Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘Apple’

Microsoft’s Deal with Apple a Lucrative Move?

By for Profit Confidential

Microsoft Impressing Investors with New FocusThe business climate appears to be changing at Microsoft Corporation (NASDAQ/MSFT), as the company attempts to evolve from its roots as a maker of operating systems for personal computers (PCs) to a more dynamic business focused on the surging mobile sector.

It has been a long time coming for this former Wall Street star. Out with former Microsoft CEO Steve Ballmer and his lack of vision and execution in acknowledging the significance of the mobile sector. The new leader at the helm, Satya Nadella, appears to be steering Microsoft out of troubled waters and into the new realm of mobile.

The stock is at a new 52-week high and looking higher on the charts—finally rewarding shareholders and institutional investors after years of miscalculations.

Instead of focusing on the “Windows” operating system and PCs, Microsoft has shifted its focus to smartphones, tablets, entertainment gaming consoles, and now, it’s creating applications that could be used on the Apple Inc. (NADSAQ/AAPL) “iPad.”

Microsoft announced it would be offering as a downloadable app from the Apple App Store its widely used “Office” suite, which includes the popular “Word,” “Excel,” and “PowerPoint” applications. This strategy is a sharp contrast to the past years, when Microsoft was battling Apple to sell smartphones and tablets. Now having recognized the fact that Apple is tops, Microsoft is looking to build apps for the iPads and harness the hundreds of millions of users.

A smart move by Nadella and based on the share price, the stock market is pleased with the new direction.

Of course, Apple also benefits, as the company will receive 30% of the fees paid for … Read More

What the “Microsoft Indicator” Says Now

By for Profit Confidential

Microsoft the Best Market Indicator at This TimeEarnings estimates for Microsoft Corporation (MSFT) are going up and the stock, which recently accelerated, finally looks like it has broken out of a 13-year consolidation.

Microsoft has been an income play for quite a while. Currently yielding three percent, the company’s forward price-to-earnings ratio is around 12.5 and is not dissimilar from many other blue chips.

Then there’s Intel Corporation (INTC). This company has been struggling for capital gains, but it’s yielding 3.6% and isn’t expensively priced.

What these technology companies illustrate so well is the business cycle, both in terms of operational growth and also as equity securities. Getting the cycle correct (the right place/stock at the right time) is the toughest thing for any investor or businessperson.

Regarding stocks, both Microsoft and Intel’s long-term charts clearly show how extremely overpriced their share prices were during the bull market of the 90s. Intel’s long-term stock chart is featured below:

INTC Intel Corp. Nasdaq GS Chart

Chart courtesy of www.StockCharts.com

The benefit of the very long term is that it provides a normalized but still decent rate of return with these kinds of stocks. No enterprise or investor can escape the business cycle, whether it is industry-specific, a local reality, or the general economy.

Railroad stocks have been super hot over the last several years, but for long periods of time, they were not. The solid dividend-payers that they are, you’d be hard-pressed to find Union Pacific Corporation (UNP) competing with Apple Inc. (AAPL) or Google Inc. (GOOG) for headlines.

I feel that stocks have broken out of their previous consolidation phase in favor of a new long-term cycle. But while last year’s stunning … Read More

Apple Struggles in China, but New Product Could Bring Added Growth Domestically

By for Profit Confidential

New Product Could End Struggles at HomeCurrently, Apple Inc. (NASDAQ/AAPL) is largely considered a commodity stock that needs to excite investors with new innovations and growth in order to propel its long-term growth.

The stock has been stuck in a relatively tight range between $500.00 and $560.00 since late October 2013, as Apple looks for stronger growth opportunities and convinces the stock market that it can expand its business and not just depend on “iPhone” and “iPad” sales.

To this point, the company took a positive step forward after announcing it was launching its “CarPlay” solution for the auto sector that aims at making the iPhone a powerful add-on in the car. The solution will allow drivers with iPhones access to multiple services while driving. The solution will be initially launched with high-end automakers, such as Ferrari, Mercedes-Benz, and Volvo, but it will eventually be available across a much wider auto segment.

