This isn’t the first time Apple (NASDAQ: AAPL) has ridden in to rescue a market that was in danger of breaking down.
The drumbeat of “weak smartphone demand” has been echoing louder and louder in investors’ ears over the last few weeks. It may have reached a crescendo on Wednesday/Thursday when Qulacomm (NASDAQ: QCOM) reported…
QCOM shares opened at $116.66 Wednesday, sold off all day to close at $112.83, and then opened at $104 yesterday after confirming that the current quarter was not going so well…
I guess it seems simple – 1 + 1 = Apple’s earnings won’t be good. But my goodness – a trader has to ignore a lot of precedent to actually boast publicly about their big short position in Apple, as I saw a few traders do over the last few days.
Technically, I suppose the Apple bears were right – revenue was down 3%, the second consecutive quarter that Apple reported lower sales. But my goodness, the company reported $94.8 billion in revenue, raised its dividend by 4% and added $90 billion to its buyback program.
I say that betting against Apple is to fundamentally misunderstand what Apple is as an investment. It’s not speculative in any way. It’s products are so ubiquitous, it might as well be considered a consumer staple. And Apple share buybacks are the largest and most consistent the world has ever seen, meaning there is always buying supporting the price. Why else would Warren Buffett have 40% of his money in Apple?
Big Tech Piggy Bank, indeed…
That’s not to say the shares will never trade lower. Of course they will. But to bet real money that the stock will trade lower is not a very good plan.
*****On Wednesday, I told you: And with any luck, the financial media will interpret [the Fed’s comments after Wednesday’s 25 point hike] to mean that the Fed may hike again in June and maybe July and maybe we can get the S&P 500 to test its 50-day moving average down at 4,035.
My point was that I believe the Fed is pausing its rate hikes, there is upside for stocks and that a little dip for the S&P 500 to that 50-day moving average would be a good spot to buy.
Well, the S&P 500 nearly did my bidding. It made it to about 10 points from where the 50-day MA stood yesterday (4,039), and the index has now rallied to up around 4,120. A true breakout means a move over resistance at 4,180. I suspect that may take a little while. But I’m also not seeing a big decline in the cards.
Yeah I know, regional banks…but at this stage of the mini-crisis, it really is being driven by fear instead of fundamentals. Yesterday’s punching bag – PacWest (NASDAQ: PACW) – hasn’t seen the massive outflow of deposits that took down First Republic. In fact, PacWest says it saw deposits rise in March…
No bank in the world is immune to a run of depositors pulling their money out. Even JP Morgan (NYSE: JPM) would be insolvent if it lost a big chunk of its deposit base – that’s kinda the definition of insolvent.
*****Also on Wednesday, I told you I really wanted to officially recommend disruptive insurance company Lemonade (NASDAQ: LMND). And damned if the stock isn’t up 33% since it reported earnings after Wednesday’s closing bell…
Lemonade is one you want to own. And I’ll be working up a full investment report for next week. But in the meantime, we should expect the stock to test its 50-day moving average at $13.39 before it heads meaningfully higher.
*****I’m also adding Yeti (NASDAQ: YETI) to my official recommendation list. Brand identity is a powerful force, and I love consumer discretionary stocks for their potential to gain customers for life. Like Crocs (NASDAQ: CROX), Starbucks (NASDAQ: SBUX) and Louis Vuitton (NASDAQ: LVMH).
Not that I think Yeti will be the next Louis Vuitton…
That seems like a stretch.
But there is a very loyal customer base for Yeti coolers and drinky-straw mugs or whatever they’re called. Seems like a no-brainer that Yeti will expand its brand – maybe backpacks, sporting wear…gotta say, a pair of boots that leave Sasquatch footprints would be pretty cool…
Yeti is only a $3.75 billion company – a little over 2X trailing 12 month revenue. There’s upside here.
*****Finally, let’s talk about a company I put on my official recommendation list back on April 3, Schrodinger (NASDAQ: SDGR).
The company reported earnings last night and is getting whacked by 10% today. Today’s drop takes it right back to where it was on April 3, when I first tagged it as a buy. Consider current prices around $27 as a good opportunity to own the stock.
Last night’s earnings didn’t contain any surprises, good or bad. And when earnings don’t have any positive surprises, it does not incentivize buyers. They can sit back on lowball bids and see what happens.
Schrodinger is going to be a second half 2023 story. Because of the way it structures its software licenses, we won’t see how well it’s upselling its customer base until the 4th quarter when the bulk of existing contracts get renewed. And while Schrodinger is forecasting software revenue to grow 13%-17% for the full year, the company is hinting on last night’s conference call that there is upside:
I just want to emphasize that we're feeling really confident about the outlook for the year, given the stage of these [contract] discussions, the number of them and the enthusiasm that we're seeing from our customers to really deploy our platform on their discovery programs at scale and that's the key. I think you know, I've been doing this for a long time and I can see a real clear shift in the nature of these discussions. I think it can actually be summarized by saying that companies are feeling more of a sense of urgency to fully deploy our technology on their programs and this is really giving us increased confidence that these deals will close when they come up for renewal later in the year.
While the software licensing revenue is the bread and butter, the wildcard for Schrodinger is its in-house drug development and development partnerships. It already took in a $147 million milestone payment from Takeda Pharmaceuticals. Another $74 million from this partnership is coming, it’s really just a matter of when.
Schrodinger has 9 other partnerships with drugs in clinical trials, and two in-house drugs that are in trials and one that is about to start trials.
There’s no way to say exactly when – or if – these trials bear fruit. But with this many irons in the fire, something’s bound to get hot.
Ok, that’s it for me today. Take care, have a great weekend, and I’ll talk to you Monday.
Chief Investment Strategist