Investors looking at the automotive sector need to think carefully about their allocation. In particular, it might be smarter to put money into automakers themselves, like GM and Ford, rather than parts suppliers. This runs counter to the typical investment strategy of buying into suppliers in major industries rather than producers themselves. Parts maker in autos have outperformed makers over the last several years, but there is a big catalyst for a reversal: auto makers are no longer looking to slash prices to increase volume. Instead, they are shifting to a higher priced margin-oriented model, which favors the makers’ stocks versus suppliers’.
FINSUM: We think the concept of a higher margin business favoring makers is logical.. However, we aren’t sure the customer is actually going to buy into this model, in which case neither makers nor suppliers would do well.
Want to forecast at where Apple’s stock price is headed? There is a good trick for doing so. The method is to look at the earnings and share price moves of Apple’s suppliers. About a third of suppliers report earnings before Apple does, and many of them derive a high portion of their sales from the company. Therefore, one can fairly well predict Apple’s earnings and likely moves. For instance, Apple has been on a tear since its earnings on Tuesday, and it would have been easy to see from the previously released supplier earnings.
FINSUM: This will not always work and some of the value is probably eaten up by algorithmic traders, but still, it seems a good predictive indicator.
The market fell in a big way yesterday. The root cause? Apple. Apple has cut its iPhone sales guidance, and it now seems a recession is coming to the whole Apple universe. The numerous companies that make their living supplying Apple seem set for a severe correction and are paring their estimates back sharply. Investors didn’t seem ready for this slowdown in the iPhone, perhaps misguided by the hype that has recently surrounded new models. The fact is that the iPhone is now a mature product, and maintaining the kind of growth it once had is likely untenable, a fact that even Wall Street analysts are starting to admit.
FINSUM: Apple’s business is changing and it seems to be doing a good job managing that transition, though everyone hopes it will have a new dynamite product. That said, a general recession surrounding the iPhone universe seems likely.
The market currently seems to be in a panic concerning Apple’s new iPhones. Suppliers of iPhone parts have been plunging as investors and analysts are worried that demand for Apple’s new phone is not robust. For many years Apple produced new iPhones with only marginal upgrades and saw sales soar. Now they have significantly upgraded the phone, but may be seeing weak demand. It is possible that consumers could simply be buying the phone online or upgrading through the company’s program, neither of which would not be represented in the stats the market is watching.
FINSUM: We think this panic is totally overblown, especially as it is focused on the iPhone 8, not iPhone X. We expect strong sales when the iPhone X gets released.
The stock market is having a major panic about demand for the iPhone 8. Supplier stocks, such as Honhai and Pegatron, are seeing big stock losses as reportedly weak demand for the new model weighs heavy. Suppliers of iPhone components are very concentrated in Taiwan, so the market there has been taking the brunt of the selling. Orders for the iPhone are reported to be “substantially lower” than for the iPhone 6 or 7.
FINSUM: Of course they are lower, the iPhone X is about to come out! A much bigger worry for us would be if people were buying the iPhone 8 heavily, which would have meant the pricing strategy for the iPhone X had failed.