The introduction of CarPlay is critical, as it will expand the use of the iPhone for users and also help to drive sales. The car solution comes at a critical time in the recent aftermath of BlackBerry Limited’s (NASDAQ/BBRY) announcement that it would be replacing Microsoft Corporation (NASDAQ/MSFT) as the information solution in cars made by Ford Motor Company (NYSE/F). This is a key area of growth, and Apple’s innovation is the kind of development investors want to see.

While Apple continues to be the market leader in the premium smartphone and tablet market around the world, the company also needs to deliver alternative avenues of growth. Of course, Apple needs to grow its market share in the key emerging markets; so far, this … Read More

Where to Find the Best Buying Opportunity in This Stock Market Going Forward

By for Profit Confidential

Buying Opportunity for Stock Investors Going ForwardAt the beginning of the year, I thought the technology sector would deliver some of the top potential for gains this year.

Nearly two months into the year, the technology sector has, so far, made the biggest strides in what has been a relatively cautious start to the year.

So far this February, the technology sector is leading the broader stock market with the NASDAQ closing higher for eight straight sessions as of the end of Tuesday. With the steady advance, the NASDAQ hit a new 13-year high, up 4.12% in February and 2.28% in 2014. The NASDAQ is the only major stock market index in the black this year.

And it looks like the NASDAQ could test its all-time nominal high of above 5,100 sometime in 2015 if everything pans out. We could even see a test later this year if the technology sector can maintain its positive sentiment and continue to edge higher, based on my technical analysis.

It has been nearly 14 years since that infamous period back then when the technology sector imploded.

The valuation and froth this time isn’t as bad, but we have been seeing some euphoric trading in the Internet services space and social media stocks. (Read my take on Facebook in the social media space in “My Top Stock Pick in the Internet Space.”)

A look at the long-term chart of the NASDAQ reveals that the relative steadiness of the current move towards 4,000 is not unlike what happened more than 13 years ago. Note that the index is now near its previous nominal high as indicated by the top … Read More

Why Investors Should Pay Attention to This Diverse Stock

By for Profit Confidential

Business Booming for These Stocks Right NowWith little wind at its back from last year’s exceptional performance, this market is a stock-picker’s market, and one that continues to favor existing winners.

For an existing portfolio of large-cap, dividend-paying blue chips, I don’t see a lot of new action to take right now. The most valuable information for investors is what corporations actually say about their businesses. The outlook for dividends and share repurchases is solid.

Companies like Apple Inc. (AAPL) and Google Inc. (GOOG) get all the headlines, but it’s still very material what a company like E. I. du Pont de Nemours and Company (DD) says about business conditions around the world. Even if you wouldn’t consider DuPont as an investment, the business operates in a number of important industries, so what the company’s management reports could help to inform your market view.

Last year, the company said its total sales grew three percent to $35.7 billion. Five-percent growth in volume was offset by a one-percent decline in local selling prices and the one-percent negative impact of a stronger U.S. dollar.

The standout for DuPont was, once again, the company’s agricultural division, which saw a 13% gain in sales for the year to $11.74 billion. Agriculture also contributed the most to the company’s operating earnings, improving by 16% over 2012 to $2.48 billion.

This year, DuPont expects operating earnings of $4.20–$4.45 per share. This translates to an 8%–15% gain over 2013, which is pretty solid. The company expects 2014 total sales to grow four percent to approximately $37.0 billion, which is after an estimated two-percent decline from divestitures.

Management expects global industrial production to keep … Read More

Recent Sell-Off in Apple Stock an Opportunity?

By for Profit Confidential

Apple Needs to Forfeit Margins in Favor of Market ShareApple sold a whopping record 51 million “iPhones” and 26 million “iPads” in its fiscal first quarter, which is great stuff at first glance. So why did investors scramble for the exits?

