Welcome everyone, thank you for joining.
And today's video we're going to be talking about Apple, Apple's
a company that right now trades at one.
Sixty one point nine per share. So about a hundred sixty two
dollars per share and apples. A company, a stock that is going
to be trading at $250 per share, according to Gene, Munster, he
is an apple analyst. This type of change from 160
currently to 250 would be around 55% upside.
So That's a significant amount of upside.
Now he believes this is going to happen over just the course of
the next year, or so, and Gene, Munster, so far has been pretty
accurate with his predictions on Apple.
So, in this video, we're going to look at an interview with
Gene Munster. We're going to react to what he
has to say. You went on the CNBC, and
explained his thesis for it. I'll share my thoughts along
with what he says, as well as my thoughts on their latest event.
Apple just recently had their Peak Performance Event, where
they launched a few new products, they have their new
chip, the M1 old Which is this massive chip that, of course,
has these incredible specs with it.
They have the Mac Studio, the studio display, they have a new
phone color for the iPhone. That's is kind of cool green.
They have a new starter iPhone that has actually their best
iPhone chip in it. So overall we have a lot to get
into, we're going to go over apple as an investment.
The potential upside, the potential downside and why I
continue to hold this company. Even though I'm significantly in
the green on it, I've already made good gains on it, but I
continue to hold it and I plan on On explaining why.
Now, as always before we jump into Apple in the analysis,
there I have to give a quick portfolio update.
This is my tech portfolio called the story fund and I give
updates on this transparently every single week week by week.
So if you subscribe to the channel, you can follow along
with the progress of this portfolio completely transparent
on a weekly basis. The reason I do that is because
so many content creators, don't really show transparency.
They don't show what they're doing.
They don't show their Investments and how they're
really performing. They just give generic advice
and the only highlight Their Investments when things are
going well. So, on this channel, you see the
full picture. You see, when we're in the red,
you see, we're in the green and everything in between.
So I'll continue to give updates, you can subscribe and
follow along for free now. So far right now, the portfolios
in the red overall by twelve thousand one hundred dollars, so
it looks really ugly. But just today, we're up for
thousand dollars three point nine percent in the green.
So we're having a very good day and if we have more of these
type of days, where the the bear Market kind of comes to a Close
and we get back into bullish mode.
I think a lot of these companies will really take off, that's
kind of what I'm waiting for. So, in the meantime, I'm waiting
patiently. Now if I Benchmark this against
the S&P 500, my portfolios, the blue line and the S&P 500 is a
red line. So you can see a couple months
ago when the the real correction and bear Market really started
to happen. Both of them traded down, but
tech companies, got hurt more. Now, just to further illustrate,
how difficult it's been to pick different tech, companies to
invest in recently, Look at the depth finder, which is a tool I
developed for Patron members. You get this included as a
patron. This shows you, if any companies
in a dip or in a price surge, if the bar is below the x-axis, if
it's below zero like twilio hair and Spotify and Facebook, that
means it's in a dip and the lower, the bar, the bigger, the
dip. So Facebook is 42 percent below
its 200-day, moving average. Now, if we look at every single
company in the story fund, all of them are in a dip Cept for
one. There is one exception which is
Apple. This is the only company that's
above its 200-day, moving average out of every single one
that I'm investing it. Most of them are in a dip and
most of them are in a significant dip.
So, looking at this overall, the market environment isn't one,
we're going to be doing well investing in tech companies.
It really doesn't matter what you pick, so if you're a tech
investor or you have a tech portfolio, you just have to be
patient. You have to wait until the fear
turns, to Greed, until these companies start to get back in.
Pull mode, investors, become bullish again and the price is
eventually will go back above their 200-day moving average.
There will be bullish sentiment eventually with these companies
but in the meantime, you have to be patient and that's what I
plan on doing now. Let's go ahead and move on to
Apple like I outlined. Apple is one of the few
companies. In fact it's the only one right
now that's not currently in a dip.
In fact if we look at the past five year performance of Apple,
it's been pretty incredible. It's up three hundred and sixty
six percent. You've Over three times your
investment three and a half times over the past five years
and that's excluding dividends, which apple pays dividends the
entire time. So factor that into the
compounding, your returns are even better.
