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January 25, 2019 
 
Should you buy Apple ahead of earnings?    
 
 
The debate is raging about whether or not investors, presumably those with the appropriate risk tolerance for individual stocks, should buy Apple ahead of its next earnings release next Tuesday, the 29 th, after the market closes.
 
One way to look at it is by its flat performance year to date. It is near dead even on the year. Another way to look at it is that earnings expectations are very low due to so much news about slower than expected iPhone sales, which was confirmed by the company itself with a pre-announcement of a weaker than forecast 4 th quarter, on January 3 rd. The stock tumbled over 15 dollars per share to 142.
 
Now that the stock has fully recovered after 22 days, it is especially hard to judge it on a short term basis. Have low expectations given way to just "normal" expectations?
 
The superlatives that could describe Apple are too many to list here. But its plan going forward is to go from an over-reliance on hardware sales, particularly iPhones, to generating more revenue from software sales. Plus, Apple has such a massive installed base of iPhone users that moving a chunk of them to increase their spending on Apple's services would be a massive shift to higher margin software and service sales.
 
 
 
But it is still an iPhone company in the eyes of many investors and Apple has to prove it could successfully manage its transition to a greater proportion of revenue from software and services. And if the world is saturated with smartphones, with slowing sales over the last few years, then it could mean Apple's "addressable market" has reached its limit. There's a reason why the stock trades at a lower earnings multiple than the S&P 500 - making it a perennial bargain to some and a hardware company to others. Hardware companies in the tech field are typically afforded lower multiples than software/cloud companies, such as Salesforce.com.
 
In the near term, I think value investors have the advantage because of Apple's lower valuation, stock buybacks, and the very solid reputation it has for creating products that delight its customers (I have an iPhone in my pocket as I write this). Many analysts from large research firms have price targets ranging from 185 to over 200 per share.
 
So, back to the question of whether or not you should buy the stock before 4:00 PM EST next Tuesday. My usual modus operandi for this situation, Apple or any other stock, is that I'd rather pay more with the confidence that business is in good shape, if earnings and forecasts turn out to be better than expected. That, as opposed to buying ahead of a potential miss that could leave me with a steeply down stock that could take several quarters, or even years, to turn around.
 
That has to do with knowing my own personal risk tolerance. I also have in the back of my mind that Apple had two near-death experiences as a company. No company is immune to obsolescence.
 
What's changed after this dip in Apple on its way to a Trillion Dollar high of about 230, during the last 10 years? Higher interest rates, slower pace of innovation, humongous but stalling user base, and slowing sales in China. Then again, I could just cut and paste paragraph 4 right here. You see, the argument is circular; constantly going round and round between the same two arguments. To me, it's a tug of war that I'd be willing to watch from the sideline. To you, it could be a gift.
 
I'm sure the ones who say to buy it ahead of next Tuesday evening will crow about it if Apple beats its expectations. Vice versa for those who said don't buy it if it misses expectations.
 
But that's not the point of investing. Betting on an up or down move off of one announcement is speculating, and best done with money that you don't mind losing.
 
Note how none of the above has anything to do with investing. That is an entirely different story. If you believe Apple stock is worthy of your investment allocation, then go for it.
 
The point of this is it is easy to get caught up in the excitement of the moment that surrounds a stock, making it hard to discern between a spec and a prudent investment when we're in the thick of it.
 
Speculating, or gambling, is not investing. Just because the speculating is in a great name like Apple, it is still speculating. You need to know the difference. That's my point. 
 
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Thank you for taking the time to read this!
Mitch
 
 
I opened ClientFirst Strategy, Inc. because I believe that the only way to help my clients potentially achieve their goals is by offering unbiased advice & investment management expertise. To my clients, thank you for your continued vote of confidence. If you are not a client but would like to explore the possibility of becoming one, I invite you to call me directly, visit my website, join my email list, and/or connect with me on social media.      

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All the views expressed in this report/commentary accurately reflect our personal views about any and all of the subject securities or issuers and no part of our compensation was, is, or will be, directly or indirectly related to the specific recommendations or views we have expressed in this report. This material is not intended as an offer or solicitation for the purchase of sale of any security or other financial instrument. Securities, financial instruments, or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from securities or investments mentioned in this report may fall against your interests, and you may get back less than the amount you invested. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. You should consult with your tax adviser regarding your specific situation. Diversification is a method of managing risk and doesn't protect against loss in a down market. 
  
  

Mitchell O. Goldberg, AIF®, AAMS

President | Investment Professional

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