Investment Advisor Blog | Why I Am Selling Apple In The 180’s | Talkmarkets

Why I Am Selling Apple In The 180’s

Date: Tuesday, March 19, 2019 1:20 PM EDT

While technology giant Apple (AAPL) has not been a large holding at my firm for a long time until recently my clients did have some residual shares with a very cost basis as a result of paring back their legacy positions over time. In recent days I have been selling off those shares.

For many years Apple stock has gone through cycles whereby the valuation looks a lot like a hardware company (10-12x P/E ratio) at times when sentiment is skeptical, and a higher near-market multiple (mid-teens) when investors are focused on services and other higher margin, recurring revenue streams.

Last year the shares got a boost from Warren Buffett’s purchases, sentiment was high, and the stock above $200 was sporting a market multiple. After an early January profit warning for Q4, the stock fell into the 140’s and the iPhone’s issues in emerging markets came into focus. Just two months later, the stock has regained momentum and now trades well above the level it stood before the Q4 disappointment. Why, exactly, is an interesting question.

(Click on image to enlarge)

What is clear to me is that the iPhone problem has not been resolved in the last 60 days. The device’s price continues to increase, which will serve to limit market share gains in emerging markets where household incomes are low and competing phones are close on features but priced much lower.

The notion that the iPhone will reach penetration rates globally in-line with those of its most successful regions, like North America, seems unrealistic to me. Given that the iPhone’s share in the United States remains below 50%, despite it feeling as though everyone here has one, it should not be surprising that Apple has 25% market share in China, or just 1% market share in India. And Apple’s decision to stop releasing unit sales figures for the iPhone only further reinforces the notion that material unit growth is over (iPhone unit sales actually peaked all the way back in 2015 at 231 million and have fallen more than 5% since) and revenue gains will be generated from pricing power, which will only serve to compress unit sales even more over time.

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