Now, a lot of people, look at these type of graphs and they
say that the company's done so well, it's already done so.
Well, it's already at such a high stock price 162 after their
stock split, the market cap is two point six five trillion
which is just an in comprehensible number, the gains
are probably behind it, right? Apple doesn't have.
Much upside left. Well, that's what we're going to
examine how much upside does Apple have left.
Because over the past five years is returned three hundred and
sixty six percent. But if we look at Apple right
now, if we go into this company, we can look at some of the
fundamentals here and evaluation Apple only trades at a 27 PE
ratio. So even though the stock has
gone up multiples, three or four times over, just the past five
years, it's still trading in the mid-20s P/E ratio, and that
seems pretty incredible the valuation.
Is somewhat reasonable for a company that historically has
absolutely crushed the market. So apples are two and a half
trillion dollar market cap company.
It trades at a mid 20s PE ratio. And in my opinion, it has a
solid mode, but looking at Future growth and how this
company is going to continue to give shareholder value.
That's the big debate. And one person that I like to
get his perspective on is Gene Munster.
Who's an analyst at covers Apple.
Here's a recent interview. He did on, CNBC, check out some
of the key highlights from today's Apple event, Tim Cook
announcing a new budget iPhone, New iPad Air, a brand new Mac
featuring apples and one, Ultra chip.
And a host of new colors for the iPhone 13.
But the big event failed to woo. Investors Apple finishing more
than one percent lower, its fourth straight down day for
more. Let's bring in one thing I'll
note is, rarely do I see Apple stock just sore after an Apple
event? It always takes time for
investors to realize what's going on for whatever reason.
I never see them loud after an event in Apple stock soaring
upwards. In fact, usually Apple stock
moves up like A couple months after an Apple event Loop
Ventures, partner, Gene, Munster Jean, I don't know, it didn't
seem that exciting. Any of these things that seem
kind of iterative, I mean, the chip is a kind of exciting, but
other than that, it's a big deal here.
Melissa just to put into perspective.
It may be constructive, is today we're talking about 5 to 10% of
apples. Business is being upgraded that
compares to their fall event were 50% of the business gets
upgraded. So by definition, this is going
to be a smaller number of the products, and I think if we look
at the products across the board, the iPhone SE it, is it?
Or if it's a small upgrade but it is a price increase.
I think that is a critical piece here that's getting missed by a
lot of investors for them to actually Is price and their
entry level product. I think it sets the tone for
what their product demand is. It's still really hard to get a
hold of Apple products. Ultimately, so I think that's
one of the going to be one of the big drivers here.
Going forward is what the supply availability of these products
are. And I think another piece that
gets lost is they keep delivering despite all these
headlines. They keep coming up with these
great products. Despite the fact that they've
been working remote supply chain issues, and I think that that is
probably the most important takeaway here, is that
ultimately Lee, they continue to be the gold standard when it
comes to putting great products out and I think again you're
right five to ten percent of the revenue doesn't catch investors
attention, but I think it's important that they just step
back and collectively. Look at the body of work that
Apple continues to put out. So, he mentions that Apple,
still delivering, they're still doing the same thing, they've
always done. They don't fall off because of
logistics because of working at home, and they also continue to
have pricing power. They raise the prices of the new
lower end iPhone by 8%. So apple is one of the companies
that inflation goes up 5% 7%, no problem.
They'll raise prices a percent, it's no big deal for Apple, they
have enormous amounts of pricing power.
Now, the next thing that Gene goes over is the Fifty dollar
price Target and here's this breakdown of how he gets there.
It is 250. It seems like a stretch case
here but I want to kind of anchor back that if you assume a
32 multiple on what I think that they're going to earn next year
called 720. You get to that 250, their
current multiple is about 25 x. I think to go and campaign for a
higher Tech multiple in this environment seems like I am out
of touch, but I do believe that if we, Fast forward three, six
twelve months from now. Assuming we do get through many
of these headaches, I think that we will see multiple expansion
and I I want to pause on that point.
