Yesterday, Real Money Pro columnist Doug Kass poked the Apple (AAPL) and Disney (DIS) bulls --and got the horns. Doug has a point, as I think both stocks will underperform all year.
While I'm not a chart guy, if you pull up a one-year chart of Disney vs. Apple and compare them to the S&P 500, you'll see they look almost identical. To me, that can only mean one thing -- profit taking. Disney has outperformed the S&P 500 since 2012 and Apple has been going strong since 2007. Both stocks have had huge runs, and it is not like these names are undiscovered.
Running a giant mutual fund is like being captain of a cargo ship. It takes miles and miles to bring the ship to a stop. State Street, alone, has over 217 million shares of Apple. Fidelity owns 167 million. That's almost 7% of the shares outstanding held by just those two firms. Between State Street, Fidelity and MFS, they own 7% or 137 million shares of Disney.
Basically, about 5 guys in Boston decide what Disney and Apple shares do. (Although it doesn't exactly work like that, because those firms often hold the stock "in street name" for others, you get the idea.) Whether it's the mutual funds these firms manage or the hedge funds they hold as a custodian, someone big is taking something off the table.
According to the Barclay Hedge Fund Index, the indexed return of 170 hedge funds that have reported 2015 results, so far, was 1.16%. Of the 2,925 hedge funds that reported to Barclay in 2014, the indexed fund returned just 2.88%. In 2011, they were down 5.48%. In the last five years, hedge funds have only had 2 good years: 2013 (11.12%) and 2012 (8.25%).
Two decent years out of five isn't exactly a great track record. Who wants to pay the 2 and 20% fee for that performance? I don't have to pay some hedgy to lose money in the market for me, I can lose it for free.
Hedge and mutual funds are loaded to the gills with these two stocks. To me, it looks like they are taking profits to meet redemptions or the big boys simply can't see how these names go materially higher. They have to sell now so they don't get caught with too many shares 6 or 9 months from now.
Yesterday, Accenture released its "Igniting Growth In Consumer Technology" survey. The company polled 28,000 people in 28 countries on buying habits and expectations in consumer electronics.
The survey found that less than half (48%) of respondents planned to buy a smartphone this year, down six percentage points from the 54% who said they planned to buy one last year. The number of people who plan to buy a new TV or tablet PC dropped to 30% and 29%, respectively, versus 38% last year.
Although it is only one survey, if you are long Apple, you might want to curb your enthusiasm, given the potential for sluggish demand for smartphones in 2016. Bored consumers don't really drive incremental demand.
To meet the consensus estimate, Apple has to report fiscal 2016 revenue of $242.3 billion. And somehow they need to find $256.7 billion the year after.
You can see how the "law of large numbers" works. Back in fiscal 2011, revenue was up 65.7%, but by 2014, revenue growth had slowed to 6.95%. There was a 27.8% jump in 2015, because of the new iPhone, but this year revenue is expected to be up only 3.7%. It's pretty hard to get excited about 3% revenue growth. And incidentally, a drop from 27% growth to 3.7% is rather steep.
I know the bulls argue Apple is "cheap," so it must be a great buy. But to drive the stock to the consensus price target of $140, where is the incremental demand that makes the stock look cheap? You have to believe the 3.7% revenue estimate is really, really wrong to get the stock to $140. What if the 3.7% estimate is right and the stock is correctly priced? To get to $140, somebody needs to start leaking 5G iPhone 7 photos, stat.
I'll address Disney in another article.