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Michael Kramer and the clients of Mott Capital own aapl, nflx, celg
Good Morning Today is Thursday, January 3
- S&P 500 futures are pointing to a lower opening of 32 points as of 8:00 AM
- The US 10-year rate is at 2.64%
- Dollar Index is at 96.65
- WTI Crude Oil is $46.70
- VIX: 25.50
- Critical events for today: Apple finally preannounced the quarter, Bristol Myers to buy Celgene, ADP Private Payroll +271k versus estimates of +178k
Recap of International Trading:
- Hong Kong Hang Seng Index down 0.26%
- China Shanghai Comp. down 0.04%
- UK FTSE down 0.25%
- Dax down 1.15%
I thought there was a recession coming? Those ADP numbers would suggest anything but a recession is coming.
The S&P 500 is looking to open lower after Apple pre-announced its quarter reporting that revenue will be about $84 billion which is below the street estimates of $91.4 billion. That is a miss of about 8%, certainly a disappointment, but not a disaster that some of the headlines made it seems like.
Look we can’t just brush it over like it is not a big deal, because Apple is a significant company and the weakness seen in China is a concern. But it seems strange that Nike just reported 31% growth in China and was seeing no effect of the trade war. It makes me think that perhaps there is something more to the story than meets the eye. Maybe there is secretly some form of a boycott taking place in China? We don’t know. News flow out of China is suspect at best, and to trust any news out of that country, well is not easy to believe. If you are in China what do you? Buy Party sponsored Huawei or American Icon and national champion Apple. I think the China verdict on Qualcomm vs. Apples tells you were China’s government stands on Apple currently. China is a communist country with a dictator.
I think it is unfair to say that this company is not innovating enough, because I can tell you from my experience there is a big difference between an iPhone MAX and an iPhone 7 or 8 plus. I consider myself to be pretty tech savvy and wanting the latest and greatest. The screen size alone is a significant change. The price perhaps is a problem, and subsidies from the wireless providers are no longer attractive.
I think on the phone front, innovation will not be easy for any company at this point; the innovation needs to come from the software side, not the hardware side. I think Apple has a lot of room for growth for software improvements especially with the use of things like Siri, which are getting better but does not yet compare to Alexa. My kids can use Alexa with ease; I can ‘t say the same for Siri.
I still believe that Apple’s future is not the iPhone itself, but the services and the things one can do on iPhone.
I think the stock struggles over the next month until the company can give some guidance on the second quarter. The most significant risk for the stock is now guidance for next quarter.
Technical support for Apple is around $142.
Another way to think about Apple is that for the most part, the market knew this was coming. Broadcom’s results told us that iPhone sale were weak, but not a disaster. So We need to ask ourselves, going into the first quarter analysts were estimating Apple revenue at around $93 billion, $84 billion is about 10% less than estimates. The stock is down 38% from its highs? Seems overdone, unless you believe that Apple has not only hit peak iPhone sales but peak sales period. It may be too soon to say that.
Celgene not much to add here except that is the deal is valued at $102.43 per share, in a stock and cash deal. The stock is trading at a discount to that price around $88. But as Bristol’s price falls, the value of the agreement for Celgene falls. I’ll tell you I feel very relieved that I can now move out of this disastrous names. The sell-off in the stock was way overdone, and Bristol seized the opportunity to strengthen its positioning Cancer treatments.
This should give a needed spark to the Biotech sector, Celgene is one the biggest Biotech companies, and if it can be bought for a big premium then that means any of them can be purchased, and that should be a positive for the sector. Biogen, Gilead, Amgen, should all trade higher today on this news. It would be a big plus for the IBB should it get over $100 today.
The market doesn’t seem to be a fan of the Celgene deal, because Bristol Myers is trading lower by 11.5%. $46.50 for Bristol is supporting, while a break below that takes the stock down to around $41.25.
I apologize that today’s blog is late and short, but I overslept because I was up late last night. I discovered there is a term #birdboxchallenge sweeping social media. If you don’t know what this is, it is related to Netflix’s hit show Bird Box, and people are literally blindfolding themselves and then trying to do daily routines, the video is on the web.
It is hilarious, stupid, but funny. What goes through people’s mind that even think to do these things?
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S&P 500, apple, netflix, celgene, bristol myers