What The Apple Suppliers and Verizon Are Saying About Apple’s Stock
I’m so confused by the Apple iPhone back and forth now that I can’t figure out what who is right and who is wrong. Are iPhone sales strong, is Apple’s guidance for next quarter at risk? It seems like every day one analyst is defending Apple while another is raising concerns. Today’s was JP Morgan’s turn, cutting forecast for the Apple suppliers. The most significant problem here is that market is beginning to tell us that all is not so well for the iPhone, based on the stocks of the suppliers, and Verizon’s recent comments, and that is starting to make me concerned.
Apple’s stock has been relatively flat in 2018, but such is not the case if you are a supplier. Even Verizon recently noted on their conference call, they see and elongation of the upgrade cycle with customers not upgrading to new phones as quickly, as in the past. Admittedly, that is not a good sign for the iPhone.
Then looking at the supplier stocks and they just continue to behave terribly. Skyworks, Qorvo, Jabil, Cirrus Logic, Broadcom, have been crushed since mid-November. Unfortunately, we can’t use Qualcomm and NXP in this assessment given the buyout scenario for each.
The chart below shows how each stock of the suppliers is down by over 8 percent, while Apple shares are flat, and the S&P is up by nearly 9 percent.
So if we remove our emotions, and gut feelings it seems pretty clear from looking at stock performance, and the recent Verizon conference call notes that all is not going well for Apple and the newest iPhone launch and that perhaps this cycle may not be what everyone had expected.
All of these suppliers also trade with one-year forward PE ratios of 12.5 or below, which appear cheap, but of course, that is if companies do not start talking down those expectations, then suddenly we can see those PE’s begin to rise, as estimates come down.
The one thing I have learned over the years is that the market speaks, and stock price movements speak louder than any research notes, and when stocks are cheap based on a multiple or against a peer, there is a reason for it.
We will find out next week if the market was right or wrong. But for now, the market is speaking loud and clear. The newest iPhone will not be the runaway hit everyone expected it to be and that could be a problem for Apple’s stock.
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Michael Kramer and the clients of Mott Capital own shares of VZ, SWKS and NXPI
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