Shares of Apple Inc (NASDAQ:AAPL) have advanced 11.43% in the last 4 weeks and 17.25% in the past three months. But despite the gains, the tech giant’s stock still attracts plenty of contrarian believers, including the president of Dohmen Capital Research Bert Dohmen, who says he wouldn’t touch the name with a 10-foot pole.
For more than a decade, Apple posted quarter after quarter of solid financial results. However, all that changed when Cupertino’s revenue topped in late FY 2014. Since then, every reporting period has been worse than the one before, Dohmen told CNBC’s “Closing Bell” on Monday.
“The deterioration is accelerating,” Dohmen said. “You’ve got to be deaf, dumb and blind to buy this.”
Although Apple is down 3.6% on a year-over-year basis, the reality is the company has gained more than 6 percent after its third-quarter earnings report, and is now outperforming the S&P 500.
It’s true that in Q216 Apple reported that its iPhone sales slowed for the first time ever since the product launched in 2007. As a result, Cupertino also reported that it failed to grow its business for the first time since 2003. That said though, the real question for investors that want to own Apple stock is to see whether the company’s current slowing growth signals a sustained sales deterioration for the iPhone line or only a temporary setback for the company.
Keep in mind, Apple isn’t doing bad at all. In its Q316 report, the tech giant said it earned $1.42 per share, well above the $1.38 per share analysts were expecting. Revenues came in at $42.36 billion, above views for $42.10 billion. Since Q116 Apple has brought in more than $168 billion in revenue. Most companies would kill for that kind of revenue stream. What’s more, the $597 billion market cap company is still one of the most valuable and profitable names in the world. Additionally, on Monday, Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A), (NYSE:BRK.B) significantly increased their stake in Apple shares during the last quarter. The Omaha, Nebraska-based investing conglomerate boosted the iPhone maker’s stake by 55%, worth $1.46 billion at the time of the filing, to more than 15.2 million shares as of June 30 from 9.81 million shares on March 31.
Apple Risk/Reward Ratio Still Favorable
Bernstein’s A.M. Sacconaghi, Jr. is positive on Apple’s prospects. In a research note to clients on Tuesday, he said he believes the issue’s risk/reward ratio remains positive after “it meaningfully outperformed the S&P in the past 14 trading days.” The analyst also said that Cupertino can meet consensus estimates for the rest of fiscal 2016 and in its Q117 quarter, which ends in December. Sacconaghi has a 12-month base estimate of $125 on the stock.
Piper Jaffray’s Gene Munster is another analyst who likes Apple’s prospects. He told CNBC he sees revenues being up 10 percent in fiscal 2017 as more people upgrade their iPhones.
“They [Apple] have had a difficult period. I think it has nothing to do with their core strength of coming out with great devices, and I think they are going to continue on that path for the next five years,” Munster said.
The analyst, who has a $151 price target on Apple stock, also pointed out that while investors are focusing on the potential of the company’s iPhone 7S and iPhone 8, which are expected to represent significant upgrades next year, the Oracle of Omaha is looking even further out at the possibilities in automotive and augmented reality, which Apple sees as a “core” technology.
“That gives some optimism for investors that this isn’t just a one-year trade, that there’s some ground work where they could get into some big growth markets in the future,” Munster said.
Dohmen however, insists that all Apple is doing is investing its own money and buying back its stock.
“This is not innovation. It’s financial engineering,” he said.
During today’s trading session, Apple stock opened $0.19 higher from the previous close. The name has managed to trade in the green. It is currently up almost 0.10% to challenge 3-month highs along the $110 vicinity. There seems to be a real set-up at the moment. As long as the equity holds above the $108.80 level, its pent up momentum stays intact. That said, should it drop below that level, the next support looks like $108.55 and then $108.07.
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