Despite Its Great Products, Apple Has Lost Its Mojo – Yet Stock Is A Trading Buy (AAPL)

Who knew my late mother was on to something.

When discussing interfaith marriage, she warned me about a fiancé that might convert. She’d likely become more devout than I, said Mom.

It turns out this is a real thing. Pew Research Center says there is “quantitative support for this piece of conventional wisdom often referred to as the ‘zeal of the convert.’”

Personally, I never tested it with religion. My wife didn’t convert.

But I did experience it in a secular context.

I’d long been a DOS and then Windows power user . I thought Apple (NASDAQ: AAPL) was for babies or gullible fools. How, I wondered, dare anybody say it was intuitive.

Back before scanning became an every-person thing, I found myself sitting late one night before an iMac at a 24-hour Kinko’s. That was a copy, etc. place. (It was eventually acquired by Federal Express (FDX). It now operates as FedEx Office.)

I was trying to remove my floppy disc from the drive. But I couldn’t figure out how to do it. Suddenly, a Kinko’s employee ran over to me with a panicky expression.

I quickly learned that using a house-key to pry the disc out of the drive was not optimal. The beleaguered employee taught me to click on the disk drive icon and drag it to the trashcan icon.

Who knew! I assumed doing that would erase the disk’s contents.

User friendly? Intuitive? To Albert Einstein, maybe.

I admit I did enjoy the iPod my Apple-loving sister later sent me for my birthday. Then she and my mother really turned up the heat. They sent me an engraved iPad on a subsequent birthday.

I struggled (with both devices) to synch. Today’s Cloud hadn’t yet taken hold. But I enjoyed both.

Fast forward to Windows 7 laptops.

Oh my God! The hardware and the software (including the operating system) acted as if they despised one another.

The final straw came when I took my laptop to a coffee shop to do some work. I powered up, and voilà… Microsoft pushed an automatic mandatory update that took the whole evening.

Shortly thereafter, I pulled a stocking cap down to cover much of my face. I slipped into an Apple Store without being seen by anybody who knew me. I walked out with a MacBook Pro and a wireless mouse.

I quickly upgraded to the latest iPad. As soon as Verizon Wireless gave me a good deal, I ditched my Samsung phone that integrated with nothing and inhaled battery power as if there’d be no tomorrow.

And here I now am. I have all the pro-Apple zeal Pew Research suggests converts have.

Everything I have integrates and synchs seamlessly. Everything works.

Romeo and Juliet were barely acquaintances compared to the mutual love for one another shared by my devices, apps, and programs.

My productivity soared. I often work outside my home on my iPad (I hate carrying a laptop around).

When it comes to products, I’m a fanboy for life. But I can’t now be a fan of the stock because…

I See Nothing from Corporate That Impresses Me

I’ll say up front that I follow the news. I know Apple is doing AI. (Who isn’t?) I’ll get to that later… as, I suppose, I must.

Actually, the AI issues strike me as small potatoes, even if Apple does well there.

We and Apple have much bigger fish to fry.

On paper, and on page 1 of the latest 10-K, Apple says it’s about many things. It refers to iPhone, Mac, iPad, Apple Watch, Apple TV, Air Pods, Beats, Apple Music, AirPods, HomePod, an App store, a news service and a game service.

But is REALLY all that?

The formal SEC documents don’t disclose any numbers relating to any of these products or services. With respect to segments, page 5 of the 10-K says what apple wants you to know.

The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.

That’s not terrible. It’s worth knowing.

But management knows full well this alone won’t cut it. The unofficial quarterly news releases bring us closer to home — if you can figure out where on this page you can get them.

Here’s some annual data I extracted.

Notice I don’t show operating profits or any other bottom-line measures. Apple continues to keep that information under wraps. (Although who knows? Maybe its buried in a place I haven’t yet found.)

If you read my June 13th report on Alphabet (GOOGL), you know I won’t characterize a company based only on words. To me, it’s mainly about the money. Where does it come from?

Based on the highly imperfect information we have; I’ll say Apple is an iPhone company plus some other stuff. Cool stuff, but stuff, nonetheless.

That’s OK. I love my iPhone. And countless others similarly love theirs.

Ditto my other stuff (Mac, iPad, AirPods in my case).

But does this make for a serious growth company nowadays? Does it justify growth-stock valuations?

The Quant Story

Numbers speak of the past and present. But our investments turn on what happens in the unknowable future.

But numbers help… a lot. They set an important context for forward-looking assumptions and projections.

This is where quantitative work is big. It reveals hard truths.

Our quant journey into Apple gets off to a great start.

(I use comparative medians. These aren’t impacted by wild distortions often caused by unusual data items, even in big companies that can dominate weighted averages.)

We see above how Apple got its reputation for corporate excellence. But that’s the past.

As investors, we need to look forward.

