Now What Do We Do About Apple? | The Mesh Report

Now What Do We Do About Apple?

John Thomas May 11, 2017 Comments Off on Now What Do We Do About Apple?

It is the world’s largest company.

It is the planet’s most widely owned stock.

Of the 200 million Americans who possess financial assets, probably all of them own Apple (AAPL), either directly through a trading account, or indirectly though an ETF (it comprises a massive 11.67% of the PowerShares QQQ), public or private pension fund.

So to say that traders are on pins and needles over what to do about what is now probably their largest holding would be an understatement.

The big question now is, will Apple buy another company, or a whole country?


While the stock sold off on the May 2nd Q2 earnings report; it was impressive nonetheless.

Apple posted revenue of $52.9 billion, compared to revenue of $50.6 billion in the same quarter in 2016.

This was slightly below the average expectation of analysts. They had predicted that Apple would record $53.079 billion in revenue, while Apple’s own prediction was for between $51.5 billion and $53.5 billion.

Apple reported a net quarterly profit of $11.0 billion ($2.10 per diluted share, compared to net quarterly profit of $10.5 billion (or $1.90 per diluted share) in the same quarter in 2016.

Gross margin was 38.9 percent compared to 39.4 percent in the same 2016 quarter.

Apple also declared an increased dividend payment of $0.63 per share, up from $0.57.

Dividends are payable quarterly and the next is due on May 18th. This means that Apple now pays its shareholders the biggest dividend of any company in the world.

The stock rose a positively ballistic 39.13% this year. If you set aside the new market capitulation the company has created in the past four months, it would rank among the ten largest companies in the US.

However, it is now showing the first weakness in months.

Which leads many shareholders to ask if, now that the stock is owned by every taxi drive, elevator, and shoe shine boy in the country (now I’m showing my age!,) are we headed for another 45% selloff, much like the last time the stock peaked in 2012?

Certainly, the grounds for concern are out there.

There are now no new blockbuster products coming out until we see the iPhone 8 in September, 2017.

There are supply chain worries, as the global manufacturing network is now absolutely mammoth.

Some analysts are nervous about quality control, especially regarding new products like the Apple watch which should sell an eye popping 30 million units this year.

I know that CEO Tim Cook tosses and turns at night worrying about Apple investing billion into a new product, turning it on, and nothing happens.

However, I think this time it’s different.

While you weren’t looking, Apple has turned into a giant China play.

No, they aren’t suddenly eating dim sum with chopsticks at corporate headquarters in Cupertino.

The Middle Kingdom, in short order, has become the firm’s largest grower of its earnings.

This is a good thing. Last year saw an 80% growth of sales there. China is expected to become the largest market for Apple products this year.

What’s more, the ballistic growth there is expected to continue.

Walk down the street in Shanghai these days, and you would be  amazed by how many people are walking down the street speaking or texting into their iPhones, real and fake ones alike.

In fact, they have become the primary means through which people access the Internet there.

No doubt, this is due to Apple’s special relationship there with China Mobile (CHL) which now offers iPhone owners a great deal for their cell phone service. Did I mention that CHL has a staggering 750 million customers?

The iWatch is now viewed as the gateway for the sales of as many as 1.2 million future third party developed apps, the number iTunes offers now.

Apple Pay looks to replace Visa and Master Card at some point in the future. Apple TV is still lurking out there in the background.

We’ll learn more about all of this at the next developers’ conference in San Francisco in June.

All of this leads me to believe that there is far more fundamental support in terms of new products and business lines for the company than we saw during the last cycle.

There is also more distance in the rear view mirror since the passing of Steve Jobs. Successor Tim Cook has since proved himself as a world class leader.

It turned out the timing for the company to transition from a founder-tyrant to a cutting edge administrator-manager was perfect. You don’t need to hold your breath anymore.

At least the stock market thinks so.

Repatriation? Did anyone mention repatriation?

If Apple is allowed to bring in most of its $250 billion cash hoard from abroad much of it will go towards buying back its own stock.

I am therefore raising my target for the shares this year from $150, which we have already hit, to $180.

That would deliver a market capitalization for Apple just short of $1 trillion, sometime in 2018, well up from today’s $800 billion.

I think that means you need to use the current dip to load up on the stock, and then just turn off the TV.

Want to know what John Thomas REALLY thinks?

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