Apple/ AAPL Buy @ $349.50 Next figures: 28 July
Amazon/ AMZN Buy @ $2,660 Next figures: 23 July
Shopify/ SHOP Buy @ $880 Next figures: 30 July
Spotify/ SPOT Buy @ $237 Next figures: 23 July
Tesla/ TSLA Buy @ $995 Next figures: 22 July
The Nasdaq 100 Technology index looks very strong (see chart above). There is a round number barrier around 6,000 similar to the even more important round number barrier of $1,000, which is impeding progress at Tesla. Once overcome both the Nasdaq Technology index and Tesla should make further progress.
Apple has a terrific chart, hitting new peaks after being stuck in a trading range for around half a year. Apple products are very popular in China so as consumer spending recovers in that country, as is happening strongly to judge from results from Chinese companies like Alibaba and JD.com that should benefit the company. Apple may look like a business that makes things but more accurately it is a company that designs and markets products. It is a deeply creative business and the owner of the world’s most admired brand, which helps it add value to everything it makes and does.
The business is valued at $1540bn, with sales running at around $260bn; that compares with 137,000 employees so each employee is valued at $11.2m and generates sales of $1.9m, which tells you these are not people working on the factory floor.
Recent enthusiasm for the shares has been generated by the strong growth in revenue from wearables (sales of devices like watches and Airpods are running at an annualised rate of around $25bn, up 44pc in a recent quarterly report) and in the services division “Apple has marked the close of a historic 2019 for its Services offerings, a year that introduced Apple Arcade, Apple TV+, Apple News+ and Apple Card, and celebrated the continued success of the App Store, Apple Music, iCloud and more experiences only Apple can create and deliver”. Sales were running at around $53bn annually (Q1 x 4) recently.
In a more technology-dependent world even after the coronavirus wanes demand may increase for devices like iPhones, iPads and Macs that help us operate more effectively in a connected world. Apple is famous for the strength of its finances with strong free cash flow, large net cash balances and an ability to borrow at ultra low interest rates. It is also well placed to benefit as we enter the new world of connections vastly speeded up by 5G.
CEO, Tim Cook, also commented with the latest results :“For a company whose business is innovation, there are real upsides in periodically having to figure out how to do just about everything in a brand new way.”
Amazon.com has had an amazing chart ever since the price broke decisively through $2,000. Its three core businesses of Amazon Marketplace (e-commerce), Amazon Prime (subscription services) and AWS (cloud services) were growing fast before the pandemic and growth will have accelerated during the lockdown. The company spooked investors with its latest earnings report at the end of April, when it warned that pre-virus expected profits around $4bn might be entirely absorbed by spending to help the company and especially its warehouses and fulfilment operations to cope with the virus. Some idea of the potential is that in January Amazon said Prime members had grown from 100m in 2018 to over 150m. E-commerce in 2019 was 11.4pc of total US consumer spending; that clearly has huge scope to grow. The comparable figure in China is over 50pc. Amazon Web Services, the cloud business, is both highly profitable and growing fast as companies and governments around the world strive for digital transformation and companies like Zoom turn to AWS to help them cope with huge spikes in demand. Last but not least is the potential for Amazon to make an impact in newer areas like video games and health care.
Shopify recently announced deals to partner with Facebook and Wal-Mart to help entrepreneurs launch retail businesses straight into ultra-large marketplaces. “Walmart announced a new partnership with e-commerce shopping platform, Shopify, now used by over 1m businesses. The deal will open Walmart’s Marketplace to Shopify’s small business sellers, with the goal of bringing 1,200 Shopify sellers to the marketplace this year. The partnership will greatly expand the reach of the participating brands by placing them in front of Walmart Marketplace’s 120m monthly visitors.” One commentator said of the stock recently, before the Facebook and Wal-Mart deals, “It appears that Shopify is in the midst of a breakthrough moment wherein the company turns into the commerce backbone for every small-to-medium sized business (SMB) in the world over the next few years. Thanks to this pivotal transformation, Shopify stock appears well on its way toward $1,000-plus prices.”
Spotify Technology shares have exploded higher in recent weeks on the back of its growing involvement in the podcasting boom. According to one definition – “A podcast is an episodic series of spoken word digital audio files that a user can download to a personal device for easy listening. Streaming applications and podcasting services provide a convenient, integrated way to manage a personal consumption queue across many podcast sources and playback devices.” The group has recently done deals with AT&T for superhero podcasts and with celebrities like Kim Kardashien and Joe Rogan to form other podcasting partnerships likely to attract huge audiences. In its latest quarterly report the company reported accelerating growth “Q1 was a strong quarter for Spotify. We continue to see impressive user growth, up 31pc from last year. In fact, we saw faster growth in all four of our regions in the first quarter of 2020 compared to Q1 2019. And we met our guidance by new subscribers and MAUs [monthly active users].” Particularly exciting is the growth of the podcasting business. “Podcast consumption grew by triple digits during the quarter compared to just a year ago. It was also our biggest quarter ever for organic podcast creation. And while many companies have had to adjust their outputs during this crisis, almost all of our original and exclusives have either maintained or increased their pace of new releases in response to audience demand. For example, our original podcast Science Vs and Fest & Flauschig have both doubled their weekly releases. And we also launched a new daily news podcast in Germany that has already become the second-largest show in the country and regularly ranks in the top 20 worldwide. And we’ve been encouraged by the wave of creativity in new podcast creation this quarter. More than 70pc of new podcasts on Spotify were created with Anchor and within our own ecosystem.'” This is a ‘something new’ development, which could take the shares much higher.
Tesla is both an amazing company and hard to categorise. Is it a car company, a solar energy company, a battery company or something else? It describes itself as on a “mission to accelerate the world’s transition to sustainable energy”. It is currently going head to head with Toyota for the world’s most valuable automotive business even though Toyota makes 30 times as many cars each year. Of course, that is not the point. Toyota, like all the legacy car businesses, is struggling to adapt to a fast-changing world. Tesla is in the forefront of driving those changes and its achievements since the company was founded in 2003 are staggering. My hunch is that Tesla’s sales of cars are going to explode in coming years. Part of the reason for this is that, unlike US car companies, Tesla is already a global business. It clearly plans to straddle the globe with car assembly and battery factories, sales outlets and electric car charging infrastructure. On top of that is its leading role in battery innovation. Tesla investors have been awaiting Musk’s promised Battery Day, which was delayed in May. He has much to live up to after his remarks at the last quarterly presentation. “Yes. Actually, we don’t want to preempt Battery Day. We want to leave the exciting news for that day, but there will be a lot of exciting news to tell. And I think it would be one of the most exciting days in Tesla’s history and we’re just trying to figure out the right timing for that.” I guess my feeling with Tesla is that they have done the hard part, which was reaching critical mass, an achievement which eluded Britain’s inspirational innovator, Sir James Dyson. World domination from here looks just a matter of time.
One of my core strategies on all my publications including Quentinvest for Shares is to recommended the star performers again and again. It is an aggressive strategy but can deliver amazing results. This latest alert for Apple shares means that Apple shares have been recommended 53 times across all my publications since 2009. The first recommendation in July 2009 was at $21.09. Great companies find themselves in a virtuous circle of growth, not least because of their ability to attract top talent and can keep growing for astonishingly long periods. This is precisely the process by which small companies can end up as household names. A few of those in your portfolio can work wonders.