Returning to the past-versus-future conundrum, we will have to start with the past.

That doesn’t determine future outcomes. But companies don’t change overnight. So the past is an important starting point.

Seeking Alpha’s grades help us here.

Consider Apple’s glorious history, its creative image, its reputation. What sort of Growth Grade might you expect… without peeking. Perhaps a B, to make allowances for Steve Jobs and lead designer Johnny Ive being gone.

Would you believe it actually gets a D!

Believe it. Here’s a sampling of the kinds of growth-related things Seeking Alpha’s Quant model was seeing.

You can see the rest here.

Consensus near-term growth expectations are likewise unimpressive.

The next image shows some recent year-to-year growth rates I computed based on several unofficial Apple quarterly press releases. (Oh, I think I may have given you a hint how to find this information.)

Here are overall quarterly Revenue and EPS forecasts in the context of recent history.

It’s not terrible. But it’s not so powerful as to lead anybody to mistake it for Nvidia (NVDA)

I should address the fact that 2021 was a great year. Apple experienced a perfect storm (the good kind) back then. New versions of iPhone and MAC (M-1 powered) were mega-hits. Ditto new iPad models. Services like Apple TV and Apple Music were gaining ground. That was like the old Apple many investors grew to love.

But such combinations of newness and early super-growth don’t come every year. That’s especially so nowadays, when Apple products are ubiquitous. It’s not like when Steve Jobs walked onstage demoing things to lure countless users like old-time me, who still weren’t on board.

Investors who pay up for growth stocks need more. One-shot spurts won’t suffice. But Apple stock seems to have a growth stock valuation.

Seeking Alpha assigns Apple a grade of “F” for valuation.

Now that isn’t the end of the world. Seeking Alpha’s Quant team knows this. That’s why Apple, and all other stocks, have other grades besides just Valuation.

High valuations are fine if – and I really do mean IF – justified by strength elsewhere, especially with respect to growth.

Gurus don’t just say this for the heck of it. In fact, many value-oriented gurus don’t say it enough and wind up missing out on very powerful investment opportunities. But it stems from basic “ivory tower” financial math. (For more, see the Absolute Value section of my May 28, 2024 Nvidia writeup.)

NVDA, and many other excellent stocks today have value Grades in the D to F range. But their growth grades are often B or better.

Apple’s well-deserved “D” Growth grade matters a lot. It means we should be much less tolerant of its “F” value grade.

And we probably should be less tolerant than suggested in the Valuation table I provided above.

Apple’s 10.83% “Proj. 3-5Y EPS Gr” looks in line with industry and SPY medians. Given AAPL’s high “P/E FWD,” I’d want to see more projected growth.

But how confident can we be even with the 10.83% projection? It’s well above the recent historical experience. (See tables presented above.) And take a look at these images, from the Seeking Alpha Annual Earnings Estimates presentation.

Hint… Look at the right-most column of each table.

You’ll almost always find fewer analysts making longer-term projections. These are necessarily hardest to make. Hence, many analysts who estimate ear-term results don’t even try to go far, if at all, beyond the next year.

But the Apple drop-off beyond September 2025 is noteworthy. The drop-off beyond September 2026 speaks for itself.

So how confident are you that the 10.83% projection will turn out more or less accurate. How confident are you the actual growth rate will be much, if at all, greater than, say 3%-5%.

Quantitatively speaking, my confidence is zero.

But we are, after all, dealing with the unknowable future. So, I’d be willing to let subjective judgment raise my confidence… if I see good reason to do so.

Considering Apple’s Future Growth Potential

Apple’s past glory and growth stemmed from innovative new products. That isn’t news. We all know what they were.

Ideally, innovation would consist of completely new products. But there’s a limit to how frequently even the most creative company can change the world.

So often, this sort of growth has to be powered by newer and better versions of existing products. That, too, is common knowledge for Apple.

The challenge, of course, is whether new versions are really much better than established offerings. They have to be to persuade users to pay up for new gizmos even when the old ones still work.

That’s been getting harder for Apple to accomplish. That’s especially so when competition has been intensifying for Apple’s main revenue generator iPhone.

Samsung is running hard. Apple doesn’t even (yet) have a folding screen. China, Apple’s most important region, has to be keeping management awake late at night. Local competition, and trade politics continue persist.

So, the company really needs big new things — really, really new things.

Management knows this. That’s why Apple spent about ten years and $10 billion to try to create an Apple car.

What a mess that turned out to have been!

I can’t even tell you if it was supposed to have been an electric vehicle, or autonomous (self driving) vehicle. And within the latter category, I can’t tell you what level autonomy Apple aimed for. (There are different degrees depending on what role, if any, a human driver might play.)

You really can’t blame me for not being able to tell you about this. That’s because Apple itself never really knew what it wanted to do. Various individuals within the company had various goals. But they often failed to mesh with one another. And Apple kept flip flopping.