The problem is that the market expectations placed on Apple are enormous. But that’s what happens when you’re the top seller of smartphones in the United States. Wall Street wanted to see the company sell 55 million iPhones, so its four-million-unit miss was a disappointment.

What’s failing the company is its reluctance to sell a really cheap iPhone that caters to the emerging markets, which is, in reality, where much of the growth is for smartphones.

Apple has a deal with China Mobile Limited (NYSE/CHL) to mass market its phones in the massive Chinese market, where there are more than 750 million users. (Read “Apple Finally Takes Step That Will Take the Company to the Next Level.”) But while the deal was only recently formalized, the early indications are that sales of the iPhone in China aren’t all that great.

The problem is (as I have discussed on numerous occasions) Apple’s reluctance to sell a cheap iPhone. Price points are critical when selling products in the emerging markets, so the lack of a cheaper offering from the company will hurt its sales in China. China is not like America, Japan, or Europe as far as available discretionary income. When the per-capita income in China hovers around US$6,500 or so annually and Apple wants to charge $600.00-plus for an “iPhone 5S,” there’s clearly a disconnect.

CEO Tim Cook doesn’t seem to get it or it’s simply an … Read More

When High-Priced Stocks Become Attractive Investment Opportunities…

By for Profit Confidential

Why High-Priced Stocks Should Follow MasterCard’s ExampleWhile there continues to be a widening of the income gap between the rich and the poor in the world, companies like MasterCard Incorporated (NYSE/MA) continue to make a lot of money from every transaction made using their credit cards. Recently, MasterCard announced it would be splitting its shares on a 10-for-one basis while also increasing its quarterly dividend by 83%. MasterCard is also looking to buy back up to $3.5 billion of its Class A common stock.

The move by MasterCard makes sense and helps to boost the market value of the company for its current shareholders and future investors. The stock split will allow for trading liquidity and for smaller-scale investors and traders to participate in the stock, given that the company’s shares reached a record high at over $800.00 on Wednesday.

Mastercard NYSE Chart

Chart courtesy of www.StockCharts.com

In addition, the increase in dividends will attract income investors and the buyback will help to add some support and give the stock market some confidence in the stock as an investment opportunity.

What MasterCard has done is what other high-priced companies with high cash levels should also be doing.

Stock splits make sense for high-priced stocks as a way to increase liquidity to more investors and inevitably help to drive up the share price and create an investment opportunity.

The following are three higher-priced stocks that I feel could eventually see a stock split and offer an investment opportunity:

Apple Inc. (NASDAQ/AAPL) is under pressure from investor Carl Icahn to increase its share buyback program in a strategy to distribute some of its massive $147 billion of cash to shareholders. The … Read More

Apple Finally Takes Step That Will Bring the Company to the Next Level

By for Profit Confidential

Apple Enters Deal with China Mobile dalindar Just last Thursday, Apple Inc. (NASDAQ/AAPL) revealed its long-awaited and worst-kept secret when the maker of the “iPhone” and “iPad” reported it would align with China Mobile Limited (NYSE/CHL) to push its products into China, a very lucrative market for the smartphone giant.

The deal, while somewhat newsworthy, was not a bug surprise to the markets, as evidenced by the stock slightly edging upward by a little more than three percent on the news.

Now, you may be wondering why the stock market simply shrugged at the news, given that China Mobile is the biggest mobile deliverer in the world, with about 730 million subscribers.

Obviously, that’s a huge number of potential buyers and added revenue channels for Apple. But the deal really doesn’t mean Apple will be going back to its previous high above $700.00, reached in September 2012. The reality is that Apple needs to be able to find Chinese buyers for its somewhat expensive (or overpriced) smartphones and tablets.

