Apple is still a buy, this investor says

Apple (Apple Stock Quote, Chart, News, Analysts, Financials NASDAQ:AAPL) has had quite a run over the past couple of years but that shouldn’t scare off would-be investors, says portfolio manager Gordon Reid, who thinks there’s more upside to the tech name.

It’s a genuine hockey stick of a chart on Apple over the past decade, where the stock had been steadily climbing for a number of years before truly taking off in 2019 and posting a combined return of about 250 per cent for the past two years.

Those are big numbers, but the stock’s still got room to grow says Reid, president and CEO of Goodreid Investment Counsel.

“We own Apple and have owned it for about 15 years, so we’ve had a very good experience with Apple,” said Reid, speaking to BNN Bloomberg on Tuesday.

“But, of course, every morning when are our feet hit the floor we’re asking the question, what is the future and what are you going to do for me now? And that is the way every investor should be thinking and try not to be influenced by their own experience good or bad with the company and is my capital employed the best way it can be today and into the future?” Reid said.

“And, specifically, with Apple they’ve got just a tremendous built-in franchise of about 1.4 billion devices in the world. A 93 per cent loyalty rate is normally what the polls come out at, so it’s a great combination when you have that kind of market share and that kind of loyalty,” Reid said.

Apple has seemingly got out from under the cloud hanging over it in recent years when criticism regularly focused on the company’s supposed over-reliance on iPhone sales to support growth. Hardware was Apple’s bag, it was said, and not only were there competitors like Samsung swiping market share on its phones but worries persisted about the company’s ability to innovate and remain at the forefront of tech gadgetry.

And while concerns like those persist, attention has more and more turned to Apple Services as the company’s likely growth driver going forward. Apple Music, the App Store, Apple Pay and iCloud storage, they accounted for $14.55 billion of Apple’s total revenue of $64.7 billion in its latest quarter, showing year-over-year growth of 16 per cent.

Wedbush Securities analyst Dan Ives recently attested that half of Apple’s current $2-trillion market valuation now stems from its services business.

“When you look back at the disaster stories in phone hardware, like a Blackberry or Nokia, at the top of mountain they were not able to monetize an ecosystem. Apple still only has about 15 per cent to 18 per cent penetration of its installed based on the services side. The installed base makes it the most-valued company in world,” said Ives, speaking on CNBC earlier this month.

Apple will report its fiscal first quarter 2021 results next week, giving investors a first look at how iPhone 12 sales went (the new phone went on sale this past October) as well as show how Apple fared over the holiday season. In the difficult 2020 year, fraught as it was with COVID-19 closures of retail outlets and a shift to work-from-home disruptions, Apple finished its fiscal 2020 (ended September 26) with total net sales of $274 billion compared to $260 billion a year earlier, with EPS hitting $3.31 per share versus $2.99 per share for the year before.

For its most recent quarter, Apple beat estimates with revenue of $64.7 billion versus the consensus $63.70 billion and EPS of $0.73 per share versus the expected $0.70 per share. At the same time, Apple declined to give guidance on the quarter ending in December nor on the fiscal 2021 year, citing uncertainties related to the ongoing pandemic.

But Reid says the road ahead looks good for Apple, especially considering what many see as a major upgrading cycle in smartphones about to occur, thanks in part to the emergence of 5G networks.

“We’re moving quite quickly into a 5G world, and for companies like Apple 5G will lead to a massive roll-over of product adoption because you can’t just layer on 5G to older phones,” Reid said. “We’re getting prepared for that with Apple.”

“Some of that is priced in and we’ve seen the multiple on Apple rise over the last couple of years but certainly not all of it. So, we would be a buyer of Apple at this point,” Reid said.

On the rollout of 5G, Apple CEO Tim Cook said in the quarterly press release in October, “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.”