Apple (Apple Stock Quote, Chart, News NASDAQ:AAPL) has done tremendously well in 2020 and is set up for a strong November-December holiday season with new iterations of the iPhone, iPad and AirPods all out and ready to tempt shoppers.
And investors should be in the buying mood, too, says portfolio manager David Baskin of Baskin Wealth Management, who says it’s Apple’s interwoven collection of products and services that gives it the edge.
“Apple is our biggest single equity position in our firm and we are buying it for new clients,” Baskin said, speaking on BNN Bloomberg on Thursday.
“I think one of the things that people don’t really understand about Apple is that it’s not just phones, it’s really an entire ecosystem. At this point, it’s parts that feed each other: the application store, the music store, the headphones and all the various products that interact with each other to build a virtuous circle that drives consumers to buy one product after another,” he said.
Apple launched the new AirPods Max over-the-ear wireless headphones this week, at a hefty C$779 per, which may have raised some eyebrows seeing as they’re now pricier than the base model iPhone or iPad, but they come with the promise of high-end performance and, of course, the now-familiar Apple brand and styling.
“With AirPods Max, we are bringing that magical AirPods experience to a stunning over-ear design with high-fidelity audio,” said Greg Joswiak, Apple’s senior vice president of Worldwide Marketing in the press release. “The custom acoustic design, combined with powerful H1 chips, and advanced software enable AirPods Max to use computational audio to wirelessly deliver the ultimate personal listening experience.”
Apple shareholders have been singing a happy tune this year, as well, with the stock up now 68 per cent for 2020 after having performed a four-for-one split in August.
And even the perennial hand-wringing over Apple’s dependence on iPhone sales has seemingly been toned down this year. iPhone sales were down a full 20 per cent year-over-year for the company’s latest quarter, its fiscal fourth delivered in late October. But the stock saw barely a wriggle downwards in reaction and has since shot higher.
Apple reported sagging Q4 revenue from China, Hong Kong and Taiwan, for example, with sales declining 28 per cent from a year earlier. But with the pandemic accounting for a chunk of that weakness, Apple management said it’s confident of a turnaround.
“A larger percentage of China revenue is made up of new iPhones. And so that’s the reason the number for the total quarter started with a minus sign. But given what we see in the early going with the new iPhones, we’re confident we’ll grow in Q1,” said Apple CEO Tim Cook to CNBC.
Yet at the same time that iPhone sales dropped in the fourth quarter revenue from the company’s accessories segment grew by 16 per cent year-over-year, Mac sales were up 28 per cent and iPad revenue was up 46 per cent. All told, Apple’s Q4 revenue was still up one per cent at $64.70 billion, which beat analyst’s expectations at $63.70 billion. Earnings were also a beat at $0.73 per share compared to the expected $0.70 per share. (All figures in US dollars.)
“Despite the ongoing impacts of COVID-19, Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone lineup, has been tremendously positive,” said Cook in the Q4 press release.
Baskin said Apple is not only a great company on fundamentals but the stock still trades at a reasonable valuation.
“Apple’s ability to continue to innovate with the iPhone, to come out with bigger, better products with more features is also quite impressive,” Baskin said. “On top of that you get an enormous pile of cash, you get a huge worldwide footprint and one of the most recognized brands in the world.”
“So, this is a company available at a reasonable multiple of earnings with the growth rate than inarguably justifies the price of the stock and a balance sheet that’s unequaled on the planet. So we’re very comfortable continuing to buy Apple.
Morgan Stanley analyst Katy Huberty apparently agrees with that sentiment. The analyst raised her bull-case price target for Apple in a November 30 report, saying the prospects for iPhone sales look good in 2021.
“Our conviction in the AAPL bull case is rising with iPhone 12 Pro lead times at record levels, upward revisions to supply chain forecasts, and US carriers noting strong initial demand. Our AlphaWise consumer survey outlines a bull case that is much higher than we previously thought, with iPhone upgrades expected to outperform other vendors and our past surveys correlating to future growth,” Huberty said.
Huberty reasserted her “Overweight” rating with a target of $191.00 (previously $171.00), which at the time of publication represented a projected return of 65 per cent.