If you’ve been a holder of tech giant Apple (Apple Stock Quote, Chart, News NASDAQ:APPL), really, your only problem is when to trim off the top. and you should, says Gordon Reid of Goodreid Investment, who argues lowering your risk is as important as making big gains on growth names like Apple.
It’s been good time for the FAANG stocks and tech in general, as the market keeps betting on ideas expected to do well in a post-pandemic environment. That would include tech, of course, which is expected to serve an even greater role as societies shift to more remote work environments and greater reliance on e-commerce.
All that benefits names like Microsoft, Google and Amazon, which have all had strong gains in 2020 despite the general market pullback earlier in the year. But Apple, with its focus on hardware like the iPhone, has also done well. AAPL is currently up 24 per cent for the year.
Reid says holders of Apple shouldn’t get too starry-eyed about any gains made with the stock over the years. Instead, investors should think about the stock’s weighting in their overall portfolio.
“We’re a buyer of Apple,” says Reid, president and CEO of Goodreid Investment Counsel, in conversation with BNN Bloomberg on Thursday. “But as with any company, regardless of what we think what we think about the fundamentals we look at things from a portfolio approach as well. And that involves issues such as balance percentage that you've got in your Apple, and of course those percentages are always changing because as Apple does very very well. It becomes a greater and greater percentage of your portfolio.”
“We've owned Apple since 2005 and we've done extremely well with it on behalf of our clients, but we've trimmed it seven times over those 15 years,” Reid said. “One might say, well, wouldn't you have been better off if you had not trimmed it and just kept it all, and the answer mathematically from a percentage gain standpoint would have been sure, we would have been better off, but on a risk adjusted basis I would argue, we would not have been because at this point, Apple would represent hypothetically 60, 70 or 80 per cent of our portfolio, and that represents huge risk.”
“So you always have to marry off desire for reward with the understanding that long-term investors do well by being disciplined and being very cognizant of the risks associated with their business plan,” Reid said.
Next week will be a big one for Apple as it releases its fiscal third quarter results on Thursday, July 30, with many wondering how strongly demand for the company’s products has been slowed by COVID-19 and the resulting economic downturn.
For the company’s fiscal second quarter, delivered on April 30, Apple registered a small uptick in revenue for the quarter ended March 28 but saw iPhone revenue drop seven per cent year-over-year to $28.96 billion.
At the time, management was cautious about the upcoming Q3, saying it expected a further decrease in iPhone sales.
“On iPhone and Wearables, we expect a year-over-year revenue performance to worsen in the June quarter, relative to the March quarter. On iPad and Mac, we expect the year- over-year revenue performance to improve in the June quarter,” said CFO Luca Maestri in the Q2 press release.