HSBC just put out a big warning to investors—it is time to sell Apple stock. The news comes as a bit of a surprise because the iPhone maker has been performing well this year and there have been rumors of a big new push into healthcare. However, HSBC says investors should get out of the stock because Apple’s new services business will disappoint. The bank summarized its view this way, saying “Services makes ecosystem more sticky but won’t necessarily enable Apple to recruit more consumers to iPhone … All in, we remain far more cautious on services than some of the numbers in the street might suggest”.
FINSUM: Not only does HSBC think the new services offerings will disappoint on the top line, but they think they will be lower margin too! It is hard to speculate how this might go, but we do think this transition to services will be harder than many expect.
Goldman Sachs says that Apple stock could rise 40%. The bank argues that the company’s shares have been unfairly punished because many consider Apple to be a hardware maker. This means that many think of Apple as a company that has little recurring revenue because it only sells devices. However, according to Goldman, its business is changing, with an analyst at the bank summarizing the change this way, “the focus will shift from unit growth (which is slowing given a maturing smartphone market) to installed base monetization and recurring revenues”. The article here says the company can increase its monetization in both hardware and services, including with iPhones, Macs, and Watches (hardware), as well as with iTunes, TV, Apple Pay (services). The piece points out that Apple, at 10.8x next year’s earnings, trades at a 30% discount to the average P/E ratio of the S&P 500.
FINSUM: It is amazing to think of the largest company by market cap in the world as undervalued, but this article makes a compelling argument as such. If the company can create long-lasting revenue streams through services, it is hard to see that as anything but bullish.
Warren Buffett has just doubled down on his investment in IBM, the legendary but embattled computers goods maker. Buffett previously owned 5.5% of the company, but he has recently increased his stake to 8.3%. Most analysts have a bearish outlook for IBM, whose core computer hardware business is faltering. The company is trying to turn itself around with cloud computing, security, and big data, but many are skeptical. The piece says that those who would buy IBM right now are classic “value” investors, or those who buy companies they think are undervalued by the market. IBM’s shares have been hammered in recent years, down 28% since Berkshire Hathaway bought it in 2011. Sales at the company have fallen for 14 straight quarters. The piece says Buffett believes that IBM has excellent financial management.
FINSUM: This seems a risky bet, but the piece says Buffett appears to really believe in the company’s management. Will be interesting to see if it pans out.
Source: Wall Street Journal
This Financial Times piece shows how foreign investors’ opinions, particularly large business within the country, will be a major factor in shaping Scotland’s economic future. Over 30% of the country is employed by major international businesses, which Scotland has been successful in courting over the last few decades. However, doubts about the country’s future are making such employers nervous, as the major aspect of their settling in Scotland was the country’s membership in the UK. This likely means that Scotland could see a flight of business and investment should it leave the UK. In fact, it has happened before. Tens of thousands of Scots lost their jobs after the dotcom crash, as major tech businesses, which had set up factories in Scotland to make hardware, pulled out en masse in search of cheaper manufacturing after the bubble burst. At one point, Scotland made fully one-third of all computers in Europe, and was dubbed “Silicon glen”, but that industry completely disappeared, leaving many worrying it will happen again.
FINSUM: This is a good piece for considering the economic implications should Scotland leave the UK. In some ways the country is more protected than in the dotcom era, but it is still a major risk.