There wasn’t even unanimity within the company that it should even bother trying to do this.

And Apple’s motives seemed very un-Steve Jobs like. Apple wasn’t trying to reinvent the world. It was trying to keep pace with what others, like Tesla (TSLA) and Alphabet (GOOGL) were perceived to have been doing.

Now, I can’t and won’t hang Apple for mere failure. One has to try in order to succeed. Failures happen. What’s unforgivable, though is the grotesque sloppiness with which Apple pursued this aim.

You can get plenty of details by Googling “apple car” or “project titan” (Apple’s code name for the project), checking Wikipedia’s summary, or an article I published on March 21^st while at my old job.

Apple’s other really big project now is its Vision Pro spacial computer.

This hardware here consists mainly of a set of super-duper goggles. The “screen” exists only in space. You can’t actually touch it.

It looks like you can use a real keyboard if you want. But Apple seems most proud of how much you can do by pointing at things and manipulating your fingers in space.

This immersive experience is supposed to be spectacular for consuming media and interacting with others.

It sounds impressive. But it’s super expensive.

To get a price, I had to scan my head using my iPhone and then answer questions about my vision. Assuming perfect vision (I lied to get through the quiz more quickly), I learned the price was $3,499, $3,699 or $3,899 depending on whether you want 256GB, 512GB or 1TB of memory.

Looks to me like Apple is trying to really motivate buyers up to the $3,899 price point. (At that price level, who’d drop from 1TB to 256 GB just to save $400!) Also, I assume I’d pay more for extras if I told the truth about my imperfect eyesight.

Apple claims half of the Fortune 100 companies already bought Vision Pro. That’s no surprise. I’d worry about a Fortune 100 company that couldn’t afford it.

But among regular people, fastcompany.com reports that “Vision Pro sales are really tanking.” And a June 19, 2024 mashable.com headline claims “Apple reportedly gives up on Vision Pro 2, focusing on cheaper model instead.”

Not good.

But there is one thing on the horizon that might actually work, at least for a short-term trade.

Apple plans to soon bring AI down from the cloud to execute on your iPhone, Mac or iPad. That would boost speed and enhance privacy.

How will it make your life better? That’s hard to say.

But I asked ChatGPT 4o for some examples. Considering that’s the service with which Apple will be working, I figure it would try to help the eventual sales pitch.

ChatGPT told me of enhanced graphics, augmented reality, battery-power management and editing tools. Drilling down further into what an AI-powered SIRI might offer, ChatGPT gave me this:

Scenario: You have a busy day ahead with multiple meetings, emails to send, and personal tasks to manage.

AI-Enhanced Siri’s Capabilities:

1. Contextual Understanding: You ask, “Siri, remind me to send the quarterly report after my next meeting.” AI-enhanced Siri understands the context and keeps track of your calendar. Once the meeting ends, Siri reminds you to send the report.

2. Natural Language Processing: Later, you say, “Siri, email the report to the team and schedule a follow-up meeting for next Tuesday at 10 AM.” AI-enhanced Siri comprehends this complex request, drafts the email with the attached report, sends it, and then checks your calendar to schedule the meeting.

3. Context Maintenance: After the tasks are done, you ask, “What’s next on my agenda?” AI-enhanced Siri maintains context from previous interactions and provides a summary of your upcoming tasks and meetings.

4. Personalized Assistance: You ask, “Siri, how should I prepare for my presentation next week?” AI-enhanced Siri reviews your calendar, identifies the presentation, and pulls relevant documents, emails, and notes you might need. It can even suggest practicing the presentation using tips it has learned from analyzing successful presentations in your stored documents.

See also this detailed Apple June 10, 2024 news release.

All, in all, I say… Cool!

I don’t know that I need any of this right away. So, I’ll stick with my existing devices until I really need to upgrade.

But I can see where many nowadays might be enthusiastic about AI devices.

Competitors will undoubtedly offer much the same. So, I can’t say this will be world-changing like the initial iPhone launch. But I can see it generating some near-term consumer and investment community excitement.

Risk

I’ll preview my stock recommendation… Despite my reservations about the company, I do see a trading opportunity for the stock. This buying ahead of the launch of AI Products.

That means the main risk to my thesis is that the new offerings wind up disappointing.

Take this risk seriously. Apple’s very long release describing its AI has the following fine print at the bottom:

Apple Intelligence is free for users and will be available in beta as part of iOS 18, iPadOS 18, and macOS Sequoia this fall in U.S. English. Some features, software platforms, and additional languages will come over the course of the next year. Apple Intelligence will be available on iPhone 15 Pro, iPhone 15 Pro Max, and iPad and Mac with M1 and later, with Siri and device language set to U.S. English.

(Emphasis supplied by me.)

