Great company, lots of cash, blah, blah…
We know this. I use Apple all day every day, BUT, and you knew there would be a but. Right now? You want to buy Apple now? Sure it is outperforming the Nasdaq (QQQ) by 3% this year 19% to 16%. Let’s start with the chart.
What do we see here? Excellent bounce from $145 – clearly the stock was oversold there. Nice upward sloping 50-day moving average. But just ahead, we see a lot of overhead resistance in the 150 and 200 day moving averages. And, you can’t see it here, but the wave function is completed and the upward move should be over for a while. So technically, maybe this is a push? But I would look to see how we do at the the resistance.
It’s not like Apple (AAPL) is super expensive on the face of it. It is only 16 times forward earnings. However that is pushing the high of 17.3 times over the last 7 years and is very far from the 8.7 times forward low registered in the same time frame. But how has Apple grown and is are expected to grow. I am taking out last year’s meteoric EPS growth just because it was largely due to the tax decrease. Here are the respective and prospective growth rates:
This gives us a whopping average of 4%. Woohoo – 16 times for that? The dividend is underwhelming as well: 1.6%. I know people like to say Apple is cheap, but it is just in-line with the forward S&P 500 valuation, and arguably growing slower. I don’t think valuation is your friend here.
OK – as usual we will have new phones in the fall. I mainly focus on the phones because they are still north of 75% of the companies revenues. But do we have exciting new phones? We don’t know. But it doesn’t seem like we get a foldable phone like the Samsung model. What about services? I think it is great that the revenue base is broadened by services – but remember that growth rate got cut in half last quarter from 30%+ to 16%. So, I don’t know how exciting that is. Net-net, they really don’t have anything thrilling coming out, and the global economy is just barely sliding along. Oh, and don’t forget they won’t even report the iPhone numbers anymore. And I know the semiconductor companies tripped over themselves to call the bottom, but demand will determine that – they are looking at a supply bottom (which may also reverse).
No one ever KNOWS what stocks will do. But in Apple’s case, we have a relatively expensive stock (for Apple and for its growth), nothing really exciting coming (maybe tougher competition), and a chart that only momentum investors could love. Warren Buffet and Jim Cramer still love it. But it seems pretty unexciting to me. I don’t think this is a disaster, I just don’t know why the multiple is where it is. Why not 13 times? Or 11?