On Tuesday, March 2, The Street’s Jim Cramer had a conversation with Katherine Ross about what he was seeing in the markets that day, following see-saw action that started with Thursday’s selloff. One of the topics of conversation was Apple.
Today, the Apple Maven analyzes three key points made by Cramer in detail and offers its own take on each of them.
Takeaway #1: beware the market headwinds
Jim Cramer made one important point, right at the start of the segment:
Jim’s point here, as I interpret it, gets to the root of sector rotation. Since the end of 2020, with the end of the US Presidential election and early-stage rollout of the COVID-19 vaccines, the market has been ditching mega-cap growth in favor of small-cap value. The trend has persisted in 2021, so far.
I agree with Mr. Cramer here, and I believe that softness within the broader Big Tech group is one of the most significant non-company specific risks of investing in Apple today. The stock could spin its wheels on the back of poor investor sentiment, even if the company continues to deliver solid financial results in the next couple of quarters.
But this would be a good time to remind readers about the adage, often repeated by Jim Cramer himself: Apple is a stock to own, not to trade. Given enough time, sometimes years, buying shares of the Cupertino company when they are off their highs has resulted in the best annualized returns – even if the short-term ride might have been a little bumpy:
Takeaway #2: stores don’t matter
Jim moved on from the market-wide forces, and offered his take on Apple having reopened all of its US-based physical stores for the first time since the start of the pandemic, in March 2020:
Here, I agree only partly with Jim. Yes, Apple pulled off an amazing year of results, despite the pandemic challenges, on the back of the company’s online stores.
A good case study is India. This market has been underexplored by Apple. It represented only about 0.7% of total company fiscal 2020 revenues. Then, in September of last year, the online store went live in the country.
What happened next was impressive: the business doubled in size in the 2020 holiday quarter. Credit can be given, in part, to Apple’s digital channel.
But at the same time, the shutdown of brick-and-mortar stores can be highly disruptive – maybe not as much in the US, where online shopping is most popular. At the very least some services, particularly Apple Care, have been suffering greatly from closed physical locations.
In fiscal third quarter, CEO Tim Cook blamed lower-than-expected sales in items like the Apple Watch to store closures. Clearly, there is a bullish case to be made for the reopening of the economy and of Apple’s retail channel.
Takeaway #3: buy on the dip
Lastly, Cramer wrapped up his views on Apple stock by offering the following bullish statement:
I also think so, even though one strong day last week cut by one-third the stock’s decline from the all-time peak of late January, thus trimming the outsized opportunity that existed until recently.
Still, Apple is a company with robust fundamentals and a stock whose valuation keeps bouncing off a floor of 33 times earnings (see chart below). For as long as shares trade near those levels, which they currently do, Apple is likely a buy-and-hold for the long term.
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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)