Why Apple Shareholders Shouldn’t Be So Worried After Selling Revenue – Texas News Today

If you’re an Apple shareholder wondering why your stock’s value goes down instead of going up after last week’s stellar earnings report, the reason given-a chip shortage weighs on the short-term outlook-is enough. It may seem that it is not. For traders looking at all the short-term opportunities to move portfolio money to where the next quick money is likely, it needs more than the headline “Sell in News”. However, long-term investors may want to consider recent facts and negative headlines about the company. Apple has overcome almost all short-term “sell” headlines in recent years to become a company of over $ 2 trillion.

Trump’s trade war with China? no problem. What was the surprising decision to stop providing iPhone unit guidance? Anyway, the iPhone super cycle has arrived, so there is no problem. It’s wise to remember that Apple has a long history of making its outlook fairly conservative about the global shortage of semiconductor chips that Apple is currently quoting, and formal revenue guidance hasn’t returned yet. maybe. And another, Tim Cook was promoted to CEO after Steve Jobs based on his mastery of global logistics.

Nick Colas, co-founder of DataTrek Research, said: “If you’re really worried about chip supply, you’ll want to own Apple because Apple is the first to line up on every chip fab.”

However, there are bigger issues related to Apple and other markets. It’s how strong the next growth leg of the market will be.

According to Chorus, the immediate outlook for the market does not necessarily shout for a plunge after Big Tech’s news sale. Seasonality is an imminent risk, and market history shows that the period of early August is volatile in the VIX Volatility Index.

“This is a valid trading issue, and where will the trading dollar in August go?” Chorus said.

Since 1990, early August has been the peak of VIX. Part of the reason is the decline in trading volume in the market during the summer. “When people are on vacation, it’s a valley of liquidity … fewer people trade and more volatility the news items carry. I’m telling clients to be careful.” He said.

From Wednesday to Friday last week, trading volumes on the S & P 500 were below the 30-day average.

For short-term traders, it makes sense that the rotation from large-cap leaders to small-caps, represented by Russell 2000, has been described by the chorus as “oversold” since the fierce hot streak in early 2021. “Small caps became parabolic from March to April and has been far more advanced since then and is not functioning,” he said.

So, at least statistically, it’s currently cheaper, based on a 100-day trailing return.

But for investors who haven’t entered the market for fast trading, Chorus says post-earning disappointing deals from Apple, Facebook, and Microsoft shouldn’t be too heavy. Instead of posting a big beat, Amazon was outliers by actually missing out on revenue expectations, making the news sell-out a “fair” reaction, Chorus said.

It’s also important to remember that other Big Tech big beats were already included in most stocks, as market speculation was strong in June and July. Second quarter earnings will be great. “The market was bidding on names in the quarter. The market sniffed out surprises, and they all happened, and keep it when you see all the stocks gathering in quarterly earnings. It’s hard to do. It’s “sell in the news.” Unless you have a huge amount of good news and guidance, “Chorus said. “It’s normal capital market behavior.”

He returns to one important data point in assessing the strengths of these companies. That means that profitability has doubled in the last two years. “This is amazing,” he said. And it gives him more comfort in the long run. “I haven’t seen any changes. Big Tech is still where it should be.”

He gave two reasons.

These companies have doubled their revenue growth, but I don’t think they’re close to peak revenue. “It’s a much higher foundation to build.”

Second, these companies have decisive advantages in the industry and do not directly compete with each other in zero-sum games in many areas of strength.

These companies have seen significant revenue growth as pandemics have changed their consumption patterns, making us all more tech-centric, and making big bucks on the market to do exactly the same. .. But now, the big problem for Big Tech is not that its superiority is threatened, but that multiple antitrust battles are imminent, but how much room is left to keep profit growth high. I just understand what I need.

“What is the amount to pay to a company with a return on investment of 30% and structural growth of 10% to 15%? Is it possible for 10 years? What is a multiple? 30x or 40x I don’t know what I have, “said Chorus.

Apple was an example of this group’s concerns about price-earnings ratios. It was considered a hardware vendor and was years behind in its market view until the service business soared through a pandemic and gave the company a market capitalization of $ 2 trillion. And again this year, in the words of the chorus, this was “one strange delay.” This is because the year-to-date rate of return was about 10%, compared to about 30% for Facebook and Microsoft.

Apple also fell below the S & P 500 and outperformed its earnings. One of the reasons is that it has sucked in so much demand that future investors are naturally concerned that it will be difficult to post good-earning comps. But Chorus said the new iPhone will be launched in the fall and spending on consumer technology will increase in the new semester, which may mean that there is still the most room for growth in the short term. rice field.

The broader global growth story that the entire stock market is tied to is not rock. In fact, it did the opposite in a panic of inflation earlier this year and in anticipation of a 10-year Treasury yield increase. “The market fully understood that growth peaked in the first quarter and was on a downtrend at the end of the quarter,” Chorus said.

Interest rates were wrong, but slowing economic growth is at the top of the list of concerns for investors in the US market, which has high price-earnings ratios. Big Tech accounts for 23% of the S & P 500, which means that whatever the market next decides on its high valuation will weigh on US stocks as a whole.

But investors don’t have that many great options worldwide. Emerging markets are nothing more than trade, although there may be trading opportunities as the situation in China between the government and its big companies has caused huge losses in recent weeks. And even if there are potential opportunities in other international plays such as European finance, it will take time for interest rates to move in the direction of profiting those stocks.

“What’s left? It’s the United States and it’s the top of the cap table,” Chorus said. “That’s what you need to own. It still returns to the same name.”

Looking at sector weighting in the 1970s and 1990s, he says, there has never been a time when five companies weighted more. “This is just five names, unlike when Exxon peaked at S & P. ​​It was commodity play. These companies have high barriers to entry and very high structural returns.”

Even with these benefits, trying to understand what their profitability will be after a pandemic, or at least when the world moves from the worst of a pandemic to a protracted impact, is a bigger problem for Big Tech.

“What is the fair growth rate in 2022? It’s difficult,” Chorus said.

Alphabet, the only Big Tech name to rise after revenue last week, and Facebook, which repeated advance warnings that revenue growth will slow, have the cyclical nature of a credible advertising market. ,It’s not. All of that has changed a lot in the last few decades. However, Apple is difficult. Despite progress made by building the services business as a major driver of growth beyond the iPhone, much hardware demand has been accelerated.

In the case of Amazon, Chorus said the share of e-commerce demand went from 17% to 24% in the second quarter of 2020 and then returned to 20%. And every percentage point in that band has a huge impact on Amazon’s business model. In fact, he pointed it out as the reason why Amazon “stayed in the band” for nine months before it returned to revenue. From October 2020 to June of this year, Amazon bounced back, but didn’t bid like any other name until pre-earnings took place. Since the beginning of the year, stock prices have barely maintained a rise of just under 3% after lower earnings.

All of these stocks had peak earnings, but they are far from peak earnings, Chorus said. The concept of peak earnings, which has attracted the attention of investors, means that there is a point in the cycle where a company shows absolutely the highest earnings growth rate. “That’s the goal of peak revenue, and no major tech company is close to peak revenue on an absolute basis,” Chorus said. “They continue to grow and the amount of revenue leverage is huge.”

After the news sells out, it’s likely a future buy.