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AUGUST 2020 APPLE INC.

„Apple is currently the strongest GLOBAL GENERATOR OF MONEY not only in the Nasdaq stock index. Current developments and the current signing of supportive stimulus measures by US President Trump, which all traders have been waiting for God's mercy, are a harbinger of further rocketing stock prices for the company. It's time to shop and make money.“

„Our last year's and this year's analyzes of the company's shares perfectly estimated the growth potential of Apple's shares. The long-term fundamentals behind our expectations of stock price growth remain valid for this year, despite the pandemic, but it's good to know the main reasons behind Apple's continued stock rally.“

MEDIUM-TERM ANALYSIS FOR THE PURCHASE OF APPLE INC. SHARES

2020/08/18

Company introduction

  • Apple Inc. deals with the design, manufacture and marketing of mobile communication and media devices, personal computers and portable digital music players. The company's products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, iOS and Mac OS X operating systems, iCloud and a range of accessories, services and support. Apple Inc. is headquartered in Cupertin, California.

Apple Inc. currently

  • Apple's third-quarter 2020 fiscal strategy results reflect continued dynamics in the services segment driven by the robust performance of App Store, Apple Music, video and cloud services. iPad and Mac also contributed significantly to the quarterly results. IPhone sales recovered after the March and April fright, driven by strong demand in May and June, especially for the iPhone SE. Apple devices also continued to gain popularity among businesses, especially healthcare providers.

  • So far, Apple has focused mainly on the iPhone's flagship. However, the dairy cow is increasingly becoming a portfolio of services that includes revenues from cloud services, app store, Apple Music, AppleCare, Apple Pay, licensing and other services.

  • In fiscal year 2019, Apple's total revenues reached $ 265.17 billion. The company's flagship, the iPhone, was able to generate 54.7% of the company's total revenue. The services segment 17.8%, Mac 9.9%, iPad 8.2% and other products contributed 9.4%. Apple primarily reports revenue in geographic segments, including the Americas (North and South America), Europe (European countries, India, the Middle East and Africa), the Greater China (China, Hong Kong and Taiwan), Japan, and the rest of Asia Pacific. (Australia and other Asian countries). In fiscal 2019, revenues were 44.9% in the Americas, 23.2% in Europe, 16.8% in the Greater China, 8.3% in Japan and the rest of Asia, and 6.8% in the Pacific.

  • A hot topic in recent days is Trump's plan, with the president's already traditional reference to a potential national security threat, to ban the use of Chinese TikTok and WeChat applications in the United States. The executive order should be executed during September. This would probably hurt total Apple device sales in China, which analysts estimate could fall by 20-30%. Trump could not be mentioned on the one hand. The US president's long-standing resentment of Apple's "monopoly" in the United States is no secret. However, the question is whether Trump will really decide to take this step. ELECTIONS ARE COMING. Both applications are extremely popular in the states, especially among young people, including lower-educated white people, who have so far been Trump's backbone constituency. You just don't want to get them angry. All above to the mentioned the current President Trump is losing significantly to his opponent in the pre-election polls, even in constituencies that have long been part of the bastions of the Republicans.

  • Apple shares are reaching new all-time highs thanks to sales of the iPhone 11, stronger than expected and significant expectations for future sales.

  • Apple is an incredible money generator. No other American company can generate as much money as Apple. In 2018, Apple managed to earn $ 59.531 billion. In 2019, it generated a profit of $ 55.256 billion.

  • $ 280 per share or more? Analysts asked themselves such a question in the middle of last year. At the end of last year, the level of USD 360 per share seemed unattainable in the eyes of many. 400 - 450? Why not. Given Apple's current development and sales performance, the target range of its shares in the eyes of many analysts currently reaches $ 475-506 per share. Look for great sales, launch the Apple TV + platform or launch new mobile devices running on the 5G network. It is the launch of the 5G network that should be the main driving force generating profits in 2020 and 2021. 

  • Morgan Stanley's Apple stock growth estimate has long taken hold. At the beginning of this year, Morgan Stanley's growth estimates for Apple shares were among the boldest. However, no one expected this year's increase in the share price by almost 50% so far. The new Apple TV + video streaming service has been a significant benefit for the company since last year. Morgan Stanley analysts estimate that by 2025, Apple TV + could generate up to $ 9 billion a year.

  • Apple Pay on the rise. Apple Pay in the USA now ranks first in popularity among payment applications. It currently has 30.3 million users, an increase of 38% from 2018. According to an eMarketer report, up to 70% of retail stores in the US should be equipped with an ApplePay acceptance device this year.

Factors leading to the analysis of the continuing growth of Apple's share price

  • Small businesses rely heavily on Apple. The company makes iPads and iPhones that are crucial for accepting mobile payments, and it is the most valuable app store in the world. Whether it's an Apple device in your pocket or your store, the technical giant probably plays a big role here. Apple is a key player in the operation of small businesses, which can reach a wider range of customers through the App Store. With apps like Shopify, HubSpot, Square, Stripe, banking, email, and dozens of other apps you use every day, you can do business from your Apple device.

