My pal Stephen “Sarge Guilfoyle Sarge presented a persuasive case to buy Apple (AAPL) on Real Money .
And, admittedly, based on history, the shares of Apple have typically recovered swiftly from disappointments.
However, I am going to, respectfully, briefly offer the case of why I am not buying Apple.
1. By the company’s admission, the chip shortage will likely get worse before it gets better.
2. The same can apply to the availability and cost of over components.
3. Margin pressures are likely to persist for the next two quarters.
4. Should the supply-chain issues not get resolved, not only will sales be weaker and costs higher — but iPhone unit sales will be lost and not deferred — as we move towards the next iteration of the product.
5. Apple is expanding its buyback. But, with the share price elevated, the marginal return on the invested capital of a buyback is diminished. Ergo, the company has to buy more stocks to get the same impact on EPS.
6. The high end smart phone market is sated — it represents almost 50% of Apple’s overall sales.
7. Should the consumer pullback in a decelerating economy, the already high cost of Apple’s iPhone could dent demand relative to expectations.
8. The services business prospered modestly relative to expectations as the company’s installed base expanded, but, at this point, who doesn’t know the services story?
9. Given the discussion on the conference call — the next few quarters are uncertain — the stock may become a source of funds as investors see no reason to rush and grow impatient. This could be particularly true if the market ever corrects.
10. Who is left to buy?
(This commentary originally appeared on Real Money Pro on Oct. 29, 2021. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass’s Daily Diary and columns from Paul Price, Bret Jensen and others.)
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