It has been a rollercoaster couple of years Apple Inc. (AAPL), with shares taking a dramatic tumble most recently during the month of April.
The existing downtrend was exacerbated by a not-so-hot second-quarter earnings report. Apple suffered a year-over-year drop in iPhone shipments, revenue and earnings. EPS tallied just $1.90 per share, which was 10 cents shy of Wall Street’s consensus and a far cry for the year-ago results of $2.33.
As a result, the bearish cries have been quite loud. Indeed, Apple stock investors have lost a whopping $240 billion in wealth since the stock’s closing peak in February 2015.
Positive News for Apple Stock?
This week, though, Apple investors may have gotten some relief. Wall Street seemed energized by the disclosure of a $1 billion bet by Berkshire Hathaway, released on Monday as part of its quarterly holdings disclosure.
Despite the fact that Warren Buffett was not the one to make the bet, the confidence of a fund associated with the Oracle of Omaha has many experts and investors agreeing that Apple is a screaming bargain after the recent bloodbath.
Jim Cramer has also been applauding Apple stock as a great equity to own, most recently seconding Bernstein’s call that Apple’s services revenue, if better monetized, has a potential price tag of $1 trillion, especially as operations in China and India continue to grow.
I agree that there remain things to like about Apple stock despite the recent negativity, especially with regards to its current valuation and its forward dividend yield of over 2.4%. But I would caution investors eagerly jumping in because they believe Apple stock has gotten its groove back. A return to an uptrend is still going to be a far cry from the Apple of old, and the company still needs to get back to growth.
Remember: When Apple burst onto the scene, it was part of a huge transformation taking place in the tech world. But because the company hit Wall Street a third of a century ago, there’s simply less room for upside from the tech behemoth.
There are billions of smartphones and other gadgets already on the market, meaning remaining customer segments are even harder to capture.
At the same time, Apple built its business on margins and those are beginning to deteriorate, as we’ve seen.
Put another way, if Cramer & Co. is correct that Apple can cash in on emerging markets and monetize services, the stock could indeed start chugging higher again. But if you’re looking for the next Silicon Valley gamechanger, you’ve come to the wrong place.
Bottom Line for AAPL
At a certain point, successful revolutionaries become the new establishment as disruption creates its own status quo.
With that in mind, I’d much rather spend my time looking for companies with spectacular futures that are priced like the start-ups they are as opposed to picking a company like Apple that, despite the bloodbath, is still price liked a giant and is anchored to past, outsized expectations.
It’s going to be a tough turnaround for this newly minted “value” play. I’m going to focus on real growth.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
