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Cut back on Apple stock if you can, this portfolio manager says

The stock has performed marvellously over the past 12 months, especially for a tech stock in the middle of a rotation away from high-growth names, but for those of us who own Apple (Apple Stock Quote, Charts, News, Analysts, Financials NASDAQ:AAPL), you might want to consider trimming back a bit on your position, says Gordon Reid of Goodreid Investment Counsel.

“We own Apple in our US large cap portfolio have for well over 15 years and we continue to like it,” said Reid, CEO of Goodreid, who spoke on a BNN Bloomerg segment on Thursday. “They’ve got an installed base of about 1.8 billion users or devices, and about 20 per cent of their business now comes from the Services side, which is a higher margin, stickier type of business, which allows the multiple to move higher, which it has. So, we’re quite high on it,” Reid said.

“That said, just a few weeks ago, we trimmed some of our Apple because it had done so well and we sold a piece of it,” he said. “It’s the eighth time, I believe, since we bought Apple that we’ve trimmed it and we think that this is just good solid portfolio management.”

The stock is still in the red for 2022 (along with most of the tech sector) but Apple has done very well over the pandemic years, returning 81 per cent in 2020 and then 34 per cent more in 2021. So far this year, the stock is slightly under water at about negative 3.5 per cent, but that’s looking pretty good compared to some of its Big Tech peers. Amazon is down about six per cent, Google is down about seven per cent and Microsoft is off by 11 per cent. Facebook/Meta Platforms is off in its own orbit and has lost a full 30 per cent of its value since the start of the year.

For Apple, investor confidence seems to have returned after a number of years during which concerns were mounting over the company’s lack of innovation in the tech hardware space along with its heavy reliance on the iPhone as its big breadwinner.

But while those issues remain — the iPhone still makes up more than half of Apple’s revenue — the company’s Services segment continues to grow and Apple’s products are still flying off the shelves on a regular basis, as witnessed in the company’s fourth quarter 2021 where Apple delivered its largest single quarter ever for revenue, hitting $123.9 billion.

“This quarter’s record results were made possible by our most innovative lineup of products and services ever,” said Tim Cook, Apple’s CEO, in a January 27 press release. “We are gratified to see the response from customers around the world at a time when staying connected has never been more important.” 

Breaking it down by segment, Apple’s iPhone sales for the Q4 were $71.6 billion compared to $65.6 billion a year earlier, Mac sales were $10.9 billion compared to $8.7 billion last year, iPad sales were the lone negative at $7.2 billion versus $8.4 billion a year earlier and Wearables, Home and Accessories came in at $14.7 billion versus $13.0 billion for Q4 2020. Apple’s Services hit $19.5 billion compared to $15.8 billion last year for a year-over-year growth rate of about 24 per cent.

Ahead of first quarter 2022 results due near the end of the month, Apple beat analysts’ consensus forecast in its fourth quarter, with the $123.9 billion in revenue coming in ahead of the Street’s estimate at $118.7 billion, while earnings were up 25 per cent year-over-year to $2.10 per share compared to the consensus forecast at $1.89 per share.

Apple’s business seems also to be progressing globally at a healthy rate, with net sales in the Americas increasing by about 11 per cent and European sales lifting by about nine per cent. Sales in Greater China were up a bigger 21 per cent, while Japan sales were down 13 per cent and the Rest of Asia Pacific were up 19 per cent.

For Reid, investors like holding onto a stock like Apple but he advises selling some of your top performers, even when that comes with the inevitable tax hit.

“What we see a lot are people holding onto unrealized capital gains that by definition become a higher and higher percentage of their portfolios, and higher and higher risk,” Reid said.

“And we think that a lot of people look at capital gains or unrealized capital gains through the wrong lens. They’re trying to avoid tax by not selling off a piece of unrealized gains. But what they don’t understand is that the cards are really stacked against them,” he said.

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