of contractual events, and launching of the marketplace, I believe the topline growth rate will inflect to over 30% per year for the next few years.
Loss ratios should hold steady at ~40% lower than the industry average, and customer acquisition costs will likely decline further to less than half that of the industry average. Because of the statutory nature of the product (you need insurance if you want to drive your car), the contractual events in 2023 (State Farm and Markel/reinsurance), and a growing marketplace, Hagerty is well-positioned to withstand a recession should one occur in 2023.
Hagerty will continue to screen expensive on an earnings basis for the next few years as they invest in their marketplace and international insurance businesses. However, at the core of Hagerty is a very profitable car insurance business with excellent unit economics and a very long runway for growth as they continue developing the ecosystem to support, sustain, and monetize peoples’ passion for cars.
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Disclaimer:
This document, which is being provided on a confidential basis, shall not constitute an offer to sell or the solicitation of any offer to buy which may only be made at the time a qualified offeree receives a confidential private placement memorandum (“PPM”), which contains important information (including investment objective, policies, risk factors, fees, tax implications, and relevant qualifications), and only in those jurisdictions where permitted by law. In the case of any inconsistency between the descriptions or terms in this document and the PPM, the PPM shall control. These securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction have been satisfied. This document is not intended for public use or distribution. While all the information prepared in this document is believed to be accurate, MVM Funds LLC (“MVM”), Greenhaven Road Capital Partners Fund GP LLC (“Partners GP”), and Greenhaven Road Special Opportunities GP LLC (“Opportunities GP”) (each a “relevant GP” and together, the “GPs”) make no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors, appearing in the document.
An investment in the Fund/Partnership is speculative and involves a high degree of risk. Opportunities for withdrawal/redemption and transferability of interests are restricted, so investors may not have access to capital when it is needed. There is no secondary market for the interests, and none is expected to develop. The portfolio is under the sole investment authority of the general partner/investment manager. A portion of the underlying trades executed may take place on non-U.S. exchanges. Leverage may be employed in the portfolio, which can make investment performance volatile. An investor should not make an investment unless they are prepared to lose all or a substantial portion of their investment. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other investment alternatives and may offset profits.
There is no guarantee that the investment objective will be achieved. Moreover, the past performance of the investment team should not be construed as an indicator of future performance. Any projections, market outlooks or estimates in this document are forward-looking statements and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly affect the returns or performance of the Fund/Partnership. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur.
The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of the relevant GP. The information in this material is only current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of the GPs, which are subject to change and which the GPs do not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the Fund/Partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal, and tax professionals before making any investment.
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Footnotes
[1] Greenhaven Road Capital Fund 1, LP, Greenhaven Road Capital Fund 1 Offshore, Ltd., and Greenhaven Road Capital Fund 2, LP are referred to herein as the “Fund” or the “Partnership”
[2] Net Performance from 2011 to present (i) is representative of a "Day 1“ investor in the domestic limited partnership “Greenhaven Road Capital Fund 1, LP”, (II) assumes a 0.75% annual management fee, and (III) assumes a 25% incentive allocation subject to a loss carry forward, high water mark, and 6% annual (non-compounding) hurdle. Fund returns are audited annually, though information contained herein has been internally prepared in order to represent a fee class currently being offered to investors. Performance for an individual investor may vary from the performance stated herein as a result of, among other factors, the timing of their investment and the timing of any additional contributions or withdrawals.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
This article was written by
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Comments (1) | AAPL |
https://finnhub.io/api/news?id=5c9d3693ee14c8b19d4a07111dbd88b1f4c861ce2a99ee92cd23d6367fdb6b26 | MORNING BID-China + policy hawks = drag on markets | The social unrest flaring up across China - and how Beijing responds to it - remains front and center for Asian markets, suggesting the sentiment driving trading on Tuesday will again be negative. Just to compound investors' caution, two U.S. Federal Reserve officials on Monday reiterated their conviction that monetary policy must be tightened further and kept at restrictive levels for some time yet in order to get inflation under control. Let's start with China, where the protests against strict zero-COVID policy and restrictions on freedoms are spreading. | 2022-11-28T13:45:00 | Yahoo | MORNING BID-China + policy hawks = drag on markets
By Jamie McGeever
Nov 29 (Reuters) - A look at the day ahead in Asian markets from Jamie McGeever. The social unrest flaring up across China - and how Beijing responds to it - remains front and center for Asian markets, suggesting the sentiment driving trading on Tuesday will again be negative.
Just to compound investors' caution, two U.S. Federal Reserve officials on Monday reiterated their conviction that monetary policy must be tightened further and kept at restrictive levels for some time yet in order to get inflation under control.
Let's start with China, where the protests against strict zero-COVID policy and restrictions on freedoms are spreading. Chinese assets are, unsurprisingly, under pressure - the offshore yuan fell on Monday for a fifth straight day and Chinese stocks had their biggest decline in a month.
A little more surprising, however, given the scale of the unrest, is that the declines have been contained and orderly. There is no obvious sense of forced selling. Yet.