  • Apple services and Wearables (watches, bracelets, necklaces and / or dresses used to improve mobile phone control) are expected to grow at the highest fiscal year 2020 and beyond. Although Apple focuses primarily on the iPhone's flagship, the service portfolio has emerged as the company's new cash cow.

  • Apple currently has more than 550 million paying subscribers in its service portfolio. The App Store continues to attract the attention of leading developers around the world and helps the company offer attractive new applications that increase App Store traffic. The growing number of applications infected with artificial intelligence also attracts more subscribers in the App Store. The company's management now expects to reach its target of 600 million subscription users before the end of calendar year 2020.
  • Apple Pay, designed based on contactless payment technology (NFC), has already expanded to 49 markets. In 2019, Apple Pay welcomed the entry of more than 150 stadiums, ball parks, arenas and entertainment venues around the world with contactless tickets. In addition, users could travel by public transport in Shanghai, Beijing, Tokyo, Moscow, London and New York. In 2020, Apple will expand travel services to trains and buses in cities such as Washington, DC, Shenzhen, Guangzhou and Foshan. The growth of this segment is vehemently aided by Apple Watch and the iPhone. The warm acceptance of contactless payments, mainly due to the coronavirus pandemic, is playing cards for Apple Pay.
  • In addition, Apple Music has more than 60 million paid subscribers. This service offers more than 60 million songs. Every day in 115 countries around the world, thousands of playlists of the most popular music are created by leading music experts in an inexhaustible way. The new availability of Apple Music on Amazon Echo devices is expected to expand the iPhone manufacturer's reach over competing Spotify, which is currently the dominant player in the paid premium music streaming market.
  • Apple encourages developers to use artificial intelligence (AI) and machine learning in their applications to help developers recognize faces or animals in photos and analyze the meaning of texts. In addition, Apple has hired former Google head of research and AI (artificial intelligence) John Giannandrea to lead Apple's restructured AI division. In addition, the acquisition of new young companies such as Silk Labs is helping to increase Apple's expertise in this area.
  • Apple's focus on the autonomous vehicle segment and augmented reality and virtual reality (AR / VR) technology brings long-term room for growth. This segment is developing rapidly and presents lucrative business opportunities. In support of Apple, he acquired several smaller companies with expertise in AR hardware, 3D games and VR software. In addition, with its new offerings, Apple could also take advantage of the Internet of Things (IoT) market, which is expected to grow exponentially due to growing demand for connected / automated devices, appliances and cars.
  • Apple has a strong financial balance sheet and more than solid cash flows. Cash and marketable securities amounted to $ 193.62 billion as of June 27, 2020, compared to $ 192.84 billion as of March 28, 2020. The term debt as of June 27, 2020 was $ 101.56 billion, an increase of $ 99.56 billion. $ 48 billion as of March 28, 2020. In addition, operating cash flow increased $ 4.6 billion to $ 16.3 billion in the fiscal third quarter. Apple returned $ 21 billion to shareholders in the reporting quarter through dividend payments ($ 3.7 billion) and share repurchases ($ 10 billion). These factors make Apple an attractive stock for investors.
  • Streaming. The entertainment world is changing rapidly, and an increasing number of global customers want audio and video entertainment to be wirelessly delivered to their electronic devices. Although Netflix is the current leader in streaming, a large number of new entrants will significantly change the overall streaming environment.
  • Although Apple only started its Apple TV Plus streaming offer last year and its initial offering will be limited to its original production, the company has around $ 100 billion in cash and cash equivalents to help it (unlike some competitors) could afford to spend massively on new content without feeling much financial pain.

  • Major obstacles overcome. Apple has seen initial strong orders for the new iPhone 11s. The biggest problem with Apple (AAPL) in the last few months has been the perceived weakness in the launch of the new iPhone 11. Many analysts have suggested that users will be waiting for the iPhone 5G to be released later this year. However, encouraging initial orders for the iPhone 11 were able to eliminate a major hurdle for the technical giant to strengthen its cash machine position in 2020 and successfully fill the gap ahead of the iPhone 5G's release in 2020. Despite the possibly high price, Apple shares continue to enjoying the bullish outlook.

  • Surprise called iPhone 11. Digitimes data showed that orders for the iPhone 11 have been really strong since its launch. The main reason was that Apple finally managed to hit the right price. The key was that instead of adjusting prices across the board, Apple cut the price of a weaker phone by $ 50 while maintaining stable prices on high-end devices. What is important, according to Digitimes, is that 70% of the pre-orders received covered the more expensive Pro or Pro Max phones. The reason for the strong orders is also that the new iPhones include Apple TV + for free for one year.

  • Sales estimates. Last April, Samsung launched a new 5G model. However, it seems, and demand has suggested, that the market is still not fully prepared for the transition to the new 5G services. Apple wanted to launch the new 5G device earlier this year, however, the outbreak of the pandemic has postponed this date to September this year. It is obvious that the company's shares are suitably set for growth to new highs, until the eventual hype around 5G networks this year will trigger a mass avalanche and start a massive trend of replacing older models with new 5G iPhones.

