Call it a “Tale of Two Jasons.”
In my professional life, I use the latest, greatest technology to run my M.A.P. stock-picking system. I have to, because of the massive stock-market data sets that I have to analyze every single day.
But in my personal life, I’m not one of those “early adopters” who always has to have the coolest new gadgets the moment they debut.
Like the iPhone.
I’m perfectly happy with my iPhone 12 pro, which is now three years old. In tech terms, that’s “two generations” old.
And, as of tomorrow – thanks to the annual Apple Inc. (AAPL) product unveiling – my trusty iPhone will be three generations old.
If you follow the iDevice king, you know these yearly product soirees live up to the promised grandeur.
To build consumer and investor intrigue, Apple even creates formal “titles” for these events.
This year’s is called “Wonderlust.” Given the clear connection with wanderlust, the buzzy influencers are speculating there will be some sort of unveiling that inspires awe and relates to travel.
Of course, the cynics (and capitalist purists) focused on the “lust” suffix – and Apple’s obsessoin with profits.
Whatever it means, Apple is expected to announce new iPhones (presumably “15”) as well as the new Apple Watch series and the next-generation Apple Watch Ultra.
I’d be hard-pressed to think of any product in history whose year-after-year releases stoke such euphoric anticipation – a kind of “must-see TV” in the gizmo realm. (One of my TradeSmith colleagues says his teenaged son “never misses” an Apple event – since he started tuning during his pre-teen years.)
A quick web search yields dozens of websites live-streaming or live-blogging the event. And we know the first “takes” will be out seconds after CEO Tim Cook’s spoken words have faded to silence.
This marketing and brand brilliance are one reason iPhones are Apple’s biggest revenue producer – by far. The genre-defining device brought in $205.5 billion in sales last year, more than half of the company’s revenue total of $394.3 billion.
There must be a way to make money off a product whose annual sales would make it the 55th-largest nation in the world, right?
There’s the obvious way (buy Apple shares).
And then there are the less-obvious – but potentially more profitable – ways to go about it.
Apple Is Just So Massive
To be clear: I wouldn’t discourage anyone from investing directly in Apple (AAPL).
The stock is up 1,000% over the last decade, is valued at nearly $3 trillion, and is probably held by almost every investor already – either directly in actual Apple shares, or indirectly via mutual funds or ETFs.
But honestly, that’s also part of the problem.
For shares to double from here, investors would need to value the company at an unheard of $6 trillion.
I’m not deeming that as impossible (after all, these same naysayers said no company would ever be worth $1 trillion, then $2 trillion and now $3 trillion).
But that path to $6 trillion won’t be traveled overnight.
My system gives AAPL a Quantum Score of 65.5, which is good. It’s not in optimum zone above 70 and below 90, but it’s good.
The technicals rate 67.6 – good, but not great. Shares are up almost 15% over the last 12 months, and pulled back last week over concerns that China might ban iPhones. Beijing hasn’t enacted any official ban. But state agencies and companies are reportedly telling workers not to bring Apple devices to the office.
The fundamentals are slightly weaker at 62.5. Sales and earnings growth are middle of the road – not surprising for a behemoth like Apple. Debt is higher than I like to see, and shares are a little pricey right now. The stock trades at nearly 30 times expected earnings, which is on the high side And at 47.3 times book value, they’re pretty rich by that metric, too.
And the third leg of the Quantum Edge stool is Big Money inflows. Because Apple is owned almost everywhere, there are often unusual buy signals on the stock. My system picked up 17 between February and July as the stock ran higher, but the last three years have been more of an up-and-down pattern of buys (green bars) and sells (red bars).
I wouldn’t sell AAPL shares if you own them. It’s a legendary company with unparalleled success.
But I also wouldn’t rush out to buy the stock right now.
Profit from the Peripherals
A better way to cash in on the Apple phenomenon is to invest in the smaller suppliers that ride the iWave.
This is the tried-and-true method of “picks and shovels” investing.
If you look back at the 1849 Gold Rush, most of the prospectors ended up broke. And the folks who made the most money weren’t always the gold miners.
They were people like Sam Brannan, the first millionaire of the Gold Rush, who made his fortune selling pots, pans, shovels, and picks to all the people looking for the gold. Or Levi Strauss, a name you probably recognize. He started producing a new kind of durable pants for miners – that we wear to this day – and struck it rich that way.
When you have a big trend, you can often find bigger profit potential among the suppliers.
I’ll give you an interesting one to think about; in fact, it was in the news today.
That supplier, Qualcomm (QCOM), said it will keep supplying 5G computer chips to Apple until at least 2026. That’s longer than most expected, as Apple has started designing many of its own chips.
Qualcomm is a well-known maker of modem chips that connect devices like the iPhone to mobile networks.
QCOM is flat so far in 2023, so it has underperformed many of its peers, technology in general, and the overall stock market.
As a result, its Technical Score in my system is low at 35.3, which drags down the overall Quantum Score to 55.2. But it gets much more interesting when you look at the surprisingly strong Fundamental Score of 83.3.
Sales and earnings growth are decent. The company’s 23.2% profit margin is quite good, and it carries lower levels of debt than Apple at an acceptable 44.1% of equity.
Valuation is an alluring 11.8 times future earnings. And the $15.8 billion market cap seems a lot easier to grow than the Mount Everest-like $3 trillion for Apple.
The weak technicals may be reason to not move quite yet, but today’s news and those strong fundamentals increase the odds that this stock will be higher 12 months from now.
Apple has a ton of suppliers– the list is 23 pages long (you can see it here) – meaning there are plenty of ways to profit using this indirect strategy.
The ideal finds are those with strong fundamental and technicals and Big Money flowing in. And if you can get them at a small to midsized market capitalization, that’s when you find your biggest moneymaking potential.
Tomorrow we’ll hear all about the snazzy new iPhone. And with the phenomenon it is, there are a lot of investing ideas that go along with it.
Jason Bodner’s Power Trends