It's a hard one to trade. Does the unrest accelerate a re-opening of the economy, or does it prompt President Xi Jingping to double down? Either way, volatility and lack of visibility should prevail in the near term.
One consequence overseas was the slide in Apple Inc shares on Monday, down 2.7% as worker unrest at the world's biggest iPhone factory in China stoked fears of a deeper hit to the already constrained production of higher-end phones.
Apple is now underperforming the broader market this year.
St. Louis Fed President James Bullard and New York Fed President John Williams dealt another blow to markets on Monday, signaling that rates will reach at least 5% and might not be cut at all next year. Traders are on board with the first bit, but certainly not the second - 40 basis points of easing is still implied in next year's rates curve.
ECB President Christine Lagarde also struck a hawkish tone on Monday, saying inflation has not peaked and may yet surprise on the upside. If anyone was in any doubt, the hawks at the big central banks are not backing down.
Risk assets are under pressure - Wall Street closed deeply in the red on Monday - while volatility and the dollar both rose. That's the backdrop to the Asian session on Tuesday, so it looks like being another cautious open.
Three key developments that could provide more direction to markets on Tuesday:
- Japan unemployment (October)
- Japan retail sales (October)
- Germany inflation (November, prelim)
(Reporting by Jamie McGeever in Orlando, Fla.; Editing by Marguerita Choy) | AAPL |
https://finnhub.io/api/news?id=cb3f7fd08ad294a0ca882c2b55c3acc39e6aede66d17fafa7f1c1dfcf48ac68a | China COVID protests are ‘a gut punch at the worst possible time for Apple’: Analyst | Wedbush Managing Director & Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss how China's zero-COVID policy and ensuing protests are having a detrimental impact on Apple stock. | 2022-11-28T13:41:58 | Yahoo | China COVID protests are ‘a gut punch at the worst possible time for Apple’: Analyst
Wedbush Managing Director & Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss how China's zero-COVID policy and ensuing protests are having a detrimental impact on Apple stock.
Video Transcript
[AUDIO LOGO]
JARED BLIKRE: Joining us now is Wedbush senior analyst Dan Ives. Dan, thank you for joining us here today. You cover both Apple and Tesla. And we were just talking with Dan Howley about, well, about Elon Musk. But I want to focus on Apple here and some of the protests that we saw. We saw the protests at the Foxconn facility last week. And the big question is, what kind of a dent is this making in terms of their ability to service the holiday rush?
DAN IVES: It's been a gut punch, I mean, at the worst time possible for Apple. I mean, we're talking shortages in a lot of Apple stores of upwards of 30% of iPhone purse, in terms of, you know, iPhone 14. And I mean, this is something-- they've been able to navigate zero-COVID or probably better than any company out there in terms of China.
Clocks finally struck midnight for Apple in terms of-- they're not able to do that anymore. The Foxconn situation has really been a body blow. And that's really what's starting to play out across the board. We could be looking at 5 million units in the low-end, potentially 8 to 9 million unit shortages on the high-end.
DAVE BRIGGS: It's been revealing, Dan, and not just the protests, but we've learned that it's essentially slave labor making iPhones. I mean, maybe that's going too far, but all the reporting I've seen, you're talking about 12-hour shifts rotating, essentially what people are describing as forced labor. Do you expect Apple to make any production changes begin to move, fast forward, things will India and to Vietnam? And how big a dent will this be in their Q4?
DAN IVES: You know what, I think the biggest problem is zero-COVID issue, right? I mean, the zero-COVID policy in China, I don't think anyone in their wildest nightmares thought we'd be sitting here going to December 2022, and it's actually getting worse in terms of the restrictions. And that's been something that's caught, I think, Foxconn and Apple by surprise and basically, every other company, including domestic.
Well, realistically, best case, if they look to move production 5% to 7% would be the most that they can move out of China by 2024. I mean, that's really cemented in terms of the supply chain. That's why right now getting an iPhone 14 Pro is nearly impossible before the holidays.
JARED BLIKRE: I want to turn our attention back to Elon Musk and Twitter and Tesla, specifically Tesla. Stock coming off a 52-week lows, a big decline there. I'm just wondering, when does Elon stop or when does he have to stop selling his Tesla stock? And is Twitter too much of a distraction for him?
DAN IVES: Look, I even thought, when Dan Howley was talking about it, even the cat was shocked to explain the situation.
JARED BLIKRE: Good point.
DAN IVES: Well, look, I think the biggest frustration here is that Twitter is essentially quicksand. And the concept that Musk is going to have to sell Tesla stock to continue to fund Twitter, that's been a broad overhang on the stock. And I think that the bigger issue is just on an hourly or daily basis, just continuing to have black eye moments for Musk and just another one today. Let's pick the one company in the world, you never want to pick a fight with Apple, right? So let's do that.
And I think that's part of the problem here is that Musk is, you know, I think from a brand deterioration perspective, it's having an impact, I think, in the public perception on Tesla. And that's been overhang on Tesla's stock.
DAVE BRIGGS: You must be thrilled to see Elon suggesting that if he can't get on the App Store, he might just build his own phone. Does Apple need Twitter? Certainly, he needs Apple. But does Apple need Twitter?