The target market is there, and it’s probably closer to about 300 million people or so, based on the number of middle-class consumers in China. The reason I see its potential market base being much smaller than China Mobile’s subscriber base is simply due to the company’s product pricing. I really don’t think some shopkeeper or farmer in rural China is going to dole out a major portion of their annual wages to snap up a snazzy “iPhone 5C” or “5S.” This will be the main dilemma Apple will face in this market.

The problem at the very root of this dilemma is that Apple will need to … Read More

Reinvention of Hewlett-Packard Bound to Be a Success Story?

By for Profit Confidential

stock analysisA year ago, Hewlett-Packard Company (NYSE/HPQ) was an $11.00 stock that was struggling to turn around its fortunes and become relevant again.

The company, under then-new CEO Meg Whitman, made a bold and strategic decision to focus less on its declining personal computer (PC) business and more on its areas showing growth opportunities, such as its mobile and enterprise businesses. So far, this has been the correct decision for Hewlett-Packard, according to my stock analysis.

The company had already exited the consumer tablet market after realizing Apple Inc. (NASDAQ/AAPL) had a death-grip on the market and would not be easy to catch.

Fast-forward a year, and Hewlett-Packard is now flying high at the $24.00 level, up more than 100% over the past year and still the company continues to reinvent itself, as my stock analysis indicates. Hewlett-Packard has streamlined its product line, resulting in a leaner and more efficient technology company, suggesting Hewlett-Packard was a buying opportunity at its lower prices just one year ago.

Hewlett-Packard Company Chart

Chart courtesy of www.StockCharts.com

My stock analysis suggests that while the company still has far to go to return to its former glory days, there is now hope that this could happen—it just might take a few more years of fine-tuning.

Annual revenues are in excess of $100 billion, but a period of adjustment is expected due to the company’s new direction, according to my stock analysis.

Revenues are estimated to contract in both fiscal 2014 and fiscal 2015 by 2.9% and 0.6%, respectively, but earnings are estimated to grow to $3.67 and $3.88 per diluted share, respectively, according to Thomson Financial consensus estimates…. Read More

How to Play the Success of Today’s Hollywood Blockbusters

By for Profit Confidential

technical analysisThe second installment of The Hunger Games trilogy, Catching Fire, debuted in theaters last Friday to heightened anticipation. The early bet is the film could set a new box office record.

Whether the lofty expectations pan out or not, believe it or not, there is more than one investment opportunity you can take advantage of to make money on the success of The Hunger Games series and other major Hollywood blockbusters.

The company behind the production of The Hunger Games is Lions Gate Entertainment Corp. (NYSE/LGF), which is already up over 100% from its 52-week low and could head higher if the film sets new records, meaning this production company may be an investment opportunity. In addition to films, Lions Gate also produces 28 television shows over 20 networks.

Lions Gate Entertainment Corporation Chart

Chart courtesy of www.StockCharts.com

Fundamentally, Lions Gate has delivered decent results, beating the Thomson Financial consensus earnings-per-share (EPS) estimate in each of the past four quarters, making it a possible investment opportunity. Revenues are estimated to grow 6.4% to $2.93 billion in fiscal 2015 ending in March. Fiscal earnings are estimated to rise 50% to $1.54 per diluted share in fiscal 2015. While the best gains are behind the stock for the time, longer-term, I see Lions Gate as a good investment opportunity.

A second investment opportunity on the success of The Hunger Games series and other blockbusters is IMAX Corporation (NYSE/IMAX). IMAX offers venues in which you can see the film on a specialized 12,000-watt power-packed screen that could be as high as 98 feet. In general, every major blockbuster film is shown on IMAX screens around the world…. Read More

If Apple Does a Deal with This Company, I’d Buy the Stock

By for Profit Confidential

Apple Does a Deal with This CompanyAs I’ve written in these pages before, Apple Inc. (NASDAQ/AAPL) needs to increase its brand in the Chinese economy in order to really entice investors and jumpstart the stock. (Read “Update: Apple’s Attempts to Enter Emerging Markets a Blunder?”)