I think you just said a 32 multiple on Apple's earnings.
That's how he's basing that price Target off of next year.
32, multiple sounds insane to me.
I actually do. Think this does sound a little
bit crazy Apple's trading at a 27 Ford PE ratio, which many
investors think is already very high.
They look at Apple five years ago and they go.
Hey, five years ago, the multiple is like 15 or 16.
It's trading at 27, so apples really overvalued.
Now, now they're not factoring in all the the changes that
Apple has done over the past five years, expanding their
mode, expanding their margins. You know, doing all their
subscription business, launching a ton of new products but either
way, the multiple has expanded from a 16 17 to 27 and jeans
arguing. Now that the multiple is going
to continue to expand from where it is at a 27, all the way up to
it. 32. Now to me that does seem like a
little bit of a stretch, a 32 multiple on Apple, seems a
little bit excessive but let's go ahead and hear him out.
I think what it all keeps coming back to Karen is that that 250
number is really predicated on what we're seeing today is
Apple's ability to continue to put out great products if they
do that upgrade existing products come out with new
products and enter new product categories.
I feel that this is going to continue to surprise investors
on the upside Not only with earnings but also multiple
expansion. Jean announced Major League
Baseball at some point there will be baseball.
I think we all can agree on that but the Holy Grail here is
National Football League, does that get them closer to the NFL?
It does and just to put some perspective around, this is it
is the Holy Grail NFL. Major League Baseball is about
comparable in terms of advertising Revenue versus the
MBA. And when you think about the
opportunity with the NFL, I think that that's definitely on
the table here and I would put it this way, there's a high
probability I would say greater than 75 percent.
In the next one to two years, we're going to see a deal with
Apple and it's this simple, is that content continues to be
king. Apple is going to spend about 10
billion in content this year, Amazon, about 15 Netflix about
20. And I think that the biggest
opportunity for them really to continue to activate a base of
pain Subs is through the NFL and I'll put a little teaser on
there too. I don't think they're going to
stop at the NFL two to three years now I think that they're
going to do Formula 1. It's a sport that I don't watch,
but a lot of people do and it's another example, I think of how
Apple can continue to expand Beyond baseball.
Football and other sports. Do you see what Gene is actually
doing here as an analyst? I think this is why he stands
apart from a lot of other analysts, most analysts are
looking quarter to quarter. They look at what the earnings
are going to be next quarter, and then they do a basic PE
ratio based off of that. That's how they value the
company. But jeans looking 56 years out,
he notes that Apple's getting into sports and this is likely
to continue because Apple has infinitively Deep Pockets.
They have major league baseball. Now, they have that on AppleTV
Plus on top. Perv a growing library that
started off small and kind of as a joke, a lot of investors scoff
at it, but a growing library of TV shows and movies.
They have a lot of content on there.
Now, that's continually growing. They're going to go for NFL.
He says there's a 75% chance, they will have some agreement
with the NFL over the next two years.
Then he doesn't think they're going to stop there.
He thinks they're going to be doing Formula One racing and
other events on it. I think apples going to continue
to grow their Apple TV plus service far.
More than investors are Giving it credit right now.
Apples, one of these companies that I think is the long-term.
Compounders the companies that have one Revenue generator that
seems extremely stable and solid that they can rely on with
apples. The iPhone, they have the iPhone
that they can continue to sell. Make tons of money from that can
shovel that into content and now grow a streaming service and
bring in a whole new type of Revenue.
It's not going to be perfect when they started.
Apple TV plus is way behind Netflix or you know Disney or
anything like that but it will grow.
Time. Ten billion dollars goes a long
way. 15 billion dollars for Amazon goes a very long ways.
So these companies are going to continue to compound.
Now, I want to highlight one last part of this interview and
just share my thoughts on what Gene says here in the second
piece related to interest rates, going up in the impact on
valuation. Is, they can manufacture higher
earnings through BuyBacks. So Jean says that Apple can
quote manufacturer earnings through BuyBacks.
They can literally create whatever earnings they want.
Well, how exactly does that work?