DAN IVES: I mean, Apple views Twitter like a piece of bread at the restaurant before you get your meal. Now, Twitter needs Apple for basically for everything. So I think part of the problem here is that, OK, I get some of the frustration from an advertising perspective because I think I do believe Musk continues to be very frustrated as advertisers or, you know, we'll call it pausing or at bay, at least until they get a better sense of the platform.
But here, fundamentally, is the biggest problem. The golden child is Tesla. And Musk's, which from a perception perspective, attention is spent more and more on Twitter. And that is really creating what I view is just a PR black eye for Musk and therefore, for Tesla.
JARED BLIKRE: If we can, let's take Musk out of the Tesla equation for a while, at least on the headline basis. Does Tesla have what it takes to build, to grow sales next year in a meaningful way beyond analyst expectations?
DAN IVES: I think that's been the frustration. And there was the Tesla story fundamentally. I think it's extremely well positioned for 2023. Where we are in the EV inflection, I think we could be looking at 2 million units potentially for next year. They obviously run into some issues like every other auto player. But if you look at the Twitter overhang and the Musk overhang on Tesla, it's significant because Musk is Tesla, Tesla is Musk. And I think that's why this has really started to get just agonizing, almost exhausting frustration for Tesla bulls because the irony is, the Tesla story is actually doing well.
DAVE BRIGGS: I want to ask you quickly about Twitter, Dan. If you have to pay for that blue check that you've earned, how much would you be willing to pay per month? And what are the chances you think Elon can build a winner at Twitter based on what you've seen in the first few weeks?
DAN IVES: Look, in terms of Twitter, and obviously, we covered Twitter as a public company, I mean, it was a bloated structure. It was going to have to have massive headcount cuts regardless of movement. So that was something that was overdue now to the extent that that's happened that's a little obviously jaw-dropping. But from a revenue perspective, look, the verification is going to be the first past. What the adoption rate looks like on blue checks is that the first sort of step in the right direction. But it's advertisers.
I mean, we can talk about subscriptions all they want and need to increase advertisers, increase engagement. But monetization of Twitter, that is an Everest-like uphill battle for Musk.
JARED BLIKRE: And you cover the EV space in a larger sense. Just wondering, anything stick out to you, anything you want to bring to the forefront here? Giving you the floor with the last minute.
DAN IVES: I think GM, I think, what they're doing right now-- you know, obviously, they've had steps forward, steps back. I think they're set up for a massive year in 2023. I think ultimately, from a battery perspective, the models are going to hit. You know, I think everything that they've sort of laid out in the phase two of EVs, I think they could be extremely well positioned as well as with Ford. I think there's a Renaissance in the 313 area code around EVs.
DAVE BRIGGS: Got to try one last time. How much would you pay monthly for Twitter?
DAN IVES: Look, I think it comes down to $8 is pretty easily digestible, right, for from a verification perspective. But the question is, even if you had mass adoption there, we would talk about 4% or 5% of revenues max, you know, like, that's salvage is one piece. But obviously, there's a lot more heavy lifting ahead. But again, you start to lose celebrities, athletes, and others, that continue-- that's the secret sauce of Twitter. That's why right now, Musk, I think, is some-- will come high-risk plans ahead as we look at some of what he's talked about.
DAVE BRIGGS: Nobody better to have here on this day than Wedbush managing director senior equity analyst Dan Ives. Good to see you, sir. Appreciate that very much.
DAN IVES: Thank you. | AAPL |
https://finnhub.io/api/news?id=5ed8fda347e1824511158bda1d25d68343259131aae6f71c05843c8b56809a20 | Elon Musk goes to war with Apple over App Store fees, moderation | Elon Musk has taken to Twitter to accuse Apple of suppressing free speech and criticize its 30% App Store fees. | 2022-11-28T13:40:24 | Yahoo | Elon Musk goes to war with Apple over App Store fees, moderation
Elon Musk is going to war with Apple (AAPL). The Tesla (TSLA) CEO and new head of Twitter took to his social media platform on Monday to call out the iPhone maker for pulling back on advertising on the site and called out Apple for its 30% App Store fees.
In a series of tweets, Musk accused Apple of suppressing speech by requiring apps in its store to abide by certain content standards and questioned whether or not the company hates free speech in America. In one tweet, Musk specifically tagged Apple CEO Tim Cook’s Twitter account.
According to Musk, Apple has stopped most of its advertising on Twitter. If true, Apple wouldn’t necessarily be alone in choosing to pull back ads on Twitter. Companies ranging from GM and VW to General Mills and Eli Lilly have either slowed ad spending on the platform or stopped advertising on the social network entirely in the weeks since Musk’s chaotic takeover.
Apple has mostly stopped advertising on Twitter. Do they hate free speech in America?
— Elon Musk (@elonmusk) November 28, 2022
Musk also responded to a tweet by The Verge’s deputy editor Jake Kastrenakes saying that Apple is threatening to remove Twitter from the App Store if it doesn’t abide by the tech giant’s moderation demands.
