Apple: Replacing My Stock For Calls

At the end of December, there was a report by Nikkei which stated that Apple (AAPL) was going to cut iPhone production by 10% which sent shares of the Cupertino giant down about 1%. The reason the stock dropped perhaps is because it was the second consecutive time that Apple would cut production at the beginning of a new year. The report is however predicated on Nikkei’s own supplier calculations. I was extremely upset at the time because I was long shares of Apple and Skyworks (SWKS), a famed Apple supplier whose shares were sent tumbling 2.4% on the news.

This is a bold prediction from Nikkei, in my opinion, part of the reasoning is because the iPhone 7 sold less units than anticipated as well. Apple’s stock dropped on the news and rightfully so, because the iPhone accounts for roughly 60% of the business. However, analysts anticipate that Apple will sell nearly 55M iPhones versus 51M from last year for the March quarter.

Nikkei for those of you that don’t know is the world’s largest financial newspaper based in Tokyo, Japan. It is highly likely that Nikkei was estimating this data from Apple’s Asian partners at the time to try and calculate the production based off of supply chain movements. However, investors should have remembered that Samsung had to concede sales in the latter part of the year to Apple because of their Note 7 production woes. So at best, I would estimate that production remained at the status quo as opposed to getting cut.

Apple is still a one trick pony because of the iPhone, but currently, there aren’t any competitors to take a bite out of Apple’s revenues. This stock is relatively inexpensive as it is trading around 11.9x next year’s earnings estimates with anticipated earnings growth of 13.1% next year and 13.8% for the long-term. With fiscal first quarter earnings due January 31st after the market closes, it is important to note that the stock was up 10% in 2016 amid its first earnings and revenue drops on a yearly basis in quite some time.

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Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I ...

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Kurt Benson 3 years ago Member's comment

Excellent analysis, thanks Abba's Aces.

Abba's Aces 3 years ago Author's comment

Thanks for reading Kurt!