Apple Proving to Be a Generational Stock
Apple Inc. (NASDAQ:AAPL) is one of the most recognizable and followed stocks in the world—so much so that there are some who believe the massive brand awareness has led to more people eating apples. I can’t say if this is valid or fake news, but AAPL stock with a market-cap of $766.4 billion is on the path to be the first trillion-dollar company.
On the chart, AAPL stock has outperformed the S&P 500 and NASDAQ, breaking higher multiple times after pausing. Apple is displaying a solid golden cross with the 50-day moving average nearly $60.00 above the 200-day moving average.
Apple stock is up 56% over the past year and a sizzling 26% so far this year.
There appears to be minimal resistance for AAPL stock to reach higher. Even with the price appreciation, there are only about 53 million shorted shares or 1.01% of the float. (Source: “Apple Inc. (AAPL),” Yahoo! Finance, last accessed May 5, 2017.)
Chart courtesy of StockCharts.com
Given the 10-day daily trading volume of 27.75 million shares, shorts would be cleared in only two days, so there is not much resistance.
Now while the surge in APPL stock may be somewhat overextended in the near term, my view is that the stock will likely pause prior to staging another upswing after the “iPhone” is released sometime in fiscal year 2018, which begins in October.
First, let’s take a look at the just-reported fiscal second quarter.
Revenues were slightly higher year-over-year but fell short of the consensus.
To no one’s surprise, shipments of the “iPhone 7” and “iPhone 7 Plus” fell to 50.8 million units, down one percent year-over-year and off 39% sequentially.
For investors, the fact that iPhone sales accounted for 62.85% of second-quarter revenues is a concern due to the dependence risk.
In addressing this issue, Apple has been working hard at diversifying its revenue stream away from the iPhone.
Don’t get me wrong, the iPhone will continue to be Apple’s top driver of revenues, but getting the share down towards 50% would be a big selling point.
In the table below, I have listed the breakdown of revenues and year-over-year growth.
(Source: “Apple Reports Second Quarter Results,” Apple Inc., May 2, 2017.)
From the breakdown, notice the rising importance of the “Services” business, comprising of “iTunes,” “App Store,” “AppleCare,” “Apple Music,” and “Apple Pay.”
Apple’s Services business generated close to $7.0 billion in FYQ2 revenues, accounting for about 13.31% of total revenues and becoming the second largest contributor.
The “Other” category represents revenues from “Apple TV,” “Apple Watch,” “Beats” products, “iPod” and Apple-branded and third-party accessories. This segment accounted for only 5.43% of revenues but grew at a staggering 31%.
What is also impressive but hidden in the headline numbers is the rapid growth in the Apple Watch, which appears to be quickly catching on.
In the fourth quarter of 2016, Apple shipped out 4.6 million units, accounting for 13.6% of all wearable devices shipped in the period and up 13% year-over-year. Not too long ago, the space was dominated by Fitbit Inc (NYSE:FIT) with over 60% market share, but its share has fallen to 19.2% and down 22.7% year-over-year. (Source: “Wearables Aren’t Dead, They’re Just Shifting Focus as the Market Grows 16.9% in the Fourth Quarter, According to IDC,” IDC Research, Inc., March 2, 2017.)
Why AAPL Stock Is Heading Higher
As we move forward, the catalyst for Apple stock will be the launch of the “iPhone 8” sometime after September. There is so much pent up demand for this next super phone, despite that it could cost more than the average American family earns in a week.
I have heard estimates of up to 300 million units of the iPhone 8 to be sold, which would be massive and a definite catalyst to drive AAPL stock higher.
The Chinese market is slowing for iPhones but still accounts for about 20% of revenues. To help offset the intense competition in China, Apple is looking to invest $1.0 billion in a facility in India to make iPhones to sell to the 1.34 billion people there.
Armed with about $256.0 billion in cash and a proposed plan by President Donald Trump to allow companies to repatriate cash at a set tax rate, Apple has ample resources to invest, innovate, and acquire, and move towards becoming the first trillion-dollar company.