It’s not unheard of for Apple to pull apps from the App Store, either. In 2021, the company suspended the Parler app for not moderating user content including what it said at the time were threats of violence. Apple eventually reinstated the app after Parler agreed to better moderate content.
The mercurial Musk went on to claim that Apple puts a “secret 30% tax” on items consumers purchase through the App Store. Apple’s App Store fee policy has been public knowledge for years. It was also the subject of an antitrust suit Epic filed against Apple in 2021.
Musk’s stab at Apple’s App Store fees comes as he attempts to pivot the company away from relying heavily on advertising and more toward subscription services. Of Twitter’s $5.1 billion in total 2021 revenue, $4.5 billion came from advertising.
Did you know Apple puts a secret 30% tax on everything you buy through their App Store? https://t.co/LGkPZ4EYcz
— Elon Musk (@elonmusk) November 28, 2022
Musk has already attempted to change to a subscription model by revamping Twitter Blue, which allowed users to purchase verification badges. But that blew up when trolls bought badges to masquerade as companies and celebrities ranging from Lebron James to Nestlé.
If, however, Musk could get his subscription plans off the ground, he’d run headlong into Apple’s 30% fee. In other words, Musk would end up having to fork over 30% of every subscription purchase customers made via the App Store to Apple.
Apple isn’t the first company Musk has tangled with since purchasing Twitter for $44 billion in October. According to the Financial Times, he reached out to a number of advertisers and criticized them for cutting back on their ads on the social network.
Musk’s attacks on Apple are a dangerous move, as well. Twitter needs Apple to ensure that its services are available to the hardware maker’s more than 1 billion active iOS devices. Without Apple, Twitter would suffer a significant setback in terms of available users.
For now, Musk’s feud appears to be rather one-sided. And there’s no telling if it will continue to escalate or simply die out. But from the looks of one tweet in which he used an image to imply he is going to war with the company, this likely isn’t the last we’ve heard in this dust up.
Yahoo Finance reached out to Apple for comment and will update this article if it responds.
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Apple stock slides ahead of holidays amid protests in China and supply chain crunch
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https://finnhub.io/api/news?id=20a5a1f987659bf1f8fa24c28b97b2667101336fd149e2f5037afbcd53e33eb0 | Elon Musk alleges Apple is threatening to pull Twitter from App Store | Yahoo Finance tech editor Dan Howley explains how in a series of tweets, Elon Musk claimed that Apple has essentially stopped advertising on Twitter since he took over the company. | 2022-11-28T13:35:55 | Yahoo | Elon Musk alleges Apple is threatening to pull Twitter from App Store
Yahoo Finance tech editor Dan Howley explains how in a series of tweets, Elon Musk claimed that Apple has essentially stopped advertising on Twitter since he took over the company.
Video Transcript
[AUDIO LOGO]
[MUSIC PLAYING]
DAVE BRIGGS: Elon Musk is making more waves after his Twitter takeover, tweeting earlier that Apple has threatened to withhold Twitter from its App Store. Yahoo Finance tech editor Dan Howley is here with the latest. He's just got a bunch of popcorn sitting here and watching Elon tweet. Dan, it is remarkable. Here's the playbook. Let me scare off all the advertisers and then take on the biggest company in the world that literally controls your success or failure. What do you make of all this?
DAN HOWLEY: Yeah, it's really an interesting move, right? Because he kind of started this out just as claiming that they are trying to fight them. Basically, the first tweet that he sent on this was that Apple has mostly stopped advertising on Twitter. Then he questioned whether they hate free speech in America.
Then he said that they're censoring people, asking who else they're censoring, saying that they have a, quote unquote, "secret" 30% tax for app developers or at the App Store. This is all kind of seemingly just show because he wants to turn Twitter into a subscription-based service. And so the 30% fee would be applied to anybody who makes a-- seemingly would be applied to anybody who purchases a subscription through the Twitter iOS app. That's basically how Apple works.
And, you know, this fee isn't secret at all. It was kind of the main piece of a lawsuit, an antitrust lawsuit between Epic and Apple over "Fortnite." So it's not as though this is some unheard of fee that companies have to pay. There's also the idea that Musk is taking on Apple and essentially threatening that they could take Twitter out of the App Store.
Now, it's not unheard of for Apple to do that. They have removed Parler previously before reinstating it because Apple didn't like the lack of moderation on that platform. And, you know, it really is entirely up to Apple what apps are allowed on the service. There's been arguments as to whether that's fair or not, but it is on their terms of service, and companies have to abide by that if they want to appear on the App Store.
Apple's response to that usually is, if you don't want to be on the App Store, there's Android. So, you know, I think the big grand picture here is that Twitter needs Apple far more than Apple needs Twitter. I highly doubt that people, unless they're huge Elon Musk fans, are going to ditch their iPhone and years of photos and conversations just because they can't get access to Twitter. They'll figure out some other way to get to it, perhaps via the web app or something along those lines. But yeah, this is a very interesting fight and one that Elon Musk seems very interested in picking.
