Penn Wealth Publishing

2018.11.18 Penn Wealth Report Vol 6 Issue 05

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12 PeNN Wealth Report volume 6 issue 05 18 Nov 2018 Penn Wealth Report Copyright 2018. All Rights Reserved. iNvestmeNt intelligence Apple, Inc Tech Hardware, Storage, & Peripherals e content of this report reflects the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers. is is not a solicitation to buy. Always consult your investment profes- sional before investing any money. A s we write this review, Apple (AAPL $150-$177-$233), the world's only trillion dollar company, is under attack. After weathering the ugly month of October, which was especially brutal for tech stocks, Apple investors have joined the bear market mob. As we write this, AAPL is sitting at $176.65, having just broken through—to the downside—its 200-day moving average for the third time in the past 52 weeks. Why did this happen, and what does it mean for the stock going forward? e selloff began in the first few days of November, after Apple announced it was going to stop reporting the unit sales num- bers for its top three devices: the iPhone, the iPad, and the Mac. Instead, the company would start offering a deeper dive into the services (think subscriptions) numbers. is made perfect sense to us, as Apple is making a strategic shift towards its growing services business. Analysts (erroneously) saw this as an attempt by Tim Cook to hide soften- ing device numbers going forward. We can think of many CEOs who would try to pull that stunt; Tim Cook is not one of them. e next hit came when a supplier of components for Apple's iPhone and iPad, Lumentum Holdings LITE , announced that a "major customer" had cut its orders. e street read this as Apple. LITE fell by one- third, while AAPL fell by another 6% or so. When the dust settled, following price target cuts and the usual suspects predicting doom and gloom, Apple shares had fallen from an October high of $233.47 to their current price of $177—a 20% drop. Apple, with its tiny PE (for a tech company) of 16, was suddenly lumped in with the likes of Amazon AMZN (92 PE) and Netflix NFLX (PE 105). We believe analysts are completely misreading recent events, and will pay the price for jumping ship. By the Numbers. Let's delve into the numbers which ana- lysts found so disturbing. For the fiscal fourth-quarter, sales rose 20% year-over- year, to $63 billion, while net income rose 32%, to $14 billion. at gives the company an impressive operating margin of around 25%, and helps pad their record-shattering $280 billion cash horde. Sales have grown consistently each year since the iPhone was released in 2007, and the figures aren't even close to one another. In FY 2009, the com- pany had $43 billion in sales; in FY 2018 (ended 30 Sep), that number was $265 bil- lion. Management continues to aggressively buy back shares, telegraphing what they think of the recent price downturn. Catalysts going forward. Comparing current projections for iPhone sales to past numbers on the books is a myopic way to analyze Apple. When the company sells a prod- uct, it is selling a system. If you own an iPhone or an Apple Watch, you most likely have sub- scriptions to the iClould and iTunes. at is a recurring stream of monthly income Apple can take to the bank. If XR (the least-pricey ver- sion of the iPhone X) sales disappoint, so what? People are not leaving the Apple ecosystem. e same goes for the iPad and the Mac—users have remained incredibly loyal to the brand. As for the Apple Watch, it is getting the cold shoulder treatment from the same analysts who trash-talked the iPad. e incredible—dare we say transformational— health benefits the company will offer via its health apps will drive an entirely new gener- ation to the Apple ecosystem. Remember this point in Apple's his- tory, with the stock sitting at $176.65 and the haters in full force. is is not a time to jump ship; it is the time to accumulate more shares. With the stock sitting at $177 and the haters in full force, this is not the time to jump ship; it is the time to accumulate more shares. When the dust settled, Apple shares had fallen from an October high of $233 to their current price of $177—a drop of nearly 25%.

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