Apple heads into a crucial earnings report Tuesday following a four-month slide that has shaved about 33 percent off the tech giant's share price. Since those Oct. 3 highs, a series of disappointing iPhone sales numbers, geopolitical worries and a lowered revenue outlook to begin 2019 have shaken some investors' faith in the once-indomitable tech behemoth.
Five experts weigh in on how to play Tuesday's numbers:
• Tengler Wealth Management's chief investment strategist, Nancy Tengler, said Apple is about to find its support level, which means that help could be on the way. "Right now I think you buy it cautiously. You don't buy your entire position, you ease in over time, you wait for that dividend increase to boost things further, stock buybacks," said Tengler. "Other investors will step in as it's clear, as the transparency comes through as to how Apple's going to manage this change." According to Tengler, that change could look a lot like what Netflix has built its recent success around. "I think they just might take a page out of Netflix's book, and build in subscription services with hardware purchases, and I think that may solve some of the slowdown in hardware purchase."
• Steve Grasso, director of institutional sales at Stuart Frankel, leans quite a bit more toward the bearish side of expectations. "Apple was a huge headwind to the overall market, along with [Fed Chairman Jerome] Powell. … The truth is China growth went from 10 percent to cut in half basically, and we don't really know what that level is, but I'll tell you this: It's not higher than 6 [percent]," said Grasso. Since China is a huge part of Apple's manufacturing and sales platforms, the continuation of worrying signs coming out of what has been a high-growth economy in recent history does not bode well for Tim Cook's company. "Headwinds are extreme, and Apple's headwinds are probably more than most," said Grasso.
• Palisade Capital Management's chief investment officer, Dan Veru, said that, in a huge week for tech earnings, Apple is the name to watch. "It's got to be all about Apple, because that's going to set the tone for all of technology, the entire ecosystem, the entire supply chain. You've had a huge rally back in the semiconductor space, which is very interesting to me. … That sector was the first sector where we saw weakness in early summer. That's where we started to see the decay begin, which metastasized into an early growth scare as we got into the late fall," explained Veru. But it's not all doom and gloom. Even though Apple, as a leadership stock, points toward a bearish path forward right now, it could also be a leading indicator of a broader tech turnaround. "I think, similarly, that's been the area where we've seen tremendous leadership. So if we see further evidence that a dominant player like Apple is — at least, certainly the expectations are quite low — it's really going to be what they say on the guidance."
• Since Apple has indicated that it will no longer be disclosing unit sales in its earnings reports, D.A. Davidson senior research analyst Tom Forte said he'll be looking for a couple of different things from the company this quarter. "Given that it looks like unit sales were weak in the quarter, what are they going to tell us? For example: to what extent was it limited to the [iPhone] XR among the devices?" asked Forte. Coming up, he sees two major developments that will govern Apple's future. "Looking ahead to the future, on a near-term basis, what does the March quarter look like, and then longer-term, what are their plans to divest away from their overexposure to the smartphone? I would argue weakness in China and weakness in iPhones is priced in, and to some extent, weakness in the March quarter is already priced in," said Forte. So how does this affect the numbers we'll see after the bell on Tuesday? "I think we'd have to see something really ugly out of China, or on iPhones for the stock to be under more pressure after they report earnings."
• BTIG managing director Walter Piecyk is also mostly looking past unit sales as a way to measure Apple's quarter. "They haven't grown iPhone units for three or four years now, so it's not like it's a new phenomenon that they haven't grown units. Obviously they've leaned heavily on increasing price to drive some amount of revenue within that segment, particularly over the past year," observed Piecyk. Looking forward, he's expecting the China aspect of Apple's problems to take a couple of quarters to digest, but he's relatively bullish that the company will be able to recover down the road. "In a year's time, you can look out to, maybe, some low-to-mid single-digit growth with some share repurchase taking that to 10 percent earnings growth, and maybe the stock can then recapture some of the sell-off that it's had in the P/E multiple, which is about a 25 percent discount to the market."