JARED BLIKRE: Well, and Elon has said before that he might just go and build his own phone. Don't know how realistic that is, but what are his options here? Because it really makes you think he might be grasping at straws, but he's pretty famous for going for these moonshots.
DAN HOWLEY: Yeah, he goes after companies like this. According to a report by the Financial Times, he had called up a number of or reached out to a number of advertising companies or companies that slowed their advertising or ceased advertising on Twitter, and basically criticized them for doing so. You got to imagine that's not going to play out well for those advertisers in their future on the platform.
But as far as his chances or what he could do, he could try to lobby against the 30% App Store fee. That's something that a lot of companies have tried to do in the past. And it's being looked at in different jurisdictions around the world. But making a new phone? I don't think that's going to get many people on board.
DAVE BRIGGS: You know you got a cat over your shoulder, right, brother? I mean, you are unphased.
DAN HOWLEY: Ah.
DAVE BRIGGS: There he is. What's his name? Is it Apple, or is it Elon?
DAN HOWLEY: No, that's Buddy, and he's chewing on the Christmas lights because he does that every year.
JARED BLIKRE: All right, got to leave it there. Dan Howley and feline friend, thank you for that report. | AAPL |
https://finnhub.io/api/news?id=0b13b11f58e0cfa0b7041da75083b086cb765720b1b67eae59186538ebe43032 | Wall Street ends down sharply, hit by Apple and China worries | U.S. stocks ended sharply lower on Monday after protests in major Chinese cities against strict COVID-19 policies sparked concerns about economic growth, while Apple Inc slid on worries about a hit to iPhone production. | 2022-11-28T13:20:56 | Reuters | Wall Street ends down sharply, hit by Apple and China worries
- Summary
- Companies
- Cyber Monday spending to hit $11.6 bln - report
- Crypto shares fall on BlockFi bankruptcy filing
- Biogen down after death in Alzheimer drug trial
- Indexes end: S&P 500 -1.54%, Nasdaq -1.58%, Dow -1.45%
Nov 28 (Reuters) - U.S. stocks ended sharply lower on Monday after protests in major Chinese cities against strict COVID-19 policies sparked concerns about economic growth, while Apple Inc (AAPL.O) slid on worries about a hit to iPhone production.
Shares of the Cupertino, California tech giant lost 2.6% and weighed heavily on the benchmark S&P 500 (.SPX) index as worker unrest at the world's biggest iPhone factory in China fanned fears of a deeper hit to the already constrained production of higher-end phones.
Rare protests in major Chinese cities over the weekend against the country's strict zero-COVID curbs are exacerbating worries about growth in the world's second-largest economy.
"These protests are just evidence that this is a kind of a moving target where, will China continue to try to really constrain COVID's spread?" said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management in Minneapolis.
"Or will they have more of a 'living with COVID' approach that we've seen in the United States and other countries?"
"We think COVID itself and China's policy is one of the key variables for 2023 that would influence stock prices and investors," Hainlin said.
All 11 S&P 500 sector indexes declined, led by real estate (.SPLRCR), down 2.81%, and a 2.74% loss in energy (.SPNY).
U.S. shares of Pinduoduo Inc (PDD.O) surged 12.6% after the Chinese e-commerce platform beat estimates for third-quarter revenue, helped by COVID-related lockdowns in the country that forced consumers to shop online. U.S. shares of other Chinese technology companies also rose, with Baidu (9888.HK) and Tencent Holdings (0700.HK) each gaining over 2%.
The S&P 500 declined 1.54% to end the session at 3,963.95 points.
The Nasdaq Composite Index (.IXIC) declined 1.58% to 11,049.50 points, while Dow Jones Industrial Average (.DJI) fell 1.45% to 33,849.46 points.
With two trading days left in November, the S&P 500 is on track for a gain of 2.4% for the month.
Shares of Amazon.com Inc (AMZN.O) rose 0.6% after an industry report estimated spending during Cyber Monday, the biggest U.S. online shopping day, would rise to as much as $11.6 billion.
Trading was mixed in other heavyweight growth stocks, including Microsoft Corp (MSFT.O), Meta Platforms Inc (META.O), Nvidia Corp (NVDA.O) and Tesla Inc (TSLA.O).
Biogen Inc (BIIB.O) fell following a report of death during a clinical study of its experimental Alzheimer's drug.
Shares of cryptocurrency and blockchain-related companies Coinbase Global Inc (COIN.O), Riot Blockchain Inc (RIOT.O) and Marathon Digital Holdings Inc (MARA.O) each fell about 4% following lender BlockFi's bankruptcy filing, the latest casualty since FTX's collapse earlier this month.
This week, investors will keep a close watch on November U.S. consumer confidence data, due on Tuesday; the government's second estimate for third-quarter gross domestic product, due on Wednesday; and November nonfarm payrolls due on Friday.
Declining stocks outnumbered rising ones within the S&P 500 (.AD.SPX) by a 12.2-to-one ratio.
The S&P 500 posted 12 new highs and two new lows; the Nasdaq recorded 93 new highs and 174 new lows.