The reason is simple: China is the biggest mobile phone market in the world with over one billion users, which is more than three times the size of the United States market.

Apple is rumored to have a major distribution deal in place with China Mobile Limited (NYSE/CHL), the largest cell phone operator in the country with a market cap of $210 billion. The company services about 755 million customers as of the end of September, which is huge. (Source: China Mobile Limited web site, last accessed November 5, 2013.)

In my view, Apple could see its business accelerate if a deal is finally announced and, of course, if Apple can execute in the Chinese economy via much cheaper smartphones than the “iPhone 5C.”

For China Mobile, the addition of Apple could also generate new sales and higher margins, so it’s a win-win situation for both companies. The move towards 4G networks will also help to drive growth.

And with the rise in income levels in the cities and rural areas, we could see a major push to buy higher-end smartphones, such as those made by Apple.

China Mobile is the top mobile play in the Chinese economy. The company is bigger than Verizon Communications Inc. (NYSE/VZ) and AT&T Inc. (NYSE/T). China Mobile also owns Luxembourg-based Millicom International Cellular S.A. (OTC/MICCF), a telecom operator with mobile operations in 13 … Read More

Rumors of Key “iPhone” Launch in China for November

By for Profit Confidential

Rumors of Key “iPhone” Launch in China for NovemberWhile BlackBerry Limited (NASDAQ/BBRY) sends an open letter to investors and the smartphone market begging for its understanding, Apple, Inc. (NASDAQ/AAPL) continues to charge ahead, looking at various ways to expand its sales, especially in the global market.

Even with signs of the recently launched “iPhone 5C” not faring well, the company continues to strategize concerning its direction. (Source: Ellyatt, H., “Apple cuts 5c orders on weak demand: Report,” CNBC, October 16, 2013.) The higher-end metal-encased “iPhone 5S” is performing exceptionally well. (Read “Update: Apple’s Attempts to Enter Emerging Markets a Blunder?

In the case of Apple, the soft demand for the 5C is not a big deal at this point, but the company will need to find a way to break into the emerging markets. The strategy of producing what is perceived to be a lower-cost version of the 5S (but with a cheaper, plastic look and slower processor) appears to be failing. The issue is that Apple’s rivals have a deep-rooted presence in the emerging markets, with Samsung Electronics Co. Ltd., Nokia Corporation (NYSE/NOK), LG Electronics Inc., HTC Corporation, and others offering smartphones for essentially zero dollars.

In order to excel, Apple needs the emerging markets, especially a deal with China Mobile Limited (NYSE/CHL), which appears to be in the works, as the iPhone can now be used on China Mobile’s 4G network. If a deal is done, Apple will have access to more than 650 million customers who would likely be extremely happy to move over to the iPhone. Of course, the price has to be right. There is speculation the date of an … Read More

How to Profit from the Mobile Market Without Investing in Phone Makers

By for Profit Confidential

 buying opportunityThinking of investing in the mobile market? You could try to play the mobile market through cell phone manufacturers and decide which company—Apple Inc. (NASDAQ/AAPL), Samsung Electronics Co. Ltd., Microsoft Corporation (NASDAQ/MSFT), or the slew of other players in this sector—is the best buying opportunity.

At this time, Apple is tops in the United States, but Samsung is the global leader, and may perhaps be a better buying opportunity because of this. On the other hand, Microsoft is the up-and-comer that could make some ground if its acquisition of the cellular assets of Nokia Corporation (NYSE/NOK) is approved—which could make this stock a good buying opportunity. (Read “Why I Like Microsoft’s Proposed Acquisition of Nokia’s Cell Phone Business.”)

However, my thinking is to look at some of the third-party suppliers of products and solutions to the mobile market as an alternative buying opportunity to play the growth of the mobile market.

In this regard, a stock that I have followed for a while is small-cap Synaptics Incorporated (NASDAQ/SYNA). This is the company that supplies some of the touchscreen interface technology used on the Apple “iPhone” and Samsung “Galaxy” devices, along with the touchscreen technology used for “Windows 8.”

