Will one bad AAPL spoil the bunch?

In a week we’ve watched Apple drop more than 5%, after reporting great results.

Apple’s fourth-quarter revenue jumped 9% from a year earlier to a whopping $91.8 billion, shattering records and blowing past the guidance Apple had given Wall Street. Holiday sales of the new iPhone 11 line were up 8%. (NY Post January 28, 2020)

So Wazzup? Analysts are catching on that supply chains are being disrupted by the Coronavirus.  This is likely just the first cockroach (when you see one, you know there’s many more coming) to appear in the FAANG bubble that has so far been not only tolerated, but pumped by investors – no doubt much of the buying during December and into January was window dressing by institutional investors (wanted to show clients they’re cool and ‘own’ the right names) and scrambling by foolish retail investors who believed they’d missed the boat and were clambering to get aboard.

Admittedly, the current environment is very different than it was back in the year 2000, although the urge to participate has been just as frenzied.  Rather than a whirlwind of IPO’s by companies with no revenues or profits, these businesses generate tons of cash flow and have millions of dedicated customers.  The risk however has to do with a transition for these businesses from technology companies to consumer product (or rather, service) companies – subject to the seasonal ups and downs that used to be the bane of conventional department store retail.

Time.com cover

Yes the impact of the Coronavirus will be widespread but it simply accelerated what was bound to occur in short order anyway.  The outstanding earnings reports that have come out are not nearly as ‘surprising’ as they seem when reading headlines.  With strong consumer spending during the holiday season, low jobless rates and pitifully low interest rates, earnings for the 3rd quarter of 2019 would’ve had to be outstanding.  What will be a surprise is how rapidly these earnings will flatten or decline beginning this year.  Why?  Because AAPL and AMZN and yes even GOOG have businesses tied to the age old pattern of strong sales approaching the holidays, and a drop in consumer (and advertising) spending afterward.  They are no longer disrupting  retail…they ARE retail.

AAPL Feb3 2020

So don’t be ‘surprised’ when analysts and investors in general start looking ahead rather than focusing on historical earnings announcements, especially for those few monoliths that have contributed the lion’s share of the overall market’s performance last year.

Apple, Amazon, and Alphabet (Google) alone are over 11% of the S&P 500 Index and will be headed lower.  There will be an opportunity to buy back these stocks:  When Coronavirus is tamed perhaps, but more probably when earnings have bottomed out in the summer months.

And so it begins…this morning on CNBC

Top Apple analyst cuts iPhone shipment forecast by 10% due to coronavirus

About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.
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