Volume on U.S. exchanges was relatively light, with 9.3 billion shares traded, compared to an average of 11.3 billion shares over the previous 20 sessions.
Our Standards: The Thomson Reuters Trust Principles. | AAPL |
https://finnhub.io/api/news?id=26ba081a2596c0dbd8cd0d42840f776096aaa956d68c7e217fd0f666ae84758e | Why Taiwan Semiconductor, Intel, and Qualcomm Fell Today | Shares of leading semiconductor companies Taiwan Semiconductor Manufacturing (NYSE: TSM), Intel (NASDAQ: INTC), and Qualcomm (NASDAQ: QCOM) all fell today, declining 2.9%, 2.6%, and 3.6%, respectively, as of 3:37 p.m. ET. First, widespread protests in China over COVID-19 restrictions erupted this past weekend, putting pressure on any stock with exposure to China or products made there. Second, a report from a leading tech industry research company predicted a bigger decline in overall semiconductor revenue next year than it had forecast just four months ago. | 2022-11-28T13:18:34 | Yahoo | Why Taiwan Semiconductor, Intel, and Qualcomm Fell Today
Shares of leading semiconductor companies Taiwan Semiconductor Manufacturing (NYSE: TSM), Intel (NASDAQ: INTC), and Qualcomm (NASDAQ: QCOM) all fell today, declining 2.9%, 2.6%, and 3.6%, respectively, as of 3:37 p.m. ET. First, widespread protests in China over COVID-19 restrictions erupted this past weekend, putting pressure on any stock with exposure to China or products made there. Second, a report from a leading tech industry research company predicted a bigger decline in overall semiconductor revenue next year than it had forecast just four months ago. | AAPL |
https://finnhub.io/api/news?id=66f5a03b338c817f8bb5e44f461ced439efd138d448ca1c93c794977f3138275 | Elon Musk Calls Out Apple and CEO Tim Cook | The game of hide and seek between Elon Musk and Apple is over. For several months now the question was when Musk would declare war with the iPhone maker and CEO Tim Cook. Since Musk took over the social network Twitter , he's been trying to find new sources of revenue. | 2022-11-28T13:05:00 | Yahoo | Elon Musk Calls Out Apple and CEO Tim Cook
The game of hide and seek between Elon Musk and Apple is over. For several months now the question was when Musk would declare war with the iPhone maker and CEO Tim Cook. Since Musk took over the social network Twitter , he's been trying to find new sources of revenue. | AAPL |
https://finnhub.io/api/news?id=1dba40e228d43948769d1e923ba763ffe8a608d4139deb88d1828054befb6c16 | Elon Musk Says Apple Has Mostly Stopped Advertising on Twitter | (Bloomberg) -- Elon Musk said that Apple Inc. has cut back its advertising on Twitter Inc. and even threatened to withhold the social network from its app store, suggesting that a fight is brewing between the two companies. Most Read from BloombergNext Covid-19 Strain May be More Dangerous, Lab Study ShowsApple to Lose 6 Million iPhone Pros From Tumult at China PlantKey Trump 2024 Rivals Silent After His White Supremacist Meeting“Apple has mostly stopped advertising on Twitter,” Musk tweeted on | 2022-11-28T13:02:51 | Yahoo | Musk Threatens War With Apple, Jeopardizing Vital Relationship
(Bloomberg) -- Elon Musk’s tumultuous month atop Twitter Inc. has already included firing most of the company’s employees, tinkering with key features and restoring banned accounts. Now he’s embarking on what could be his riskiest gambit yet: a war with Apple Inc.
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The billionaire attacked the iPhone maker with a flurry of tweets Monday, saying the company had cut its Twitter advertising and threatened to bump the social network from Apple’s app store. He asked whether Apple hated free speech, criticized its app fees and even pondered whether the tech giant might go after another of his companies, Tesla Inc.
In taking aim at Apple, Musk is challenging a company that’s vital to Twitter’s livelihood. Apple was consistently one of the top advertisers on the social network, which had an entire team of employees dedicated to helping maintain the relationship, according to people familiar with the matter. The ad spending was well above $100 million annually, one of the people said.
“Elon Musk now represents risk, and Apple is not going to take that risk on,” said Lou Paskalis, a senior marketing and media executive who previously ran global advertising for Bank of America Corp.
Apple also operates an essential gateway for Twitter users: the App Store. If Musk’s company loses access to that, it will be cut off from more than 1.5 billion devices around the world.
But the billionaire has some leverage of his own. In portraying his struggles as a fight for free speech, he can rally his millions of fans. And his disdain for Apple’s app store fees are shared by software developers, lawmakers and regulators around the world, giving him a potential advantage.
Apple didn’t immediately respond to a request for comment. Some Twitter users said Monday that they continue to see Apple advertising in their feeds, but a person familiar with the matter confirmed that the company has pared back the ads.
The Cupertino, California-based company holds meetings with Twitter to discuss various issues -- roughly once a week -- just as it does with other major social networking apps, including Facebook and Instagram. Apple has historically relied heavily on Twitter because it doesn’t advertise on Facebook, according to one of the people with knowledge of its strategy.