In fact, Synaptics has supplied its interface solutions to over one billion devices, according to the company’s web site. These devices include mobile phones, notebook computers, personal computer (PC) peripherals, and portable entertainment devices.

Synaptics is also working on a revolutionary technology that combines its touchscreen solution with the eye-tracking and gaze applications of Tobii Technology. The combination of the two technologies is currently being tested on a prototype laptop. … Read More

Update: Apple’s Attempt to Enter Emerging Markets a Blunder?

By for Profit Confidential

Update: Apple’s Attempt to Enter Emerging Markets a BlunderWhen the next-generation Apple Inc. (NASDAQ/AAPL) “iPhone 5S” and “iPhone 5C” were launched in mid-September, the company reported record sales over its first weekend of selling.

But there was a problem: the majority of the sales were for the iPhone 5S, while sales of the iPhone 5C lagged. The problem was the cost of the plastic-cased 5C; at around $100.00 with a two-year contract, the “cheaper” version simply cost too much, especially for the emerging markets like China, where Apple had high hopes for the iPhone 5C.

Obviously, the initial demand for the iPhone 5C over the first few weeks appears to be disappointing. Best Buy Co., Inc. (NYSE/BBY) announced it was cutting the price of the 5C to $50.00 on a two-year contract between October 3 and October 7.

But while the discount was only for four days, you kind of wonder if there will be a more permanent price cut ordered by Apple should sales lag.

The iPhone 5S is selling very well, but for Apple to really break out of its shell, the company will need to cut the cost of the iPhone 5C in order to get a foothold in the emerging markets.

Without a major price cut, it will not be easy for Apple to break into a mobile market that focuses on attractively priced smartphones—a market that includes established rivals, such as Nokia Corporation (NYSE/NOK), whose mobile assets are to be acquired by Microsoft Corporation (NASDAQ/MSFT), Samsung Electronics Company Ltd., LG Corporation, and major upstarts, such as Huawei Technologies Co. Ltd. and ZTE Corporation, based out of China.

For Apple, the massive mobile market … Read More

How BlackBerry Could Reemerge as a Viable Company

By for Profit Confidential

BlackBerry Could Reemerge as a Viable CompanyThe news broke out right after I wrote the first draft of this commentary on BlackBerry Limited (NASDAQ/BBRY): a surprise takeover bid emerged from Fairfax Financial Holdings Ltd. (TSX/FFH) offering $9.00 per share, or $4.7 billion, for the struggling smartphone maker.

It appears to be the correct timing for BlackBerry. (See “Research In Motion Had Better Be Right.”) And for BlackBerry CEO Thorsten Gerhard Heins, he could get a $20.0-million send-off for selling the company.

This was the situation prior to the takeover announcement to take BlackBerry private:

BlackBerry reported a massive fiscal second-quarter loss of $1.0 billion, highlighted by the write-off of about $930–$960 million of its inventory. The company also announced plans to axe 4,500 jobs, or 40% of its workforce, as my stock analysis indicates.

The inventory adjustment is frightening, based on my stock analysis. It implies the company cannot sell its “Z10” and “Q5/Q10” devices. Again, this isn’t a surprise, as my stock analysis notes that BlackBerry has consistently screwed up in its execution over the past few years to the point that it allowed rivals, such as Apple Inc. (NASDAQ/AAPL) and Samsung Electronics Co. Ltd., to bulldoze over BlackBerry, leaving just a pile of scraps.

BlackBerry said it sold about 3.7 million smartphones in the quarter. Honestly, that number really stinks, based on my stock analysis, especially considering Apple announced it had sold nine million units of its new ”iPhone 5S” and “iPhone 5C” in the first weekend.

The numbers are telling, but this has been the issue for BlackBerry for years, according to my stock analysis. In a never-ending battle to regain … Read More

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