The stock market is in knots this week. The trade war between the US and China is increasing in intensity even as the two sides negotiate. This morning it hit a new peak as Trump hiked tariffs on $200 bn on Chinese goods. With the trade war looking more likely to continue, Goldman Sachs has recommended what it says are the best stocks for an all-out trade war. The general idea from David Kostin’s team at GS is to buy service firms, which are less exposed to tariffs and have better corporate fundamentals. Here is a list of the companies in Goldman’s selection group: Facebook, Visa, Bank of America, Walt Disney, Home Depot, Netflix, McDonalds.
FINSUM: This is an interesting mix of large and mega caps and we agree with Goldman’s simple, yet compelling thesis.
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.
In what could be a major development for super power Apple, it was reported yesterday that the company was inching towards “Apple Prime”, or some sort of bundled service model similar to Amazon Prime. The company may combine news, magazine articles, and television into a single bundle. Some analysts say Apple needs to increase its service-based revenue, such as that built on monthly subscription fees, in order to continue to expand.
FINSUM: If Apple wants to keep growing at 5%, it needs to add the equivalent of a Fortune 200 company every year. That is a huge revenue goal, and this could be a way to do it.
Here are two simple pieces of math: firstly, Apple is currently valued at around $800 bn; secondly, many analysts expect it to rise by 25% in coming months. That means many on Wall Street see Apple becoming the first $1 tn company. There appear to be three key factors which could propel the stock to $1 tn. These are the prospect for higher iPhone prices, increased profitability as “services” become a bigger part of the company’s performance, and more share repurchases. Apple is already the first company worth $800bn. To put its size in perspective, consider that it is worth approximately 60 Twitters.
FINSUM: If the iPhone 8 is as big a splash as it seems like it will be, we wholly expect the stock to reach a $1 tn valuation.
Apple is about to get an interesting new source of revenue. Analysts have been growing in excitement over the possibilities of the new 10th anniversary iPhone, and predictions for high sales are sparking hopes that Apple could make big revenue from used phones. More upgrading by consumers will mean more used phones in the market, and thus more people using Apple overall as people migrate from older Android phones. The used phone market for Apple is predicted to increase from 228m at the end of last year to 300 million by 2018. This could boost Apple’s services business, as it will create more business for iCloud and the App Store.
FINSUM: This is an interesting if underappreciated opportunity for Apple.