Apple is a solid bet, this portfolio manager says

After a so-so first half of 2021 tech stocks have done better over the past couple of months with Big Tech names like Alphabet and Microsoft leading the way. But don’t forget about Apple (Apple Stock Quote, Charts, News, Analysts, Financials NASDAQ:AAPL), says Christine Poole of GlobeInvest Capital Management, who likes the stock as a long-term hold.

“We own Apple in our client portfolios and we were buying it in this latest pullback in September in the $140 range. I like the stock long term,” said Poole, CEO of GlobeInvest, who spoke on BNN Bloomberg on Tuesday.

Makers of the iconic iPhone among other hits, Apple has done well by its shareholders over the past 12 months, delivering a return of about 29 per cent since November 2020. That may pale in comparison with Alphabet (Alphabet Stock Quote, Charts, News, Analysts, Financials NASDAQ:GOOGL) and Microsoft (Microsoft Stock Quote, Charts, News, Analysts, Financials NASDAQ:MSFT) who have returned 68 per cent and 60 per cent over the same timespan, but Poole says Apple’s shift from hardware to services should continue to boost growth for the company for years to come.

“We like the fact that they’ve transitioned from a product only company to services, which accounts for a third of their revenues now, and the service component is very profitable,” Poole said.

“They keep trying and they keep coming up with new services and features to offer to their installed base of one billion users. So, that’s the leverage on the installed base that I really like. So, yes, we do like Apple,” she said.

Apple Services, which includes options like Apple Music, AppleCare, Apple TV and the company’s iCloud storage subscriptions, hit record revenue in the company’s latest quarter of $18.277 billion, up about 26 per cent from a year earlier, with cost of sales at $5.396 billion. Those numbers helped the company hit net income of $20.551 billion or $1.24 per diluted share compared to $12.673 billion or $0.73 per share a year ago. 

Apple products including the iPhone still make up the lion’s share of business for Apple at about 78 per cent but the company is banking on Services becoming more significant to its top and bottom lines going forward.

“The combination of our record sales performance, unmatched customer loyalty, and strength of our ecosystem drove our active installed base of devices to a new all-time high,” said Luca Maestri, CFO, in the company’s fiscal fourth quarter 2021 press release on October 28. 

“During the September quarter, we returned over $24 billion to our shareholders, as we continue to make progress toward our goal of reaching a net cash neutral position over time,” Maestri said.

Apple announced last week a new addition to its Apple Arcade in Disney Melee Mania, which involves well-known Disney characters like Mickey Mouse, Moana and Elsa from Frozen. The subscription service has been around for a couple of years now but with competitors like Netflix putting more work into their subscription gaming platforms Apple is looking to step up its game as well.

“Players will find endless gaming options on Apple Arcade to keep them entertained on all their favourite devices this holiday season, from classic titles like ‘Crossy Road Castle’ and ‘Solitaire’ to creative new games like ‘Disney Melee Mania’ and ‘LEGO Star Wars: Castaways,’” said Alex Rofman, Apple Arcade’s senior director, in a November 15 press release.

Much has been made of Apple’s move to bring chip design for its products in-house rather than relying on third-party companies like Intel, with Apple announcing last month its new M1 Pro and Max chips for its MacBook Pro. Gaining more autonomy over this element of its business now seems enlightened considering the current prolonged chip shortage plaguing product manufacturers worldwide.

The shortage will also impact Apple, but Poole thinks the effect will be temporary.

“Obviously, Apple along with many other handset manufacturers, technology companies and product providers are experiencing shortages in the semiconductor space, so they’ve had to pull back their unit volume projections for the year. But I think that’s just been delayed and it’s going to catch up in the following years when the supply issues get addressed,” Poole said.

Earlier this month, Apple launched its holiday campaign aimed at bringing in consumers to the all-important season. This year, Apple has updated versions of not just the iPhone at iteration #13 but the redesigned MacBook Pro, Apple Watch and HomePods. 

“Our teams can’t wait to connect with customers to make this season special,” said Deirdre O’Brien, Apple’s senior vice president of Retail + People. “Whether in stores or online, our Apple Specialists are ready to welcome customers, offer gift recommendations, and provide the support customers need throughout the holidays.”

But not every investor is a fan of Apple. Portfolio manager Dan Niles of the Satori Fund thinks the stock is currently overpriced in relation to the rest of Big Tech, saying Apple’s growth rate pales in comparison. Compounded over the last five years, Niles says Apple’s revenue is growing at about 11 per cent compared to Microsoft at about 15, Google at 23, Netflix at 27, Amazon at 28 and Facebook at 34 per cent.

“You can buy both Facebook and Google at a lower multiple than Apple,” said Niles, speaking on CNBC on November 4. “And don’t forget, Apple is a massive pandemic beneficiary. And so for them their iPhone revenues over the last five years were down 11 per cent before you had this pandemic benefit. iPad and Mac sales were also down year over year before the pandemic hits.”

“ So, we like Facebook a lot. We like Google a lot. They’re growing two to three times faster and you can buy them at a lower multiple with faster growth rates in the future,” he said.