Here are some things Apple investors should know.
Apple (ticker: AAPL) shares have gotten off to an uncharacteristically shaky start to 2021, down about 7% year to date. The past couple of weeks have been extremely eventful for Apple investors, helping clarify the 2021 outlook for the world’s most valuable public company. Apple held its annual shareholders meeting on Feb. 23. The company’s highest-profile investor, Warren Buffett, addressed his Apple investment in his annual letter to Berkshire Hathaway (BRK.A, BRK.B) investors. Loup Ventures analyst Gene Munster recently outlined several takeaways from the shareholder meeting. Here are seven headlines Apple investors should know from the last two weeks.
Apple is heavily reliant on China.
When asked about Apple’s Chinese supply chain at the shareholder meeting, Apple executives made a vague reference to the company’s commitment to contribute $350 billion to the U.S. economy. The answer was akin to a politician dodging a question. Munster says Apple may try to shift its reliance away from China over time, but investors should expect that change to happen at “glacial speed.” The good news for now for Apple investors is that President Joe Biden will likely not be as hostile toward China as former President Donald Trump.
Don’t expect any major acquisitions.
As of the end of 2020, Apple had a mind-boggling $195 billion in cash on hand. Some analysts and investors have called on Apple to use that cash to make a large acquisition. Last year, Rosenblatt Securities proposed that Apple should acquire Walt Disney (DIS). At the shareholder event, Apple management pointed out the company has made 17 acquisitions since 2017, none of which were blockbuster-level deals. Munster says investors shouldn’t expect a major buyout in the next few years given Apple is confident in its internal innovation. Sky-high tech sector valuations don’t help the case for a major deal in 2021.
Don’t fear the regulators.
One of the biggest overhangs for large U.S. tech stocks has been fears over antitrust crackdowns. Back in October, the House Judiciary Committee said Apple, Alphabet (GOOG, GOOGL), Amazon (AMZN) and Facebook (FB) are akin to “the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.” At the shareholder meeting, Apple management said the company doesn’t have a monopoly in any of the markets in which it competes. Munster says Apple has made proactive changes to its App Store policies to promote healthy competition and likely has little exposure to an antitrust crackdown.
More capital returns are ahead.
When pressed about Apple’s relatively modest 0.7% dividend yield, Apple management said it is planning to continue annual dividend increases. Apple announced a plan back in 2018 to become “cash neutral” in the coming years, reducing net cash down to $0. Since that announcement, Apple’s net cash is already down from $163 billion to just $84 billion, but the company still has a long way to go to hit $0. Munster says investors should expect Apple to continue its historical pace of dividend and buyback hikes when the company reports first-quarter earnings in March. Apple typically boosts its dividend by about 10% annually.
Stimulus spending is bullish.
At the shareholder meeting, Apple CEO Tim Cook opted not to speculate on the impact stimulus payments could have on Apple’s business. Munster says there’s no doubt the stimulus payments will have at least a “small benefit” for Apple’s business in 2021. However, he says that benefit is likely already reflected in the aggressive growth targets analysts have for Apple this year, including 21% year-over-year sales growth. The temptation to upgrade to the latest iPhone ranging in price from $700 to $1,400 may be too much for many Americans after they receive their $1,400 stimulus payments.
There are no major obstacles in 2021.
When asked about obstacles, Cook didn’t mention a specific challenge Apple faces in 2021 and instead praised the company’s employees for how well they handled the unprecedented challenges of 2020. Munster says the biggest threat to Apple investors in the near term is a prolonged market rotation out of big tech stocks. That rotation has weighed on Apple shares so far in 2021, but Munster says Apple’s “foundational position in the future of tech” and its reasonable stock valuation relative to peers make it an attractive buying opportunity for long-term investors on any significant pullback.
Buffett is still bullish.
Apple is Warren Buffett’s largest stock holding by a wide margin. However, some investors have been concerned that Buffett’s opinion of Apple is souring given Berkshire was a net seller of Apple stock in each of the past two quarters. Buffett shed some light on his Apple selling in his annual letter. He pointed out that Apple’s aggressive share buyback program has created a unique situation. Despite Berkshire’s selling, it now owns a larger stake in Apple (5.4%) than it did when Buffett last bought the stock in 2018. Berkshire’s current Apple stake is worth about $109 billion.
Seven takeaways from the Apple shareholders meeting:
- Apple is heavily reliant on China.
- Don’t expect any major acquisitions.
- Don’t fear the regulators.
- More capital returns are ahead.
- Stimulus spending is bullish.
- There are no major obstacles in 2021.
- Buffett is still bullish.
