🍎 Is Wall Street Underestimating Apple?

Plus, why Baltimore plans to sell houses for $1.

April 12, 2024

Happy Friday afternoon to everyone on The Street. Here's a snapshot of where markets ended the trading session, plus tomorrow's trade idea delivered to you today.

  • 🟥 | US Stocks Fell on Friday. Inflation and geopolitical worries tanked investor sentiment today, and a broad decline in major bank shares weighed down the market. The Dow lost 476 points, while the S&P 500 and Nasdaq Composite fell over 1%.

  • 📈 | One Notable Gainer: Financial services holding company Globe Life bounced 20%, recovering from a more than 50% drop in Thursday’s trading session. This surge in stock price follows Globe Life vocally refuting allegations of insurance fraud.

  • 📉 | One Notable Decliner: Shares of JPMorgan fell 6% after disclosing that its net interest income level could fall short of Wall Street analysts’ expectations. CEO Jamie Dimon also highlighted the risk of heightening inflationary pressures.

  • 🍎 | Tomorrow's Trade: Is Wall Street Underestimating Apple? Scroll down for more.

YESTERDAY’S POLL RESULTS

🟩🟩🟩🟩🟩🟩 Bullish

🟨🟨⬜️⬜️⬜️⬜️ Bearish

S&P 500 Heatmap. Credit: Finviz

All stocks on US exchanges. Credit: Finviz

Global ADR snapshot. Credit: Finviz

MARKET MOVERS

PARA (-3%) Paramount slipped after announcing plans to reduce its board from 11 directors to just 7 amid Skydance deal talks (Reuters)

CTVA (-5%) JPMorgan downgraded American agricultural chemical company Corteva, seeing weak Q1 earnings on lower crop chemical prices (SA)

CIEN (-3%) Software company Ciena saw shares fall after Citi gave the stock a Sell rating, claiming any benefit from AI for the company is years out (SA)

BLK (-3%) BlackRock shares fell despite reporting an earnings beat by $0.47. The launch of earnings season was rough on the major bank stocks today (IBD)

ZTS (-8%) Shares of Zoetis fell sharply on the heels of a report that the animal health provider’s arthritis treatments were sickening cats and dogs (Barron’s)

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OVERHEARD ON THE STREET

Bloomberg: BlackRock took in $76 billion of net inflows in the first quarter, pushing the world’s largest money manager to a record $10.5 trillion in assets.

Fortune: U.S. airlines want the Biden administration to stop approving U.S.-China flights, saying it’s unfair their Chinese competitors get to fly over Russia.

ET: India’s southern state of Tamil Nadu will aggressively pitch itself as a manufacturing site for Tesla Inc. ahead of billionaire Elon Musk’s visit.

NYP: None of Forbes’ billionaires under 30 list are self-made for the first time in 15 years.

Redfin: Over one-third of homeowners and renters struggling to afford housing claim they skipped vacations in the past year to help afford their monthly costs.

TOMORROW’S TRADE IDEA, TODAY

Virtual Reality Apple GIF by David Altizer

Sleeping On the Giant

According to Bank of America (BAC), Wall Street is once again underestimating one of the world’s largest and most iconic companies: Apple (AAPL).

BofA analyst Wamsi Mohan believes investors are overlooking the iPhone maker’s long-term gross profit margin potential. According to Mohan, in the next several years, the tech giant’s gross margins and product and services categories have upsides of 1.5% and 1.8%, respectively. 

This is not the first time Apple has been underestimated. In 2018, Wall Street consensus projections put Apple’s 2023 gross margins at 39%. The final figure came in at 44%.

Increasing Gross Margins

Mohan sees vertical integration and product mix as factors that could contribute another 1% to Apple’s gross margins. The company is also reportedly transitioning away from Qualcomm’s (QCOM) 5G modem and developing its own internal alternative. The analyst predicts this could bring product gross margins up 1.1% and iPhone gross margins up 1.6%. 

On the services side, the company could cut costs by building its own data center chips and using its own silicon, which Mohan believes could add another 1%. Additionally, the company could choose to lean more heavily into services, a historically higher-margin business, which could add up to 0.6% more to gross margins.

Potential Value

Wall Street’s tepid estimates aren’t without reason. The company is facing several headwinds; namely, slumping iPhone sales, lagging AI products and services, and a headline-grabbing antitrust case.

According to JPMorgan (JPM) analyst Samik Chatterjee, how Apple chooses to utilize AI in its next iPhone will be closely watched by investors, but sentiment surrounding the stock is starting to improve. 

The stock is down over 7% YTD and currently trades at around $171. Analysts have given it an average price target of $198.81, an 18% upside from Thursday’s open. 

If BofA’s analysis proves accurate, Apple’s juice may be more than worth the squeeze.

Are you bullish or bearish on Apple (APPL) over the next 12 months?

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Hims knows the hair loss struggle is real. That’s why they offer access to a variety of hair loss treatments for men with doctor-trusted ingredients (and have the 5-star reviews to back them up!).

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Start your hair regrowth journey today. After completing an intake form, a licensed medical provider will review and determine if a prescription is appropriate. If prescribed, your medication ships for free! 

No doctor visits, no boring waiting rooms, and no never-ending pharmacy lines.

Try their hair loss treatments for men today (and save when you subscribe).***

Hair Hybrids are compounded products and have not been approved by the FDA. The FDA does not verify the safety or effectiveness of compounded drugs. Restrictions apply, see website for full details. Prescription products require an online consultation with a healthcare provider who will determine if a prescription is appropriate. *Based on separate individual studies of oral minoxidil and oral finasteride.  ***Actual price to customer will depend on product and subscription plan purchased.

ON OUR RADAR

Fortune: “Existential threat to the American auto industry”: An influential Capitol Hill lawmaker urged Joe Biden to ban China-built EVs.

Reuters: China's exports contracted sharply, and imports shrank in March, highlighting the difficulties of bolstering a shaky Chinese economic recovery.

CNBC: The Biden administration announced it is forgiving $7.4 billion of student debt for another 277,000 borrowers.

Axios: Iran warned the Biden administration that U.S. forces will be attacked if America gets involved in the fighting between Israel and Iran.

Bloomberg: Baltimore plans to sell boarded-up houses for $1 each in an attempt to revive neighborhoods plagued by crime and disrepair.

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