Let’s Take Another Look at Apple

Daily Updates

We all know what we like about Apple (AAPL) . Most of us are long the stock either in our own portfolios or through one kind of a fund or another. The investment theme, at least for this investor… remains centered around growth on the services side of the business, which includes Apple Music, Apple TV Plus, iCloud, Apple Pay, and really anything purchased through the firm’s app store. The business is growing as a percentage of total sales versus hardware, and the business would obviously run with much higher margins than selling manufactured hardware to consumers.

We are not naïve. We understand that in real time, corporate performance is viewed in terms of iPhone sales. That said, rather than eyeballing the number of smartphones sold over any given reporting period, the real focus needs to be on how the firm uses these hardware sales that also include Mac Books, iPods, AirPods, and the Apple Watch to maintain and grow the installed base, because for the services side of the business, which comes with built in recurring revenue streams, is what is known as customer retention. The Apple ecosystem is the most important asset this firm has.

What I look forward to, as a Covid victim whose recovery has been quite suboptimal, is the firm’s expansion into health care services. Wouldn’t it be nice if your watch told you that something was not right? Wouldn’t it be nice to not have to constantly check your vitals just in case you want to exercise today, or drink coffee, or perhaps even use salt. Imagine a watch that could help those with any number of chronic maladies (diabetes?) keep an eye on their situations in real time, or maybe only when they have to. Now that is something I think a lot of us would pay for.

On That Note…

Earlier this week, Murata Manufacturing, the world’s largest maker of ceramic capacitors for smartphone makers such as Apple, Samsung and others, made clear plans to take no holiday breaks as every attempt will be made to keep up with expanding demand for 5G capable smartphone and holes once filled by Huawei technologies must be filled. Murata expects demand for such 5G wireless devices to surpass 500 million handsets for the coming fiscal year, up from an estimated 300 million last fiscal year.

This is inline with what highly rated analyst Michael Walkley of Canaccord Genuity wrote to readers, also earlier this week. Walkley reiterated his “buy” rating while upping his price target from $145 to $150, while citing strong demand for the iPhone 12 line-up. Walkley expands on this by expressing what will be in his view strong growth as well for Macs, iPads, and most importantly… services. This jives well with what we have heard from Dan Ives of Wedbush the week prior, as well as from Morgan Stanley’s Katy Huberty back in mid-December. I don’t know about you, but these three have a track record. A very successful track record.

I Will Say This

Apple has done a very good job of transforming how Wall Street values the firm. Trading at 32 times forward looking earnings is more inline with cloud based software type corporations who rely on recurring revenues than it would be as a consumer electronics giant selling one item at a time. It was not long ago that AAPL traded at 12 to 14 times forward looking earnings. Those days are gone. The dividend and the buyback does not hurt either.

Valuation is also likely why Apple appears to be dabbling in the arena of electric/autonomous vehicles. Have you seen Tesla (TSLA) lately? Of course you have. Just last night, Apple and Hyundai Motors (HYMTF) appeared to be engaged in negotiating some kind of deal where the two firms could work together toward that aim. Yesterday, the year 2027 was thrown around as a launch date for an Apple Car. Today, Hyundai has backed off of the statement. So, is there a deal? Obviously, not yet. Is Apple working on eventually competing in this business? Almost certainly.

The Charts

I showed you this chart depicting AAPL as an ascending triangle a couple of weeks back. The triangle is still intact, and still appears to be bullish in nature. Now, with the late December selloff and recently found support, I also see another pattern developing.

What if my ascending triangle is really a cup whose handle has just completed building its depth? Know what? It does not matter. They are both bullish. They both show pivot in the same spot… $138. At this point I reiterate my target price of $165, which is more bullish than Huberty, Walkley, and even Dan Ives. Rock and Roll. Let’s move our panic point up to $120, just in case I’m wrong.

(Apple is a holding in Jim Cramer’s Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL? Learn more now.)

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