These days, the knock against buying Apple (NASDAQ:AAPL) is that the tech giant’s fortunes are too tied to the iPhone and, in an increasingly competitive mobile device market, that spells trouble.
Burt that’s unlikely to be the case, says portfolio manager Paul Gardner of Avenue Investment Management, who argues that Apple’s brand is still strong and that, furthermore, the stock is actually cheap, both historically and in comparison with its technology sector peers.
Next week, Apple will hold its annual WWDC developers conference, which typically showcases new software and hardware products along with giving a sense of the company’s focus over the rest of the year. And while the rollout of new bells and whistles for the iPhone, Mac and Apple Watch may pique the interest of much of the tech world, many investors are wondering whether the company’s best years are now in the rearview mirror.
Even as Apple’s share price reached a new all-time high this week, forecasts of doom and gloom abound. Investment banker Maxim Group, for one, recently downgraded its rating for AAPL from Buy to Hold on the likelihood of lower subscription numbers.
“Prior survey data indicates attach rates for [Apple’s] subscription services will be at best 30 per cent, likely lower given ecosystem centric approach, especially for services where entrenched incumbents exist,” said Maxim analyst Nehal Chokshi in a note to clients on Wednesday.
Yet the opposing position is also out there, coming from, among others, Warren Buffett himself, whose company Berkshire Hathaway recently bought 75 million more shares of Apple, giving Berkshire about a five per cent stake in the company.
“Nobody buys a farm based on whether they think it’s going to rain next year or not,” says Buffett. “They buy it because they think it’s a good investment over ten or 20 years … The idea of spending loads of time trying to guess how many iPhone X … are going to be sold in a given three-month period, to me, it totally misses the point.”
Gardner echoes this point by arguing that despite worries about the iPhone, Apple’s brand power shouldn’t be underestimated.
“With all the volatility with their [iPhone] 8 or X or 10, it actually did quite well. I wouldn’t be surprised if the Apple Watch starts adding a lot more. They’re great at executing a brand,” says Gardner to BNN Bloomberg.
“The usual response is that [Apple] is all about the iPhone, but now we’re starting to see service revenues tick up and we’re starting to see other parts of their business tick up,” he says. “[But] here’s the real comment: it only trades at 13x earnings, so this is a company that historically has traded at 20, 25x earnings.”
Year to date, AAPL has gained a healthy 11.2 per cent, with some of that boost coming last month from news that the company would be increasing its dividend by 16 per cent and upping its capital return plan.
“We’re concerned because it has run so far so fast, but when you’re buying something at 13x earnings — a technology firm — you’re kind of protected, because there is growth there,” says Gardner. “The technology space isn’t necessarily cheap, but you can find things that are reasonable.”