This Weekend: Why I Finally Bought Apple
This week's results: Weekend Newsletter + 10.3% - Stock Market + 3.2%
I bought Apple this week.
Here’s the back story.
A long time ago, not too long after Apple went public, my wife wanted to buy the stock.
She was a graphic artist. She loved her Macintosh personal computer.
Patiently, I explained[1] to her how the personal computer business worked. It was a volume business you see. A business of scale. And no one was doing that better than Gateway Computers. I had to explain this a few times, if I recall, before she realized how right I was.
We (me) invested in Gateway.
Never one to admit a mistake I ignored Apple for a long time.
What’s On Sale?
The market has had some days with big drops lately. With prices down, last week seemed to be a good time to look at MAMA.
Meta, Amazon, Microsoft and Apple
All four are down since the beginning of this year.
I don’t like Facebook no matter what Zuckerberg calls it. Meta is out, at least for now.
Amazon is complicated. Amazon Web Services is great. Amazon Streaming? I watch it. I don’t think I pay for it. Amazon.com? I use it all the time but I can’t imagine the margins. Whole Foods? Who knows? And who’s running the place now? Bezos has a new girlfriend and a rocket ship company. But not a cool rocket ship company like the one Elon Musk has. I’m too busy this week to try to untangle it all.
I spent my time this week on Microsoft and Apple.
I like them both.
Microsoft and Apple
Microsoft: Cash. $104b in cash and short term investments vs only $1.7 b in current debt.
Microsoft Cloud; now more than 1/3 of all revenue. Cloud revenue grew 27% in the 9 months ending 3/31/22[3]. Within that, Azure is growing even faster.[4]
Great geographical diversification: about half of revenue comes from outside the United States.
Apple: Well, there’s my iPhone, my iPad, my Apple Watch, countless Apple charges on my credit card for services that my kids bought. But what caught my eye was this in the latest earnings call:[5]
For Mac, revenue of $10.4 billion was a March quarter record despite supply constraints with 15% year-over-year growth, driven by strong demand for our M1-powered MacBook Pro… continued innovation and investment in Apple Silicon has clearly shown in our Mac results as the last seven quarters have been the best seven quarter ever for Mac.
The personal computer business is stale. Apple seems to have seen an opportunity to invest in that side of their business and create something new.[6] Apple Silicon gives Apple a proprietary processor and ends the reliance on Intel’s architecture. They can do a lot with that across all their product lines.
By the Numbers
Both Microsoft and Apple grow revenue well above the historical 3 1/5% average annual rate for companies in the S&P 500.[7] Microsoft’s growth rate in the last five years -13% - is above it’s overall 9% growth rate since 2009. Accelerating revenue growth in a company of that scale is remarkable.
Both Microsoft and Apple are improving their gross margins. Apple gets the nod here with a 10% improvement in the last three years.
Both have strong records of profitability ~ the 5 year average returns on assets and return on equity is a measure of this.
Microsoft is a cash machine. Cash from operations equaled 46% of revenue in 2021. It has been 40% of revenue, or better, since 2017. During that period cash from operations has been growing at an 18% annual rate.
Apple too creates cash. Cash from Operations has grown 13% annually since 2017. And Cash from Operations, as a percentage of revenue, has been in the 22% to 30% range every year during that period.
Apple has spent about $70b a year over the last 3 years buying back its stock. It’s paid out just $14b a year in dividends. Microsoft’s approach is more balanced and better for long term investors. It spent about $21b a year on buy backs and paid out $18b in dividends.
These are both great companies. Microsoft is a business-to-business powerhouse. Apple is the preeminent consumer electronics product company.
Despite the decline in share price since January neither are cheap. They are just a little less expensive than they were at the beginning of the year.
I bought Apple last week. I might buy Microsoft next week. If the prices continue to drop, I’ll buy more.
That doesn’t look like much of a strategy. But that’s all I got this week.
Results: So Far, So Good
10.3% for my newsletter
3.2% for S&P 500
This column started in April of 2020 as a COVID project.
The project tests a theory that, over a ten-year period, a “buy low, sell never” portfolio of stocks bought at a discount to their estimated present value will both make money on an absolute basis and outperform the S&P 500.
The project is set up to mimic the way a lot of individuals invest. I make periodic, roughly equal investments, usually once or twice a month, into stocks that seem undervalued.
