Why We Sold Apple


Last week we sold our remaining shares of Apple after they posted Q2 results.  With a 3.9% weight in the S&P 500, not owning Apple is a significant active bet; it is similar to owning no Telcos or Consumer Staple stocks in a Canadian portfolio.


Apple is a great company and a fascinating story, disrupting many industries along the way at the benefit of consumers.  Their quality, ease of use and sleek, distinguishable design has cultivate a following that is one of the most loyal customer bases in the world. And while Tim Cook, who took over from Jobs in mid-2011, may not have the innovative track record to date, he has transformed the company into a cash generating machine. 


Investing comes down to expectations.  We bought Apple in April of 2014 as sales momentum had slowed, there were more questions about how innovative the company would remain without Jobs and it was trading rather cheap.  Don’t forget this is a product cycle stock and at the time of purchase they were about to embark on what turned out to be their greatest product cycle ever.  The biggest driver being the iPhone with larger screens as competitors had beaten them to this space.  Apple crushed it and is still seeing great growth in iPhone sales.


Expectations in the market now seem high.  This past quarter they announced an 11% dividend increase and $50 billion for the buyback program. Earnings beat and sales beat consensus estimates.  This was accompanied by record breaking iPhones sales, with China surpassing the U.S. for the first time in units sold, clearly a new growth engine for EPS. However, the stock fizzled leaving us wondering what more Mr. Market wanted. 

Add to this, a less exciting product cycle ahead.  Continued iPhone6 sales will help provide some support and maybe an S version.  But what is next?  Apple Pay sounds interesting but won’t matter anytime soon.  For example, if you put all of Mastercard’s revenue onto Apple’s income statement, it would represent 6% of sales.  The iWatch?  Just don’t believe it will live up to the hype.  An iPhone 7 this fall would help, rumors are for an even better camera.  But that just isn’t the same jump as the move to offer bigger screened smartphones. 


The market seems to be expecting too much from this now mature state behemoth. It seems that the market wants Tim Cook to change the world like Steve Jobs used to do. Not saying we won’t come back, but we have decided to take our profits and get out of the way before everyone else realizes texting emojis back and forth from your watch isn’t quite as life changing.




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