Apple stock zips past $130
Not long ago, Apple stock looked cheap at $116 apiece. In only one month, shares managed to climb 14%. Two weeks ahead of earnings day, is this still a good time to buy Apple, now only 7% below the peak?
Fundamentals vs. valuation
Few have tried to make (and none have been proven right on) a convincing bearish argument on Apple shares. Goldman Sachs’ Rod Hall is perhaps the most notorious Wall Street professional to hold overwhelmingly negative views on the Cupertino company’s business and stock.
But generally, consensus suggests that Apple and its shares should do just fine over time. Among the most bullish fundamentals arguments used to justify owning a piece of the company’s equity are:
- The early stages of the 5G refresh cycle that could breathe life into an otherwise mature product category: smartphones
- Greenfield opportunities in autonomous vehicle (i.e. the Apple Car) that could produce a fresh inflow of sales and earnings where none currently exists
- The potential doubling of service and wearables revenues within the next five years, possibly aided by the introduction of a mixed reality device
- Large quantities of cash that should continue to finance investments in growth, payment of dividends and share repurchases
Apple stock could rise from strength in this key segment
Third-party research data on calendar first quarter personal computing sales has started to pour in. Depending on who is asked, IDC or Gartner, PC shipments have increased by an impressive 32% to 55% in the March period.
From the preliminary data provided by the research companies, here is what else we know about computer sales in Q1:
- Lenovo continues to lead the industry, with 24% to 25% of market share, followed closely by Windows-based peers HP and Dell;
- Despite holding the number 3 position in the market, Dell may have been the relative loser in first quarter device shipments;
- Apple remains a distant fourth-place player in the PC arena, although its market share seems to have increased by at least one percentage point to 8%.
How Apple stock could benefit
The Mac accounted for only 10% of Apple’s fiscal 2020 total revenues, and an even lower 8% during the more normalized 2019 period. Therefore, it is fair to say that PC sales probably do not carry as much weight in determining Apple stock price as does the iPhone, for example.
However, the Mac may have performed extraordinarily well this time. In revenue growth terms, I believe that fiscal second period will likely be the best quarter for the segment in the past decade, at the very least. See graph below.
Could Apple buy Jim Cramer’s top electric car picks?
A couple of weeks ago, TheStreet’s and Mad Money’s Jim Cramer went on record with his top 3 picks in the electric car industry. According to him, QuantumScape, Fisker, and Lucid Motors could be profitable bets.
Plenty of money in the bank
As of fiscal first quarter 2021, Apple held nearly $200 billion in cash, equivalents and long-term investments – the latter a portfolio of primarily highly-rated securities. In addition, Apple has proven that it can easily raise cash when needed and at low cost, as it did at large scale in February.
Jim Cramer’s top EV picks are valued as follows:
- QuantumScape: market cap of $16.2 billion
- Fisker: market cap of $4.2 billion
- Lucid Motors: its SPAC (special purpose acquisition company) is valued at $5.7 billion
The most valuable of the companies above represents less than 10% of Apple’s gross cash position. All three of them, combined, add up to a bit over 13% of the Cupertino company’s cash pile.
The Apple Maven’s opinion
For starters, Apple has never been aggressive on big-ticket M&A deals. The largest acquisition that the company has ever made was Beats, in 2014, for $3 billion. A competitive bid on the smallest EV company discussed here would likely cost Apple upwards of $5 billion.
Second, Apple is a highly efficient company whose success can be largely attributed to its inventory management and production outsourcing. It would be out of character, in my opinion, for Apple to bring a brand new manufacturing system in-house, when it could strike third-party deals instead.
Apple stock: Will the Apple iPad event make a splash?
After a couple of false starts, it has now become official. Apple will host its Spring event on April 20, ahead of the closing bell on Wall Street, when at least a new iPad Pro is expected to be announced. The Apple Maven will cover the event via live blog – stay tuned for more details.
The iPad opportunity
Apple’s tablet business represented nearly 9% of the company’s fiscal 2020 revenues, up from 7% in fiscal 2018. The sales increase in the past couple of years has been impressive, especially after I erroneously called iPads “the new iPods” in 2016, due to what I saw as lack of growth opportunities.
As 2021 progresses, the iPad will face increasingly tough comps. During the pandemic year, Apple’s tablet sales fell off a cliff in fiscal first and second periods. But revenues recovered strongly in the June, September and December quarters, rising at least 30% year-over-year in each period.
Read more from the Apple Maven:
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)