Let's go ahead and look at it. First of all, we have to know
that apple is the most profitable company in the world
by a landslide. None of them even come close,
for example, we can look at Apple's most recent quarter and
they had forty four point one six billion dollars of free cash
flow. That's the last quarter forty,
four billion dollars in free, cash flow and 1/4 the low
quarters, sixteen billion dollars, 19 billion dollars.
These are like the high quarters for Microsoft.
So apple is an enormously profitable company.
Unlike we've seen in any A company with all of this free
cash flow. Apple uses it as a weapon to
grow their earnings per share. Now, how do they accomplish
this? So to really understand this, we
have to go back to the basics and I know you probably know
this but let's go over it just in case the earnings per share
is the amount of net income as the numerator divided by the
amount of shares, its the earnings per share.
It's a basic formula. Now in most people look at
growing earnings of a company. They look at growing the net
income. That's the thing that they focus
on the most You gotta grow the net income to grow the earnings
because that numerators the most important part you want to grow
the earnings of the company grow the net income.
That's not really accurate. Another way that you can equally
grow their earnings of the company is by reducing the
denominator. So the earnings are / less
shares outstanding and the way that you reduce that denominator
is by getting rid of shares, reducing the amount of shares
outstanding and that is something that Apple is very
good at if we look at their shares outstanding over time,
this graph is a little bit disappointing.
Evening because it includes stock splits.
So when Apple did their stock split in 2020, that's not the
solution, they're not diluting the shareholder, they split the
stock. But then you also notice the
trend hair every single quarter, quarter over quarter, Apple
reduces the total amount of shares outstanding and again,
going back to that formula. When you reduce the denominator,
the amount of shares that it's /.
It increases the earnings per share some quatrain, we can see
that apple is aggressively doing sure BuyBacks.
You can see this trend over time 16.9, 16.8 16.6, 16.5.
This is in the billions. So they're buying back hundreds
of millions of shares. Sixteen point, four billion
sixteen point three billion every single quarter, buying
more and more shares back. Now when you zoom out even more,
here's a graphic of what this looks like.
Over a bigger timetable. It is incredible.
Apple is literally devouring their share count.
They're reducing that denominator so much.
They're eating up so many shares.
That the earnings have to be divided by less shares
outstanding and the EPS continues to Rock It Up.
So this earnings per share growth can be manufactured and
Apple has just the right tool to manufacture it, which is an
endless stream of free. Cash flow will continue to buy
back, their shares aggressively increasing their EPS.
Now, our share BuyBacks, always appropriate for every company in
every situation. Of course not.
In fact, share BuyBacks won't save a company that's clearly
going into decline, but company. Has lowered Revenue over time.
They're not growing the revenue, but it's going down.
If they have lower net income over time.
If they have increasing debt over time, but they're just
doing share BuyBacks. That's not going to save the
company. It's not a save all for every
company. So in apple situation every
other metric is going good, they're growing the revenue,
they're growing their Eva, they're growing, their free cash
flow, their debts, completely flat, it's not growing over time
and they're growing their dividends but they're also doing
aggressive share BuyBacks. So in this situation share by XR
a very good tool for Apple to use, to continually grow their
earnings over time as they do share BuyBacks.
You own more and more of the company because you're not
splitting it with so many other shares.
So every share that you buy and hold becomes a bigger and bigger
portion of the company. Now, we'll Apple get all the way
to that 32 Ford PE ratio. Well, the multiple expand that
much will the company go to 250 dollars a share?
I don't know. I really have no clue.
If the multiple is going to expand that much.
But with apple in the situation they're in right now.
The ability for this company to manufacture its earnings through
share BuyBacks. The list of products are coming
out with and the potential long shots of the Apple car of AR and
VR, all the new stuff that they can build.
There is no way that I'm selling this company and locking in
gains at a 27, P/E ratio. No way I'm taking games right
now. This in my opinion is a
long-term compounder. I don't see any reason to
believe that the compounding is done and in my opinion, this is
one that I'm probably going to continue to hold for the next
five to ten years. So that's my thoughts.
Overall, I hope you enjoyed Little ketchup on Apple and I'll
see you in the next one. Little ketchup on Apple and I'll
see you in the next one.