I compare the results against a model “Dollar Cost Averaging” style portfolio that consists of shares in the SPDR ETF: SPY that I could have bought had I instead invested an equal amount of money in SPY on the day I bought the stock.
I’m not a professional investor. I buy these stocks with my own money and plan to hold them for ten years.
To keep things honest, I print the portfolio[8] each week.
As of this weekend the portfolio has an annualized rate of return of 10.3% vs a 3.2% return on the fictional portfolio of shares of SPY.
15 of the 28 individual investments have done better than SPY. These by an average of 14%. In 13 instances I’m worse off than I would have been had I simply purchased the ETF; by an average of 9%.
Dividends (through 3/31) juice the return a little bit. They yield, on average, 2.5% vs 1.3% for SPY.
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Thanks!
Or email me at: weekendstockpick@gmail.com
Check the Archives for:
Allison Schraeger, Bloomberg February 13, 2022
Alphabet April 17, 2022
Biogen February 6, 2022
Blackrock February 27, 2022
Blackstone February 27, 2022
Bloomberg News February 20, 2022
Boston Beer February 20, 2022
Bunge April 10, 2022
Callidus March 29, 2022
Carbon Black March 29, 2022
Coca Cola January 30, 2022
CuraLeaf April 24, 2022
Draft Kings February 20, 2022
Draft Kings April 3, 2022
Ella Nilsen, CNN March 13, 2022
Elon Musk April 17, 2022
Eric Savitz, Barrons February 13, 2022
Expeditors March 13, 2022
FEDEX March 13, 2022
Fidelity National February 13, 2022
First American February 6, 2022
First American February 13, 2022
Goldman Sachs February 27, 2022
Google April 17, 2022
Granite Real Estate Trust January 18, 2022
Green Thumb April 24, 2022
Henry Grabar, Slate April 17, 2022
IBM January 30, 2022
Inflation January 2, 2022
Inflation January 23, 2022
Inflation January 30, 2022
Intel January 30, 2022
Jen Psaki, MSNBC April 10, 2022
Jen Psaki, MSNBC April 17, 2022
Keith Romer, Bloomberg April 3, 2022
Kinder Morgan January 8, 2022
Nutanix March 29, 2022
Phillips 66 January 2, 2022
Prudential February 6, 2022
Sangfor Technologies March 29, 2022
Silicon Valley Bank March 20, 2022
SUSE March 29, 2022
TerrAscend April 24, 2022
Trulieve February 20, 2022
Trulieve April 24, 2022
Tweedy Brown April 17, 2022
Twitter April 17, 2022
Tyson April 10, 1011
UPS March 13, 2022
Verisk April 17, 2022
Verizon January 23, 2022
Virtuozzo March 29, 2022
VMWARE March 29, 2022
Wall Street Journal April 10, 2022
Wells Fargo March 20, 2022
Western Alliance Bank March 20, 2022
Will Yakowicz, Forbes April 24, 2022
[1] I was, per Merriam Webster, ahead of my time. “mansplaining” was not yet a thing, or at least there was a word for such a thing; https://www.merriam-webster.com/dictionary/mansplain
[2] Sorry; had to really stretch to work in that little play on words
[3] https://www.sec.gov/ix?doc=/Archives/edgar/data/789019/000156459022015675/msft-10q_20220331.htm
[4] https://www.fool.com/earnings/call-transcripts/2022/04/26/microsoft-msft-q3-2022-earnings-call-transcript/
[5] https://seekingalpha.com/article/4504834-apple-inc-aapl-ceo-tim-cook-on-q2-2022-results-earnings-call-transcript
[6] https://9to5mac.com/2021/11/10/comment-1-year-after-the-m1-chip-apple-has-really-changed-the-computer-industry-once-again/
[7] https://www.multpl.com/s-p-500-sales-growth/table/by-year
[8] The chart shows: the individual stocks that I bought (Column A); the dividend yield (Column B); the purchase date (Column C); and price I paid (Column D); the price when the market closed on Friday (Column E) and the paper gain/loss (Column F)[8]. Column G shows the closing price of the SPDR Trust SPY on the Purchase Date and the theoretical gain/loss had I invested in SPY on that date. SPY closed at $412 a share on Friday. SPY closed at 411.34 last Friday.