Apple joins a number of large companies in scaling back their ads on Twitter since Musk acquired the company for $44 billion last month. The exodus has included General Mills Inc. and Pfizer Inc., and he previously acknowledged that the defections led to a “massive drop” in revenue.
The overall online ad market is in a slump, but marketers are particularly wary about Twitter over fears that it’s becoming more chaotic. Since the takeover, Musk has cut thousands of jobs at Twitter, fueling concerns that the platform won’t be able to combat hate speech and misinformation. A new approach to verifying accounts also opened the door to trolls impersonating major brands, as well as Musk himself.
Musk, 51, is trying to make Twitter less reliant on advertising by steering users toward its Blue subscription service. But ad services generated nearly 90% of its $5.1 billion in revenue last year, with a good chunk coming from Apple.
The barrage of tweets criticizing Apple began with one saying that the company had “mostly stopped advertising on Twitter.” Musk asked: “Do they hate free speech in America?”
He then directed a tweet at Apple Chief Executive Officer Tim Cook: “What’s going on here?” A few minutes later, he claimed that Apple might boot Twitter from its app store “but won’t tell us why.”
Earlier this month, longtime Apple executive Phil Schiller, who oversees the app store, deleted his Twitter account. The timing raised eyebrows. It was shortly after Musk reinstated the account of former President Donald Trump, who had been booted from the platform in the wake of the attack on the US Capitol in January 2021.
Musk had earlier said he would create a content council to review whether to reinstate Trump’s account, but he then made the move based on the results of a Twitter poll instead. “He says the right things, but he does the wrong things and that’s almost worse,” Paskalis said.
Apple’s Cook has continued to use Twitter personally since Musk’s acquisition. He posted a Thanksgiving message last week “wishing everyone a joyful day.”
Musk has previously tweeted that if Twitter is removed from the Apple and Google app stores, he will make an alternative phone that can work with the platform. Fans of the idea -- and its detractors -- have begun calling it the “Tesla phone,” and that term was trending on Twitter Monday.
Musk, who also runs Tesla and SpaceX, has said that his mission at Twitter is maximizing free speech. He frequently uses his personal account, which has more than 119 million followers, to criticize perceived adversaries and the mainstream media.
Musk has said before that Apple charges an exorbitant fees on in-app purchases, and he renewed that line of attack Monday. He posted a meme that suggested he would rather “go to war” than pay the company’s 30% commission.
The meme signals that Musk could be considering taking the path of Epic Games Inc. and sidestepping Apple’s fees. When Epic made such a move, Apple removed the hit game Fortnite, sparking a multiyear legal fight.
But if Musk wanted to start selling the Twitter Blue subscription service through the web -- bypassing Apple’s 30% -- he could already do so. The app store allows services available on multiple platforms to use that approach.
The issue would be if Twitter advertised the workaround within its app or added a button directing users to the web payment option. That move could risk getting Twitter bumped from the app store.
In another tweet, Musk suggested that Apple has made demands on Twitter’s content moderation. He also posted a yes-no survey: “Apple should publish all censorship actions it has taken that affect its customers.”
In controlling the two major mobile app stores, Apple and Google are frequently referred to as a “duopoly,” a term Musk used in his tweets. US Representative Ken Buck, a Republican from Colorado, took up that idea Monday. He quoted one of Musk’s tweets and said the US should end the app store duopoly before the end of the year. “No one should have this kind of market power,” he said.
Apple has strict rules for its app store that limit objectionable content, including discriminatory content related to religion, race and sexual orientation. It also restricts overly realistic violence and pornographic material.
Apple and Google have previously removed social networks, including Parler, from their platforms because of inadequate content moderation. In the case of Parler, the app was ultimately restored to both app stores after the social network followed a series of steps to ensure it was moderating content.
After directing several barbs at Apple, Musk promised more information on free speech suppression in “The Twitter Files,” which will be published -- where else? -- on Twitter.
“The public deserves to know what really happened,” he said.
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©2022 Bloomberg L.P. | AAPL |
https://finnhub.io/api/news?id=4136d7f63da98923e6353d47ce86a062742cc373d23f7c606a0663a8133b3fce | China ‘does not care about cratering its economy’ amid COVID lockdown, strategist says | Fitz-Gerald Group Principal Keith Fitz-Gerald assesses the trajectory of the stock market amid China's COVID lockdowns and the Fed's next rate hike. | 2022-11-28T12:44:34 | Yahoo | China ‘does not care about cratering its economy’ amid COVID lockdown, strategist says
Fitz-Gerald Group Principal Keith Fitz-Gerald assesses the trajectory of the stock market amid China's COVID lockdowns and the Fed's next rate hike.
Video Transcript
JARED BLIKRE: All right, stocks losing ground this afternoon. Keith Fitz-Gerald Group principal Keith Fitz-Gerald joins us now for more on the markets. And let me just ask you a question here. We were talking with Eurasia Group about the China situation. No big surprise that they believe that President Xi puts his own power above that of the economy there.
