Don’t sell your Apple stock, this investor says

It’s what all companies strive for: the super-sticky products, services and brands that keep customers coming back for more. And in the tech field, no one does it better than Apple (Apple Stock Quote, Chart, News, Analysts, Financials NASDAQ:AAPL) whose iPhone business should keep the company and stock flying high, according to Shane Obata, portfolio manager at Middlefield Capital.

“We continue to like Apple. It has been a tremendous performer, it’s a great business and there’s no reason to expect that changing in the near term,” said Obata, speaking on BNN Bloomberg on Friday. “The installed base is at around 101.5 billion devices now and they’ve got integration across different parts of the businesses across their products and across their services, so the consumer stickiness is still very high.”

“People get into the ecosystem and they don’t want to leave, and we continue to think Apple has a strong brand,” Obata said.

For a while there, in 2018 and 2019, the mood wasn’t so hot around Apple. Investors grumbled about the company’s over-reliance on the iPhone to drive growth, and sales numbers for each new iteration of the iconic smartphone were pored over to the nth degree amid rising competition from the likes of Samsung and a general feeling that Apple was no longer the innovation tycoon it once was.

Yet the company’s performance in 2020 seemed to be proof enough that Apple isn’t going anywhere. During a pandemic year, the company finished its fiscal 2020 (ended September 26, 2020) with total sales of $274.5 billion, up from $260.1 billion for fiscal 2019 and representing a growth rate of five per cent. Net income also grew from $55 billion to $57 billion and EPS went from $2.97 per share to $3.28 per share.

Then, for the new fiscal year, Apple just posted in late January its numbers for the all important holiday season, with its fiscal Q1 2021 (for the period ended December 26) showing an all time record for revenue of $111.4 billion, a 21 per cent uptick year-over-year, and EPS up 35 per cent to $1.68 per share.

The market seems to have liked the company’s overall performance of late, with Apple’s share price jumping a full 81 per cent in 2020. That’s compared to a 43 per cent gain last year for the tech-heavy NASDAQ.

But Obata says it’s the diversity of offerings that investors should be focusing on with Apple, especially considering the massive iPhone upgrading period that’s just started.

“On the iPhone, we are optimistic on that side of the business,” Obata said. “The 5G upgrade cycle is the first real excuse we think for people to upgrade their phones in the past little while, so we are expecting good results from the iPhone segment in the next few years.”

“The iMac and the iPad, those we’re expecting steady as she goes, and then for growth upside we’re continuing to look at the tremendous results from the services business, and from the wearables business,” he said. “People really like their air pods, people really like Apple Music and Apple TV. So there’s a lot going on, but the bottom line is that this is one of the best brands in the world and there’s no reason to see that changing in the short term.”

On Apple’s performance over its fiscal Q1 2021, CFO Luca Maestri said it was an all-hands effort that brought in the record numbers.

“Our December quarter business performance was fuelled by double-digit growth in each product category, which drove all-time revenue records in each of our geographic segments and an all-time high for our installed base of active devices,” said Maestri in the first quarter press release on January 27.

“These results helped us generate record operating cash flow of $38.8 billion. We also returned over $30 billion to shareholders during the quarter as we maintain our target of reaching a net cash neutral position over time,” Maestri said.

The analyst community appears bullish on Apple, as well, collectively proposing a 12-month median target price of $157.00 per share, according to CNN Business, which as of Friday’s close represented a projected return of 16 per cent.

RBC Capital Markets analyst Mitch Steves has an “Outperform” rating on Apple and raised his target on Apple earlier this month to a Street-high $171 from $154, implying at the time of publication a return of 25 per cent.

On the topic of Apple’s stickiness and massive user base, Steves recently spoke to CNBC to say that Apple has an opportunity to make hay in the cryptocurrency space by becoming the crypto-exchange of choice for investors taking part in the growing field.

“[Apple] doesn’t even need to own any crypto assets. They just need to create an exchange,” Steves said. “If you run that math [digital currency exchange] Coinbase is valued at $50 to $80 billion with only 35 million people as its install base. Apple has a 1.5-billion install base and they sell 200 million phones per year. What prevents Apple from utilizing its best asset which is software, a closed ecosystem, and basically putting people onto a crypto wallet and then making money off the fees?”