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Market Minute – April 24, 2013

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Apple Earnings Release

It is impressive how the market can fixate on a single stock.  Apple has been that focus for a few years now – on the way up and on the way down.  And while I rarely focus on a single company given the diverse nature of our investment strategy, Apple is as much a mainstream news event as American Idol.

Last night Apple released their earnings from the past quarter (their Q2), and gave some guidance for the next quarter.  While there has been a tremendous focus on Apple’s “lost mojo,” they actually did extraordinarily well – selling 37.4 million iPhones in the quarter – a small gain over the same quarter last year.

That fact is huge.  Despite the bad press, the cratering stock price, and the onslaught of competition from Samsung, HTC and others, people still want Apple products in record numbers.  The distorted market perception ignores the global diversification that Apple accomplished last year.  Now two-thirds of their revenue comes from abroad, attributable to the fact that they expanded into over 100 new phone markets in 2012.  To emphasize the appeal of their products, iPad sales increased by 65% over the same period.  Not a small feat – and one done extremely well.

To give you a little context, iPhone and iPad sales combined to roughly 57 million units for the three-month quarter.  That translates to roughly 26,000 sold every hour of every day, or 440 units per minute.  Given an average selling price of $612 for the iPhone and $449 for the iPad, that is stunning demand for a premium product.

The downside is that Apple will not have any new phones, pads or game-changing products for at least another four months – an eternity in the minds of stock traders.  But in my opinion, that is fine.  What Apple has done thus far in logistics and supply-chain in unprecedented.  To wait and build that supply-chain for the next wave of products over the following year is perfectly acceptable for a long-term view of maintaining the world’s most valuable brand.

Consistent with this philosophy, and solidifying the slow-growth nature of such a large market footprint, Apple is radically changing their balance sheet structure to be more friendly to value-based investors.  It is well overdue – this should have been done last year and created a wicked backlash from investors – but the changes are good ones. First, they boosted the dividend to a 3% yield.  Second, they increased their stock buyback by $50 billion, reducing the stock float by 15%.  And third, they will bring debt onto the balance sheet for the first time in decades.  All of these changes have the net result of increasing the value per share, flowing cash to stockholders, and lowering the stock volatility in the long term.  In short, they will now be a value stock.

Unfortunately, Tim Cook and Apple’s culture took many missteps before getting to this point, and the stock has suffered mightily.  Some of those missteps were addressed last night.  Next is execution on the business strategy and the ability to create new and exciting products – and that again is where time will tell.

Regards,

David B. Matias, CPA

Managing Principal

Market Snapshot – Volatility is Back

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Market Snapshot – August 5, 2011

Volatility is Back

Not unlike the summer of 2010 (or the summer of 2009, or 2008, or 2007), we have seen the markets go back onto the roller coaster.  While the reasons are disconcerting, and the prognosis is still uncertain, we are well positioned to ride through the volatility.  In a brief snapshot of events this week:

 

  • The broader U.S. market lost all of the gains for the year and slipped into negative territory.  When this “slip” occurred on Thursday, it helped to fuel an extensive sell-off late in the day, resulting in nearly a 5% drop by closing.
  • Bond prices have mostly held steady.  Investment grade bonds are up, while high-yield markets have shown a little slippage.  Nothing to cause a disruption in either direction, except for the temporary spike in Treasury prices and the commensurate drop in rates to extreme lows.
  • Gold screams ahead – a traditional safe haven.
  • Individual stock prices have shown more volatility than the index.  Basic names such as Dow are getting hammered, while Apple has retained its short-term gains based on their recent earnings release.
  • The S&P is trading at 12-times projected earnings, well below the historical mean of 16x.

 

The roots of these events, however, are not so obvious:

 

  • The debt-ceiling debate, while resolved for the time being, did serious damage to the national psyche.
  • The debt reduction measures, incorporated into the debt-ceiling legislation, will reduce our overall productions by 1-2% per year based on estimates.
  • GDP growth in the first half of the year was anemic (<1%).
  • All combined there is a real possibility that we could enter a recession again.

 

Through all this, we have not heard from the Federal Reserve Bank.  While Congress is unable to discuss any stimulus given the political climate, the Fed is free to act independently.  Most likely, if there is a serious threat of a double-dip recession they will again act to inflate asset prices through a variation of QE2.

Our portfolios have fared well in this environment.  We took several steps over the past three weeks to hedge against this situation: raising cash, lowering equities and selling potentially volatile bonds.  All of these steps are important to buffer against losses and now we are well positioned to increase positions at some very attractive prices.  The challenge, of course, is to find the bargains that will retain long-term value.

Our work continues.  But in the interim, I want to emphasize that we have stayed ahead of this correction while keeping options open to us.

 

Please write or call with questions.

 

Regards,

 

David

 

David B. Matias, CPA

Managing Pricipal

Vodia Capital

S&P 500 Q2 Sales and Earnings

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As a follow-up to my post from a couple of weeks ago I want to update you on Q2 2010 S&P 500 earnings season. As you can see in the chart below, the sales and income growth are consistent with what we saw in my earlier post.  Sales growth is a healthy 9.14% and earnings growth is a stellar 41.81%.  Companies are doing better than a year ago, but are still holding back on expenditures and hiring.  As we move into Q3 it will be harder to have such impressive growth unless we get some certainty in the economy.

Summary of Q2 2010 S&P 500 earnings

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July 12th kicked off Q2 2010 earnings season and I wanted to share some brief information and statistics of the earnings reported so far. Earnings season can prove to be a very volatile time depending on how investors read the data. Many times the market will run-up during announcements and then fall back down to where it was once the hype is over. Investors need to be careful when looking at headline numbers on TV and to always put the numbers and stock price in perspective. Just like most economic data, earnings numbers are old and the market likes to look out 3-6 months. Many times it’s not even about the earnings, but what the CEO or CFO have to say about future quarters. Also, keep in mind that the earnings reported are quarterly, year over year comparisons. Remember how bad things were back in Q2 2009? Now that I have all that out let’s get to the statistics.

Only 15% of companies have reported earnings(75 of the 497) and a large amount of those have been Financials(28%), Information Technology(19%), and Consumer Discretionary(13%). These sectors were beat up last year and although the rebound is expected, it’s nice to see them recovering. Many sectors such as Health Care, Telecom, Consumer Staples, Energy, and Materials have not had many companies report yet, but I think the trend will be about the same.

Overall, we’re off to a great start with total sales growth of 9.41% and earnings growth of 58.83%. Earnings continue to be great as most companies have cut their workforce and slowed expenditures while they wait for more certainty in the economy. The sales growth rate has been getting a lot of attention in the news because it is not higher, but I don’t think 9.41% is that bad. Companies are showing signs of increased sales, but just not as much as some were hoping. As we continue to see earnings over the next few weeks I will update you on where they stand.

Marcus Green