Despite Apple stock’s recent disappointing performance and poor sales of its latest iPhones, one wealth adviser says the company’s shares are “still a worthwhile portfolio holding.”
“Apple remains a quality growth name for portfolio strategies (not a value trap),” says CNBC contributor Michael A. Yoshikami
, the CEO and founder of Destination Wealth Management.
“Let’s face it, Apple is a cult stock and people often own it because they know it has done well for them in the past. Investors expecting that type of performance to be replicated in the future are going to be disappointed. But perhaps it makes sense to think about Apple from a different perspective,” he wrote for CNBC. “Look at the company as a reasonable growth opportunity with a dividend. It's not going to be a high flier name that doubles,” he explained.
was down 2.64 percent, or $2.66, at $98.04 near midday Thursday, after dropping below $100 for the first time in nearly five months on Wednesday following reports of slowing shipments of the iPhone 6S and 6S Plus. Those losses follow a decline of 11.5% in December, CNN Money
During the past month analysts at firms including Morgan Stanley, JPMorgan Chase & Co. and UBS AG have cut estimates of iPhone shipments, based on weaker demand for upgrades to the 6s and 6s Plus, which debuted in September, and saturation in some developed markets.
UBS said Thursday there is “quite a bit of smoke here” and reduced its iPhone estimates for 2016 by 5 percent, to 220 million units, Bloomberg
“It suggests the new phone doesn’t have sufficient feature differentiation to drive adoption,” UBS said. Another factor could be buyers choosing to buy the previous models, which are $100 cheaper.
However, Yoshikami contends that Apple is suffering from any fatal flaw.
“Resist the temptation to compare Apple to flashy tech names. Apple is a more mature growth company and your expectations should be focused on returns based on that category of stock. When you start comparing Apple to the overall equity market and not to high-flying peers, it begins to look more reasonable.”
Let’s highlight three of Yoshikami’s seven reasons to embrace Apple stock:
- Massive cash flow. "Every quarter this company generates billions of dollars of excess cash flow that continues to accumulate adding to the core valuation of the stock," he said. "This is not a company burning through cash."
- iPhone sales. "Because carriers will no longer be subsidizing iPhone sales, you'll see a shorter upgrade cycle which should put new products in consumers hands on a more regular basis. More consumers are going to buy new phones every year," he said.
- Apple is incubating ideas like Google. "The rumored Apple electric car (whether it's an actual car or the brains and ecosystem within the car) is the type of project that Apple currently is developing that has long-range potential possibilities. If rumors are to be believed, as well as my sources, there are plenty of new ideas in the pipeline," he said.
Meanwhile, headlines keep jolting Apple's share price.
Taiwan-based Foxconn, formally known as Hon Hai Precision Industry, will cut working hours over the week-long Lunar New Year holiday, according to a person familiar with the matter, a rare move that analysts said could be a sign of softening demand for the iPhone, Reuters reported.
Japanese daily Nikkei, citing parts suppliers, said output of the iPhone models would be cut by about 30 percent in the January-March time frame so dealers could offload stock.
"I don't think anyone expects growth to accelerate from last year's hyper growth. The only question that remains is whether they will grow at all in 2016," said Walter Piecyk, an analyst with BTIG.
The iPhone accounts for the vast majority of Apple's revenue and profits, and worries about slowing sales have weighed on the stock, which has fallen nearly 19 percent over the last six months, Reuters
(Disclosure: Michael Yoshikami does not own shares of Apple and has no other business relationship with the companies mentioned. But Destination Wealth Management may buy shares for clients.)
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