APPLE (AAPL) INVESTMENT THESIS

What would you say if the worlds largest company, worth over $900 Billion said it was generating more than $60 Billion in profit every year and had $250 Billion of cash in the bank... and they wanted to give it all to you?

INVESTMENT THESIS

The Investment Thesis for Apple is set on four pillars

1. APPLE ECOSYSTEM 
Encompasses hardware, entertainment, accessories, applications, Apple Pay (tripled over last year) and over 330 million paid subscriptions.

2. HARDWARE
Apple has shipped over 2 Billion iOS devices and encompasses the iPhone (20% unit growth), iPads, iMac, MacBook, AppleTV, HomePod, and Wearables (Airpods, watch and Beats - growth of 50%).

3. SERVICES 
Including Apple Music, Apple Pay, App Store and Cloud Services. In 2016 Apple set a target to double services revenue by 2020. Apple confirmed Health as an ‘area of major interest to us' on the Q4 2018 Earnings Call. 

4. SHAREHOLDER RETURNS 
Apple has returned over $310B to investors through dividends and share repurchases. Apple has committed to return to a cash neutral position and on May 2, 2018 CEO Tim Cook stated, “we will do it at a very fast pace but we also want to do it efficiently. We want to make sure that we buy back the stock at the right time.“

When we look at an Investment Thesis it’s important to consider it within the context of three important areas.

Best in Class - Apple is the largest corporation on the planet with a diverse products and services mix, 98% iPhone customer satisfaction, and is returning more value to shareholders annually than the net worth of most other corporations.

Secular Growth Trend - the world asks, what will Apple do for me next? What’s under appreciated is that Apple innovations have fuelled numerous secular trends, they invented the smartphone which exploded the secular trends of interpersonal communication for companies such as Facebook, mobile retail for Amazon, Siri the digital assistant and the artificial intelligence revolution, Apple TV was the first of the ‘smart TVs’, mobile payments and wallets, the list goes on, but every other major tech company has piggybacked off these innovations and trends.

Strong macroeconomic environment - this is an important one to understand. Apple has what is referred to as ‘Price Elasticity of Demand’ which means Apple has the ability to raise prices while maintaining the balance of demand. This has allowed Apple to maximize the Average Selling Price for it’s products. There are currently threats to the global economy, which could affect the ability to command the highest prices possible.

CURRENT THREATS
Tariffs - to date, Apple has not been subject to tariffs imposed by the US/China trade war. In an interview November 26, US President Trump expressed that Apple may be subject to tariffs. This cost would have to be passed on to consumers or absorbed by Apple.

Domestic Economy - the US is Apple’s largest market. A change to the economy will affect disposable income and correspondingly pricing power and possibly demand.

 Global Economy - Macroeconomic uncertainty in emerging markets, specifically Turkey, India, Russia, Brazil where currencies have weakened resulting in Apple having to raise prices there. China is Apple’s second largest market. The threat of China imposing indirect economic pressure on the US through American product boycotts has been a concern to investors.

November 1, 2018 CEO Tim Cook has stated, ““...I'm still of the mindset that I feel very optimistic and positive that the discussions that are going will be fruitful. These relationships, these trade relationships are big and complex, and they clearly do need a level of focus and a level of updating and modernization. And so I'm optimistic that the countries, the U.S. and China and the U.S. and Europe and so forth, can work these things out and work for the benefit of everyone.”

What does that mean at MONEYWISEHQ.

Apple is making piles of money and giving it back to shareholders through dividends and share buybacks.

The Investment Thesis for Apple is arguably the strongest in the tech sector but there are threats so it’s going to be important to monitor earnings reports and management commentary to ensure the Investment Thesis remains valid. ‘Headline’ risk is, and always has, affected the stock price and it’s important to look at these headlines within the context of their affect on the Investment Thesis to identify opportunities to buy or a warning to lock in profits and protect capital.

Apple is repurchasing $20B of shares every three months and the greatest investor of all time, Warren Buffet, owns over $57B worth of shares. Whether an experienced money manager or new to investing, Apple is the easiest stock to own and can be considered as a long term portfolio holding with opportunities to boost returns through various short term strategies like Trading Around a Core Position.