The front part of earnings season, despite strong results, was met with a technology correction. You can pin the tail on the social media donkeys Facebook (FB) and Twitter (TWTR). That correction while swift, was shallow and bottomed out on Monday. Unfortunately, it put a dent into a strong month of July for the stock market.
My opinion of social media companies is that their best years, from a growth and valuation perspective, are in the rear view mirror.
Then after Apple (AAPL) reported yet another strong quarter on Tuesday, the markets began to take back much lost ground.
AAPL today became the first public company ever to eclipse the $1 Trillion market capitalization level. I must share with you a screenshot of the moment when that occurred from CNBC (I hope my friends at CNBC don’t mind).
Speaking of CNBC, here is a clip of my latest interview on the network when I talked about Pepsi (PEP) getting the Madison Square Garden (MSG) beverage contract.
Let’s understand something. Apple is not an expensive stock. The stock trades at about 17.7 times 2018 earnings estimates. With earnings growing at a rate of 25-30%, the stock won’t get overpriced until it sells for at least 1.0 to 1.5 times its growth rate. That would put the stock at about $300 versus today’s closing price of just over $207. While I would not expect AAPL to trade at 25 times current year’s estimates of $11.50/share, trading at 20 times earnings is easily within reach.
Understand that AAPL has far reaching implications for the economy and stock market. AAPL’s supply chain – companies that AAPL relies on for its components – should be looked at very carefully for opportunities. Some such US companies are Jabil (JBL), Intel (INTC) and Cognex (CGNX), for example.
Please note that Facebook and Twitter are not important to Apple either as a supplier or customer. By the way, what little position we had left in Facebook, I sold last week.
Yesterday, Royal Caribbean Cruises (RCL) reported a good quarter, bettering earnings estimates and meeting revenue estimates. The stock opened over 5 points lower giving me the chance to add to the stock as I was prepared to do. While that drop was short-lived, I managed to buy some stock on the upswing at about $111. The stock closed the day at $114.35.
August is always a tricky month for the equity market and tends to be slightly negative, on average, during a typical mid-term election year. Equity markets might get a little volatile in August, as has been the case the past two weeks. Unless there is an exogenous event, such as in 1990 when Iraq invaded Kuwait, I would not get worked up over August’s potential for manic – depressive behavior.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL, PEP & RCL, — although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant, beverage, and agricultural stocks. An individual subscription to the newsletter can be ordered at www.restaurantstox.com Furthermore; Scott is a professor at the Seton Hall Stillman School of Business in South Orange, NJ.
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