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While Apple had plunged 30% at the end of last year against many headlines about China and iPhone demand, some of Jon Porter's customers were worried.
Porter is the CEO of Three Bell Capital, a California-based company in Los Altos, which manages more than $ 1 billion on behalf of clients, primarily from San Francisco, which means people working in the technology sector.
Some of his clients were heavily invested in Apple, either through equity grants acquired over the years, or as technology-driven investors seeking high-quality stocks. Porter is also a former Apple employee and, based on his experience with the company and tracking inventory, he has sent an email to his customers.
The message? Relax. "The course of action is this: do not lose your sleep because of that, wait, and in time, Apple will be fine," reads the e-mail.
"One of the reasons I'm optimistic about Apple is that Tim [Cook] is a very capable CEO. And he's one of the few people on the planet who, in my opinion, will excel in an environment that has so many different business sectors, "Porter said in an interview with Business Insider. He is surrounded by generals and a management team who are very highly seasoned, many of them overlapping with Steve [Jobs’] mandate."
It turns out that many of the reasons evoked by Porter in his email to his customers echo what Apple's leadership had said on Tuesday when it announced its results. Since this call, Apple is up more than 7%.
Here's why Porter does not think you should panic about Apple's recent slump:
Apple spends a lot on R & D and is on the cusp of creating new sources of revenue
Porter does not adhere to the narrative that the days of Apple's innovation are behind.
"I would submit to you for the Apple Roadmap to have proposed the next novelty, quote Steve Jobs," see around the corner "and understand what consumers want, their roadmap for doing so is 100%, "Porter said. "They have a proven track record in this area, they have a lot of talent and they invest, reinvest a lot of their profits in R & D."
Some of the product lines that Porter wants Apple to take advantage of in the near future include a streaming service for Netflix.
"Apple is getting ready to face Netflix and Amazon in content production – you see excerpts in the news – so a director has been hired by Apple," Porter said. "But we do not necessarily hear about what happens when Apple embarks on content production – it's an entirely new source of revenue."
"Yes, it will have a cost badociated with it, but HBO, Amazon and Netflix have all made a lot of money by basically creating their own content.After Apple has entered this market, they have a lot of money to spend create high quality content. "
Apple Pay is another area in which Porter sees Apple grow and earn money.
"I can easily see a combination of Apple Pay that features a subscription feature in which Apple deploys its own cash in the form of a loan to buy its own products," Porter said. "What happens when these 900 million [iPhone users] start using Apple Pay and Apple is starting to use service fees like Venmo or PayPal? Now you have a new source of income that did not exist before. "
In the long run, Apple could play an important role in autonomous cars. It would not be investing in "Project Titan" if it was not serious to make money with it, Porter said.
"Not much is known to the public, but Apple has not killed the autonomous vehicle program, which means that they are actively working on something in this space, and they will eventually market it – and that will not happen. It will have nothing to do with the iPhone and iPad are down 1% .These are additional sources of income that will increase and increase revenue over time, "he said.
Do not underestimate the dividend
Another part of Porter's lengthy affair with Apple is the amount of money returned to investors.
"One of the reasons I'm optimistic about the long-term title is that, if you look at what Apple has done with its dividend, since it's started paying dividends, it's been increased by 93%, "said Porter. "And there is a lot more room to grow up."
This makes Apple attractive to income investors or people who want to benefit from a stable company like Apple – and who then receive an annual dividend of 4%.
"Apple has also initiated the parent company of all share buybacks," Porter said. "In many ways, Apple can and has really influenced the price of its stock by saying," Look, we'll buy back shares. "
"A company that does not have the fundamental belief that its actions will be worth more for tomorrow than they are today does not support its own actions."
Would you prefer to have the S & P at 20 or the AAPL at 13?
In the end, though, Porter estimates that Apple is undervalued, especially compared to the rest of the market.
His general argument revolves around what is called a "PE ratio". If you do not know it, the PE ratio is simply the stock market price divided by the last four quarters of income. The higher the price / earnings ratio, the more expensive it is.
The PE of Apple is well below the rest of the market.
"If you look at where the market is trading, the S & P 500, it is still turning around 20, in terms of PE ratio," Porter said. "If you look at Apple, given the recent decline, it is around 13, which is extremely low for a company that has demonstrated the kind of growth that Apple has experienced over the past two decades."
This does not mean that Porter recommends that his customers put all their eggs in the Apple basket. His firm routinely recommends that his clients diversify out of highly concentrated positions, but he believes that investors should do so in an intelligent manner, especially for stocks like that of Apple, which have had a long and positive performance .
"I will take Apple against the S & P 500 every day of the week and twice on Sunday," he said. "Right now, my message to everyone who is in our stable of customers, is sitting this [pullback] because there are a lot of great things on the horizon and the numbers allow us to keep Apple against the rest of the market. "
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