  • Apple secured an exemption from the increase in import duties in exchange for maintaining Mac Pro production in the United States. In a June letter to a US sales representative (USTR), Apple warned the Trump administration that the increased tariffs "would lead to a reduction in Apple's US economic contribution and that the new tariffs would favor the playing field more in favor of global competitors." On this account, the company's management managed to secure 10 exemptions from the new tariffs out of the total number of 15 applied for, including various computer components and others. In return, the company promised to keep production of the new Mac Pro in Austin, Texas, instead of the planned relocation of production to China.

  • Emerging potential in India with huge opportunities! Apple plans to bring Indian customers to its Apple ecosystem. With its growing market, India has long been one of the company's goals, where it intends to succeed with its products. At the end of last August, the Indian government announced its intention to deepen the liberalization of foreign direct investment rules. This will have a significant positive impact on Apple's operations in India and, as a result, on the company's financial performance in that country. Indian Finance Minister Nirmala Sitharaman has announced the Indian government's decision to ease local sourcing rules for foreign brands, including Apple. Newly foreign-owned stores will be exempt from local sourcing rules on condition that they invest $ 200 million in the country. This opens up many possibilities for Apple. The launch of online sales of its flagships and the opening of the first Apple Store in Mumbai are among the company's set goals for 2020.
  • The World Bank expects the growth of the Indian economy to outperform developed and other developing countries in the future. According to analyst firm Eikon, the Indian economy grew at a year-on-year rate of 6.8% in 2018. By 2050, India is expected to overtake the United States and become the world's second largest economy after China. This expected growth of the Indian economy will lead to an increase in disposable income in the country, which will be a great opportunity for growth for consumer goods companies, including Apple.
  • Analysts expect the percentage of smartphone users in India to increase from 26% in 2018 by 2022 to 36.2%. The main reason for this projection is, as 10 years ago in China, the rise of the social middle class.
  • Apple's story in India is not just about smartphones. India is becoming a global economic power and companies from various industries are aware of this. The smartphone market in India will grow faster than in the rest of the world, and the OTT streaming market will grow faster than in other regions in the next 3 years. Thanks to the latest initiatives from the company, Apple is much better targeted for achieving strong results in India.

The company's results in the third fiscal quarter

  • The company's revenues exceeded analysts' expectations. Apple reported earnings of $ 2.58 per share in the third quarter of fiscal 2020, which exceeded analysts' consensus by 27.1% and grew 18.3% year-over-year. Net sales increased 10.9% year-over-year to $ 59.69 billion, beating analysts' estimates of 14.9%. Product sales (78% of total sales) increased 9.9% year-over-year to $ 46.53 billion. IPad sales of $ 6.58 billion jumped 31% year-over-year. It accounted for 11% of total sales. Mac device sales of $ 7.08 billion were up 21.6% from the previous quarter, accounting for 11.9% of total revenue. Service revenue (22% of total revenue) increased 14.8% year-over-year to $ 13.16 billion.
Graph Alibaba Group, source: Barchart.com

Potential risks

  • for Apple could be related to the ongoing US trade war with China, exchange rate fluctuations due to upcoming central bank meetings and subsequent dollar movements, or the decline in sales performance of these devices this year until the launch of the new 5G flagship. For this reason, it is good to take into account possible short-term fluctuations in the share price and possible testing of short-term support levels.

Hypothetical example - CFD on Apple Inc shares

  • Amount invested  50,000 USD

  • CFD stock contract type

  • Leverage 1: 5

  • Margin 20 % of the value of CFD stock

  • Price of CFD stock 437.50 USD (k 11.8.20)

  • CFD stock … price … 437.50 USD … margin 20 % … approx 87.50 USD

  • Target Price 1 … 457.60 USD

  • Target Price 2 … >457.60 USD

  • Support approx 418 USD

  • The target trading range for this year is 475-506 USD

  • With a full 100% investment, up to 514 units could be purchased at a margin of $ 87.50. However, under the unwritten rule of investors, the maximum amount invested should never exceed 50% of the investor's free funds.
  • In the case of the purchase of 1 CFD share on Apple, the movement of the price to TP at the level of 457.60 USD/CFD share offers a potential of 20.10 USD.
  • If 50% of available funds were invested and 257 CFDs were purchased, a price movement of $ 20.10 would increase the potential appreciation of the analysis to approximately $ 5,165.70.
  • However, in the event of a negative development and a decrease in the share CFD price to a support level of approximately USD 418.50 / CFD share, the same trade would mean a loss for the investor of 11.12% of the investor's total funds.

Please note that with regard to the size of the trading account and the size of the market, it is essential to adjust the size of the leverage and adjust the degree of selected risk accordingly. Trading CFD contracts and Forex is high risk and improperly set risk management can result in the loss of much or all of the investor's funds.

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