Here’s our Club Mailbag email [email protected] — so you send your questions directly to Jim Cramer and his team of analysts. We can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries. This week’s question: I joined the Club this summer and picked up Apple as an “own it, don’t sell it.” stock. Since the fall, it has done nothing. There have been court setbacks. The new EU rules taking effect in January. Now the patent loss. What are the catalysts to keep this stock in my portfolio? — Thanks, Dave You aren’t wrong to call out a lack of meaningful near-term catalysts for Apple . The most concrete event of 2024 is likely the launch of the Vision Pro headset, but that’s not expected to do much in terms of sales or earnings — at least not right away. We could also see some kind of generative-AI update to Siri. Neither of these things are a reason to buy or sell Apple right now at the current price. However, the reason Apple is designated an “own it, don’t trade” stock is because near-term catalysts are less important than the longer-term trajectory. The issue isn’t getting out, it’s getting back in. Some companies are too strong and certain trends are just too powerful to be concerned with short bouts of volatility or periods of consolidation. If 2023 taught us anything it’s that the stock market will always surprise you. Did you see the Nvidia rally coming? Did anyone, given the earnings estimates coming into 2023? And if Apple’s history has taught us anything, it’s that the company always manages to find a way to attract new and existing customers alike. Apple’s stock is not the greatest performer because of market cap, but the market cap is a signature of its great performance as a company, one that comes in spurts and is often a laggard. One important caveat: While we wouldn’t look to exit Apple, we will still consider trimming the position after a sudden surge or because the position has gotten too big and is working against our efforts to maintain a diversified portfolio. At 5.6%, Apple’s position is starting to approach the 6% to 7% level we believe is too large for one name, even our winners. Discipline always trumps conviction. We think the best approach is to not worry too much about quarterly dynamics, and focus on the longer-term drivers of Apple stock. Here are three key ones: 1. Customer loyalty and the ecosystem. People love their Apple devices. Once get one, you tend to buy more because they all play well together, are instantly compatible out of the box and are all tied to your Apple ID. Each new purchase drives the attachment to the ecosystem deeper and raises the costs of switching to another product. The ecosystem viewed as a whole is a very powerful driver of repeat sales because once you’ve invested into it, you’re more likely to stick with it. You might changing from an iPhone to an Android is simple, but that’s a tough proposition when you’ve also got an iPad, Mac and Apple Watch — all of which are backed up to you iCloud storage and various service subscriptions. 2. All about the services. Services like Apple Music, TV+, News+, Arcade, iCloud, Apple Care and more offer up a high margin, recurring revenue stream that highly valued by investors – meaning they place a larger multiple on its earnings. As the installed base grows, so too does the gateway through which Services can be sold. As Apple works to increase its share in emerging markets (such as India) it’s actively growing the addressable market for its Services as well. This isn’t an instant event, so it’s may not be a “catalyst” per se but it is an ongoing process that should help growth the top and bottom lines over time which will in turn drive the stock. 3. Cash flow. This is the reward for all that customer loyalty and strong hardware and services offerings. Cash flow, a key factor that not only allows for a bulletproof balance sheet but also allows management the ability maintain their “net cash neutral over time” policy, meaning they’ll look to consistently return all excess — not needed for growth or innovation — cash to shareholders via dividends and buybacks. The buybacks in particular help drive earnings-per-share growth because year after year, Apple’s net income is divided amongst fewer and fewer outstanding shares. Put another way, if sales and profit margins were to be frozen at current levels with no growth in the future (not our expectation but hypothetically) we would still get some level of consistent earnings growth simply as a function of Apple pulling shares out circulation. That, in turn, would drive the EPS growth on which the stock is valued. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Apple Inc. MacBook Pro and Air laptops at the new Apple Inc. store inside the Starfield mall during its opening in Hanam, South Korea, on Saturday, Dec. 9, 2023.
SeongJoon Cho | Bloomberg | Getty Images
Here’s our Club Mailbag email [email protected] — so you send your questions directly to Jim Cramer and his team of analysts. We can’t offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries.
This week’s question: I joined the Club this summer and picked up Apple as an “own it, don’t sell it.” stock. Since the fall, it has done nothing. There have been court setbacks. The new EU rules taking effect in January. Now the patent loss. What are the catalysts to keep this stock in my portfolio? — Thanks, Dave
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