Now is a savvy time to invest in both Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN). We are in the build-up to critical earnings reports for each company. However, Apple and Amazon are in very different positions right now. Apple is currently experiencing some weakness- which creates opportunity for longer-term investors prepared to lower their growth expectations. Meanwhile, Amazon continues to power higher- and justifiably so. The only question is, are you willing to pay $1,450 per share?!
Let’s dive in now and take a closer look at what to expect in the next few days and beyond:
This is a crucial earnings report for Apple. Investors are feeling jittery on reports that the iPhone X sales peaked too early- leaving the stock vulnerable to lower guidance for the March period and a consequent pullback in share prices. Already, we can see that Apple has sunk from a 20-day high to a 20-day low. This can be explained by investors quickly taking profits before the risky earnings report hits.
The earnings report will cover the fiscal first quarter and should show strong revenue from iPhone sales over the holiday period. Currently the consensus estimates are looking for 10.7% overall revenue growth to $86.75 billion with EPS of $3.81. Keep your eye out for 1) the number of iPhones sold and 2) the average selling price per unit sold (ASP). Will Apple be able to beat its ASP last year of $694? According to some commentators $750 is within Apple’s reach on the back of the notably pricey $1,000 iPhone X.
Another key topic for the report will be the US tax reform and details on how it is expected to influence Apple, perhaps even with adjusted figures. Investors will want details on the stock’s plans to repatriate its huge cash mountain currently held outside the US. If Apple does choose to repatriate some if its vast holdings, it could be hit with a huge tax bill of $38 billion (although this will be a one-off expense). At the same time Apple stands to make a serious benefit from the lower corporate tax rate of 21% vs 35% previously.
For long-term investors, Apple is still a strong stock to hold and now is the time to swoop in while the stock is trading at a discount. It is true that Apple is a changed beast in recent times- and that’s because it’s profile is shifting away from a growth stock and more to a value stock like Boeing. And this isn’t as bad as you may think. Apple may not be constantly inventing and re-inventing like Google- but it does offer a relentless product cycle at value. The result: lower rewards but also lower risk.
Bear in mind that as well as the iPhones, Apple has a host of other popular products at its disposal- see the Mac for example. Mac revenue has soared recently- by about 25% year-over-year. And now Apple is expanding its product range in this department both at the higher and lower ends of the market (with the $500 Mac Mini to the $5,000 iMac Pro). Plus the Apple Services segment is also growing at a good pace- and this should be helped along by the recovering Chinese market. Indeed, some commentators see this revenue doubling between 2016-2020.
The stock currently has a cautiously optimistic ‘Moderate Buy’ analyst consensus rating on TipRanks. This breaks down into 20 buy ratings vs 10 ratings in the last three months. Note that the average analyst price target of $193 suggests relatively big upside potential of 16% from the current share price.
Meanwhile, Amazon is tearing away right now- shares are up over the last five days from $1,369 to over $1,450. There are very high expectations for the stock going into the print- and with good reason. By all accounts Amazon delivered a very strong holiday season- and the future also looks bright with no notable bearish factors on the horizon.
Amazon will report its results after the close on Feb 1. The Street is anticipating revenue of $59.8 billion along with EPS of $1.84. If Amazon meets the targeted EPS- which is very likely- then this would represent a big growth from last year of 19%. In particular, e-commerce growth could post double-digit growth from last year. Amazon is also set to give strong guidance going forward boosted by a bullish economic environment, very high global consumer sentiment and spending, and tax reform.
Amazon’s cloud segment AWS is also looking good with plenty of demand- and a very competitive pricing strategy. Wall Street is modelling for low 40% year-over-year range in revenue and sport with 25% operating income margin for the quarter. This reflects the industry’s explosive growth and looks achievable based on the company’s past performance. However, one fly in the ointment is that rival companies are allegedly cutting back on their AWS use (see Walmart and Target). At this point it isn’t really a concern- but it is something to consider going forward as AMZN tentacles spread into new industries.
We can see from TipRanks that Amazon has a firm ‘Strong Buy’ analyst consensus rating. Indeed, in the last three months the stock has scored a very impressive 31 buy ratings. This is versus just one lone hold rating in the same time period. At the same time, the average analyst price target of $1,454 indicates very limited upside potential of 0.23%. Bear in mind, Amazon shares have doubled since 2017 and are now trading at 175.3x forward earnings. And with shares so expensive right now, it makes sense that some value investors may hold off on purchasing despite conviction that new highs are on the way. But for investors prepared to part with a considerable sum, AMZN stock is unlikely to disappoint.