But I'm wondering, you've done a lot of business in China. What do you think this means for Apple and Tesla, who really rely on the country for a big part of their business and manufacturing and vice versa? China depends on them for a big part of the business in their country.
KEITH FITZ-GERALD: Well, I think that's a very sophisticated question with a lot to unpack, the first part of which we've got to understand is that China does not care about cratering its economy. The West perceives these protests as an issue of freedom and exercise that right. China perceives it as a challenge to its authority. So Beijing will not hesitate to clamp down, to your earlier guest's point. If these protests accelerate, you can expect a brutal and definitive response from China because they will not tolerate it, especially on Xi's watch.
As for the companies themselves, they're going to get through this. Apple's already moving outside. I think Tesla is ironically the one that I think is going to have a bigger challenge because it sells a lot into China, even on a more integrated basis than Apple is, I submit.
DAVE BRIGGS: But quickly, Keith, on Apple, do you think they make any further changes to their production, to the supply chain? Because, look, they are overly reliant on China, and they're very subtle changes they've made in moving to Taiwan and India. Do you think they'll accelerate that?
KEITH FITZ-GERALD: I do think they're going to accelerate. This is one of the rare miscues, I think, on Apple for the last couple of years. I think they should have been farther ahead of this than they are. But I see them talking with Tata, for example, in India, talk about iPhone production.
They're going to take 25% of global production, get them outside of China sourced factories and components. We're going to see reemergence into Vietnam, India. I've heard Thailand. I've heard Mexico, even manufacturing returning in some capacity back to the United States. But they can absolutely speed that up if they have to.
JARED BLIKRE: And Keith, I want to turn to the US here and investors really looking forward potentially to some end of the year tailwinds. We've got the Santa Claus rally potentially at the end of the year. Wondering if you're on board with this, what you're seeing in terms of any stock strength, notwithstanding what we're seeing today, and who do you like in these names.
KEITH FITZ-GERALD: Well, statistically, that is absolutely what happens. We get a Santa Claus rally. But the phenomenon is relatively well understood. It's 75% probability or so since 1945. But there are a lot of crosswinds right now. I think the biggest driver is ironically the most human element, the one that can't be factored into it monetarily-- hope.
People have simply had it with being cooped up. They've had it with all the negative headlines. They're getting out. They're spending money. They want to go see their families. So I think all of that powers or could power the markets higher much faster and farther than anybody is prepared to accept or think about today.
As far as what I like, I think it's going to be key tech because that's where the money is going to go. Cyber defense is a big one. Healthcare is another one. Those are areas that we have to have in our lives. We cannot live without.
DAVE BRIGGS: Not a lot of hope in the numbers we're seeing right now, Keith. The Dow down 1.3%. The S&P--
KEITH FITZ-GERALD: Nope.
DAVE BRIGGS: --and the NASDAQ both down about a percent and a half. Do you suspect that that's the action out of China or something else?
KEITH FITZ-GERALD: I do. I think that's almost entirely out of China. This is global traders who thought they had one thing on Friday when they left for the evening, and they have another on their hands when they wake up this morning. So it's uncertainty. That foments doubt. Doubt creates a risk off or a tap the brakes moment. That's what's happening today. The clarity on the Fed's weeks away. So it's really going to be headline to headline. It's a stock picker's market right now, not an area where you want to be cavalier or just throw caution to the wind.
JARED BLIKRE: And we were just-- we just got a report from Jen Schonberger a few minutes ago on some of the Fed speak today. Not any big surprises, two rather hawkish statements from Bullard and also St. Louis Fed, also Williams out of New York, basically saying they're not going to cut rates next year. That would be the Fed waiting till 2024. Wondering what your view is in light of the fact that we have another meeting in just a couple of weeks.
KEITH FITZ-GERALD: Well, my view is they ought to take away the microphones from everybody except Chairman Powell because the Fed-- we've got to be honest, right? The Fed got transitory wrong. They're still getting this wrong. They do not understand the impact they're having on the real world. I think they're great with their models and their inflation, and they've got to change the definition of recession. I get that.
But I think to create doubt right now is not what the markets need. It's not healthy for the country. They've got a fiscal problem in that the government keeps spending money. So it's not necessarily the rates, like they're trying to stick to their talking points with.
DAVE BRIGGS: All right, quickly, there's a few names that you think might not get through this next couple of years. Who are they?
KEITH FITZ-GERALD: Well, they're going to be stocks that are on the margin. They may be things like Zoom or Peloton or Carvana. These are stocks that were once upon a time Wall Street darlings, but always the hot money.
The question that people need to be asking themselves right now, and we talk about with our folks all the time is you want to stick to the very best names you can buy, companies you know that are going to be there in five years, 10 years when you need that money because, very realistically, a stock like Carvana or Peloton might not be at this point. The markets have moved beyond the fascination with those stocks.
DAVE BRIGGS: Yeah, Carvana feels like they might not make it through the year. Fitz-Gerald Group President--
KEITH FITZ-GERALD: Exactly.
DAVE BRIGGS: --Keith Fitz-Gerald, great to see you, sir. Appreciate that. | AAPL |
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