Stock (Symbol)

Apple (AAPL)

Stock Price

$160

Sector

Technology

Data is as of

August 8, 2017

Expected to Report

Oct 23

Company Description

Apple’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also sells and delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. Source: Thomson Financial

Sharek’s Take

Apple’s (AAPL) new iPhone is expected to be introduced later this month, and that is expected to being a new wave of profit growth to the company. Qtrly Estimates are for growth of 13%, 14%, 24% and 22% the next 4 qtrs. With a P/E of 15, these share could move higher, accelerating growth combined with backing from some of Wall Street’s heavy hitters should push the stock to $180 or beyond in the coming years. Warren Buffett for one has been buying shares, and feels the P/E should be in the 20s because consumer stocks have P/Es in the low-20s. I disagree as food stocks can deliver more dependable profit growth (AAPL’s profits fell in 2016). Bull’s point to rising service revenue as a reason the stock’s multiple should be higher. Service revenue was up 22% last qtr and is now 16% of revenue, up from 14% a year ago. Overall, this stock is getting a lot of positive inflows, and with 20% growth on the horizon I feel the momentum should continue. Investors are flocking into S&P 500 and NASDAQ funds/ETFs right now creating demand. AAPL is a safe stock, has a 2% yield, management buys back billions in shares and the new iPhone 8 should prove to be a catalyst going forward. iPhone inventory is at it’s lowest levels in 2.5 years. Plus, foreign exchange costs should lighten up in coming qtrs as well. Today I will purchase AAPL in the Growth Portfolio and Conservative Growth Portfolio.

One Year Chart

This stock really took off when profit growth was meh and the P/E was around 10. But even after a 50% or so rise it looks more attractive to me now than a year ago. Last qtr sales increased 7% and profits rose 18%, and beat the 11% estimate. Profit estimates increased a little after the earnings call. Qtrly profit growth Estimates call for 13%, 14%, 24% and 22% growth the next 4 qtrs as the NEW iPhone could spur demand. The Est. LTG of 11% is decent when you consider the stock pays a 2% dividend. The P/E of 15 is down from 17 last qtr as AAPL has its fiscal year end September 30th and I’m looking ahead to next year.

Fair Value

My Fair Value is 16x earnings or $173 this coming year and $181 in 2019. Now the P/E could rise to 20 which would give the stock more upside, but let’s see what happens in the coming qtrs. This stock has historically carried a low multiple.

Bottom Line

Apple has been a tough stock to handle the past five years, as at times it had a mind of its own. More recently profit growth has been hard to com, and that says to me this is a different company. But Apple has reinvented itself before and with service revenue shooting higher perhaps this will become a stock with a higher P/E? I will add AAPL to the Growth Portfolio and Conservative Growth Portfolio but the fundamentals aren’t good enough for the Aggressive Growth Portfolio.