Apple still has a lot of growth ahead, this portfolio manager says

US tech giant Apple (Apple Stock Quote, Charts, News, Analysts, Financials NASDAQ:AAPL) hasn’t delivered any fireworks yet this year but the stock is up a solid 12 per cent. What’s up ahead for Apple? Portfolio manager Gordon Reid thinks it’s still a buy and will continue to be a winner of a stock considering the 5G tailwinds behind the smartphone maker.

“We’d definitely hold on to Apple. We’ve owned this stock since 2006 or 2005 where our original cost base for our clients was about $2. So, it’s done extremely well and we think there’s a lot ahead of it,” said Reid, CEO of Goodreid Investment Counsel, who spoke on BNN Bloomberg on Tuesday.

Christmas comes early for Apple devotees where the company on Monday brought out two new MacBook Pro models, the first upgrades to the product since 2016, while new AirPods and a $5 per month music subscription service were also announced, all coming less than a month after the release of the iPhone 13 and new versions of the iPad.

Calling it the best pro notebook they’ve ever built, Apple touted the upgrades to the new MacBook Pro in its fall product event.

“We set out to create the world’s best pro notebook, and today we’re excited to introduce the all-new MacBook Pro with M1 Pro and M1 Max — a game-changing combination of phenomenal performance, unrivalled battery life, and groundbreaking features,” said Greg Joswiak, Apple’s senior vice president of Worldwide Marketing, in a press release.

And while questions still linger about the company’s lack of innovation over the past decade, the durability of its product line along with increases to Apple’s Services revenue have kept investors content.

Ahead of Apple’s fourth quarter fiscal 2021 numbers due on October 28, Apple posted record third quarter revenue in July at $81.4 billion, up 36 per cent year-over-year. By category, iPhone sales still make up the lion’s share for the company, generating $39.6 billion in revenue for the fiscal third compared to $17.5 million from its Services segment. Mac, iPad and Wearables, Home and Accessories came in at $8.2 billion, $7.4 billion and $8.8 billion, respectively.

“Our record June quarter operating performance included new revenue records in each of our geographic segments, double-digit growth in each of our product categories, and a new all-time high for our installed base of active devices,” said Luca Maestri, Apple’s CFO, in a July 27 press release. “We generated $21 billion of operating cash flow, returned nearly $29 billion to our shareholders during the quarter, and continued to make significant investments across our business to support our long-term growth plans.” 

The worldwide semiconductor chip shortage continues to bear down on tech hardware companies not to mention automakers and just about any company with electronics in its products, but Apple has been able to brag about its in-house chips, unveiling the new M1 Pro and M1 Max that it said are up to 70 per cent faster than previous iterations.

Reid says the chip shortage will have its impact on Apple but that the company has proven its resilience over many decades and the long-term effects should be minimal, whereas the runway enabled by the new fifth generation wireless networks is mostly still to come and it’ll be huge.

“Without question we could see [the chip shortage] be part of the commentary next quarter,” he said. “Apple has a way of working its way through these problems that others maybe have more difficulty with.”

“Our philosophy is if there is some deferral of purchases, it’s just that: this is a push issue on demand and you’re not going to see demand go away. You’re not going to lose orders, they’re just going to be pushed out,” Reid said. 

“And 5G is something that we talk about casually but — and Apple’s latest phone is 5G enabled — but in all practicality none of us are utilizing 5G to any degree of its potential, so it’s going to be a big deal,” he said.

Last week, the Wall Street Journal reported that Apple is currently in the lead in the early days of 5G smartphones, holding 28.3 per cent of the 5G phone market over the first six months of 2021. That compared to Guangdong Oppo Mobile Telecommunications at 14.4 per cent, Samsung Electronics at 13.9 per cent and Vivo Mobile Communication at 13.5 per cent. The 5G infrastructure is still being established across North America and worldwide.

While Reid says Apple is a great buy-and-hold stock, he cautions against being too complacent even with a solid name like Apple.

“It’s absolutely necessary for investors, including professional investors, not to grow lazy and buy something and with success take their eye off the ball,” he said. “We’re always analyzing these companies and we think that at 25x earnings, with the growth rate that it has in front of it, with 5G coming, with 1.4 billion devices out there in the ecosystem and with a 93 per cent loyalty rate that things are looking very good. But you always have to keep an eye on it and make sure you’re not seeing any cracks in the wall.”