Poor, tarnished Apple Inc. (NasdaqGS:AAPL).
It did everything right for decades, making itself the first company in the history of the world to be worth one trillion dollars.
Then it fell off analysts’ conviction buy lists, and Apple’s stock got hammered good and hard.
What suddenly happened to the most valuable company in the world? How could it lose almost $300 billion in value in a matter of weeks?
Truthfully, what happened to Apple was mostly its own fault. Sure enough, it got caught up (or down as the case may be) in the market’s October selloff, but that wasn’t unexpected.
In hindsight, Apple held up better than the market last October and better than its FAANG family members did.
What took the shine right off the most valuable company in the world, after its all-time high of $233.47 in October, was the company’s announcement on November 1, 2018, not a month after its high water score, that it would no longer breakout iPhone sales in its earnings.
The stock got hammered – hard.
That self-inflicted wound, some say death knell, happened just as the Dow Jones Industrial Average, which had traded down close to 24,000 at the end of October, began a robust rally.
Only a week and a half into November, the Dow got back above 26,000.
Apple, not so much. In fact, not at all. Apple stock continued to slide, like it was falling off Everest.
The stock traded down to $142, just shy of a 40% dump off its high-flying act.
It’s back up around $155 today.
Is Apple at $155 or just below there a “value” stock? Is it a bargain down by more than 33%?
Or, is Apple too full of worms and worth betting against?
What Could Shift the Narrative
In a nutshell, the mainstream news and analysts’ chatter was all about Apple not breaking out iPhone sales anymore.
The knock was that sales were falling, and since iPhone sales growth, quarter after quarter, year after year, propelled the stock higher, the bloom must now be off the rose and Apple must be expecting iPhone sales growth to slow down or stop growing altogether.
Apple’s facing more competition in the high growth areas it needs to penetrate and command.
But, the immediate threat to Apple is Huawei, and not just because they sell cheaper phones.
Huawei is the largest telecom company in the world and it’s Chinese.
You’ve heard that China and the U.S. are in the middle of a trade tiff, haven’t you?
You’ve heard that Huawei’s CFO was arrested in Canada and the U.S. wants to extradite her to the U.S., haven’t you?
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The Chinese aren’t happy about any of that. At the same time, Huawei is being hammered by buyers of its telecom equipment who are ripping it out because it’s allegedly a spying tool for the Chinese government.
Wow! That’s serious stuff, which China isn’t going to take lying down.
It’s going to favor Huawei phones in China over Apple. That’s killing Apple’s growth prospects in China and killing its stock.
There’s more, like Apple supply chain partners being located in China and what the Chinese could do to punish Apple to make its point to the U.S. government that it won’t roll over and it has trade tricks it will use.
That’s what’s really hammering Apple stock.
So, why should you take a flyer on it down here?
Because there’s a way out for Apple, an elegant superhighway out of the mess they created for themselves with their November announcement.
Apple wants investors to stop focusing on just iPhone sales, which admittedly everyone is hung up on, and focus on revenue. Apple has revenue coming from all kinds of corners.
The way to dramatically and sensibly shift the narrative to a focus on revenue is by upending Apple’s different revenue carts and piling them on top of each other by… are you ready… bundling services and offering them on a monthly subscription basis.
The idea isn’t new, but Apple’s never executed on it.
It’s high time.
Apple could bundle services like Apple Music, iCloud services like storage, and AppleCare (warranty services) into what The Goldman Sachs Group (NYSE:GS) dubbed an “Apple Prime” subscription model.
Goldman says they could put in video services too and offer the package at something like $35 a month.
But it gets better.
An analysis by Barron’s says the average selling price of an iPhone in North America is $793.
Barron’s goes further, saying Apple could shorten the upgrade cycle for new phone sales by packaging a new phone sale at $33 a month into a subscription ($33 x 24 months = $792) service.
Since the average upgrade cycle is 26 months in North America and longer in most of the rest of the world, at 24 months Apple would be shortening its cycle and reaping revenue all along.
That makes sense.
Packaging hardware and software sales into a subscription model makes even more sense.
If Apple wants to refocus attention on revenue, that will get everyone’s attention.
And that’s why I’d buy the stock down here.
What to Do Now
No, Apple hasn’t come up with anything like this, but I’m betting they must and will. It expands their ecosystem and locks subscribers deeper into their vault.
There are a few ways to play Apple.
If you think Apple is smart enough to make this happen, or if you think Apple’s due for a bounce, or that the market’s got more upside, or that the trade tiff with China will be amicably resolved, Apple could be a worthwhile bet where it is now.
But, if you think Apple’s too vulnerable to China, reached peak earnings, too slow to switch to a subscription model, too prone to investor disappointment and prone to falling out of bed if the market can’t bounce higher from here, you can buy put options on the stock.
I recommended explicit instructions earlier today in my Zenith Trading Circle. If you’re interested in learning more about the Zenith strategy, click here to learn more.