I can imagine AI-hype driven consumers ignoring the fine print about the release being mere “beta.” We’ll have to see how they, and reviewers, react to what Apple actually supplies.

The other risk, the investment (i.e., beyond trading) risk so to speak, is that more market participants decide Apple is no longer a growth company. That could push the stock’s valuation levels downward.

On the other hand, there’s some opportunity-loss risk to those who don’t own Apple shares.

The company can afford a dramatically higher dividend, one which would make AAPL a serious equity-income play. It can also afford much more massive share buybacks. It could even earn a starring role in an EFT like the Pacer US Cash Cows 100 ETF (COWZ). That ETF does not now own AAPL.

Then, on the other hand, AAPL can afford huge acquisitions. And we never know how those might turn out.

Finally, there’s the possibility that Apple might ultimately get what Seeking Alpha Analyst and Tech Cache Investing Group Leader Joe Albano described in September 2023 as a needed “Satya Nadella-type Change.” That could push the stock up.

So is your head spinning yet from all these risk cross-currents?

Mine is. So I’d understand if you, too, feel that way.

This stock can easily drive one crazy.

What to do About AAPL Stock – This is Going to Surprise You!

Evaluating any company and its stock are two completely different tasks.

We can love a company but dislike or even hate its stock. You see plenty of this on Seeking Alpha from Analysts who have great things to say about companies but don’t recommend its stock. That’s often due to valuation.

Conversely, we can dislike a company but be bullish on its stock.

Thinking in terms of the behavioral finance Keynesian Beauty Contest” can help us come to grips with the different frameworks.

Imagine you’re a beauty contest judge. But you don’t pick the contestant you find most beautiful. Instead, you pick the contestant you think most of the other judges will favor

Applying that to the stock market, you don’t necessarily buy a stock because you like the opportunity. Instead, you buy a stock because you think most of the others in the market will favor it.

The Apple price chart shows me that whatever I think of the company, it would be reckless to present AAPL as a “Sell” right now.

The rising 10-day exponential moving average (EMA) has impressive strength relative to the rising price and the also rising 50-day EMA.

The “Hold” versus “Buy” decision is much harder.

Look at Chaikin Money Flow (CMF) and Chaikin Oscillator (CO) Both measure which party to trades is more motivated. CMF does it for institutional investors. CO does it for the market in general.

Buyers being more motivated to execute trades puts upward pressure on stock prices.

We’re not seeing a lot of buying pressure right now for AAPL. A died-in-the-well technical analyst might say that the EMA-based momentum is not being confirmed by these two indicators.

Trying to make sense of this, I’d say there’s a lot of momentum behind AAPL. (Seeking Alpha’s Momentum Grade is “A-.”) But I’d also say it’s due more to apathy, or something like that, than serious mass bullish conviction.

That sound weird.

Let me put it this way. Imagine you own AAPL. Somebody bids for your shares. Rather than resist and hold out for a better price, you yawn.

“I really don’t care that much,” you then say to yourself. “I own a lot of other good stocks and I’ve got a great list of more stocks in which I want to invest. So, what the beck, I’ll make the AAPL bulls’ day. They can have my stock. I don’t care enough to fight over the exact price.”

So right now, it looks like I’m pointing toward neutrality with regard to AAPL.

But I’m not a died-in-the-wool technical guy. I’m a fundamental story guy at heart. So I’ll do what many chartists won’t. I’ll look ahead to where I think AAPL and its chart, including CMF and CO can soon (and have already started to) go .

There’s no denying the hype around AI is wild. So I expect this to boost AAPL as it moves closer to and into the late 2024 targeted initial launch of its AI products. That should make for a good “trading” opportunity.

As I’ve said before, my investment stance depends mainly on whether I think a stock will be better than, in line with, or worse than market.

Here’s how I apply that to the Seeking Alpha rating system:

• “Strong Buy” means I see the stock as being better than the market and I’m bullish about the direction of the market.
• “Buy” means I see the stock as being better than the market but am not confident about the market’s near-term direction.
• “Hold” means I see the stock as moving in line with the market.
• “Sell” means I see the stock as being worse than the market but am not confident about the market’s near-term direction.
• “Strong Sell” means I see the stock as being worse than the market and I’m bearish about the direction of the market.

Based on this scale, I’m rating AAPL as a trading “Buy.”

But keep an eye peeled for potential sell cues.

If it looks like the AI products aren’t actually pulling the stock up, close the trade. Let Mr. tell you if or when to worry about this.

Ongoing chart analysis would help. Watch for a shorter-term moving average (however you define it) to lose ground to the longer one.

If technical analysis isn’t your thing, closely monitor the Seeking Alpha Momentum grade. If it goes down to “B,” sell. Consider doing that even if the grade goes “B+,” especially if the news flow isn’t great.