Why Jana Partners Is Dead Wrong About Apple

 | Jan 11, 2018 | 9:06 AM EST
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Over the last few days, shares of Apple (AAPL) have underperformed the technology-laden Nasdaq Composite Index. Some of this could be attributed to Apple's lack of presence at CES 2018, an event that is teeming with virtual-assistant wins for Amazon (AMZN) Alexa -- in cars, PCs and household and bathroom appliances.

Also throwing some cold water on Apple stock this week, however, has been a resurgence in concern over the addictive nature of smartphones. This follows statements from activist investor Jana Partners and pension fund California State Teachers' Retirement System (CalSTRS) that urged Apple to develop new software tools to help parents limit phone use as well as study the mental health impacts of spending excessive time on mobile devices.

Concerns over the addictive nature of technology are nothing new. We heard similar arguments about video games, and yet we are now seeing the rise of professional e-sports teams complete with corporate advertising, arenas and sponsorships. Halfway through fourth-quarter 2017, the media picked up on comments over the addictive nature of Facebook (FB) made by former president Sean Parker.

As we think back on this, it echoes the hubbub from decades ago that "TV will rot your brain, kid." Yet, in recent years we have seen a shift in how and where we consume video content.

Perhaps smartphones and social media may be addictive, but we also have to recognize they are the "Swiss army knives" for how we consume information and other content, shop and transact, and communicate. The short of it is, these devices touch many facets of our daily lives, and from what we are hearing at CES 2018 it looks like they will be touching even more of it.

Getting back to Apple, the company has had parental control settings in its iPhone and iPads dating back to 2008. These controls have allowed for the restriction of the kinds of apps, movies, games and other content children can access. With iOS 11, Apple added a "Do Not Disturb While Driving" feature as it continues to stress both safety and privacy.

Will Apple make additional changes? The company has already said it will make its current crop of tools more robust, which likely means it will be a topic at this year's World Wide Developer Conference, Apple's seemingly annual showcase for its software. We see that as Apple doing the right thing, but we would be remiss if we didn't point out that it is a parent's responsibility to oversee a child's screen time -- be it on a smartphone or TV -- rather than pass the buck to Apple, Samsung, Sony or another company. We agree with Jim Cramer on this, so let's all remember that all of these devices come with an off switch for a reason.

This likely means the current headlines will pass and investors will once again focus on the current iPhone upgrade cycle, its growing services business and new products from the company, such as the Home Pod, and others that will make the iPhone a very sticky device.

Data suggests iPhone average selling prices will benefit from the mix shift toward higher-priced and higher-margin iPhone X upgrades this quarter, and we are already hearing about new iPhone models for 2018 that will adopt organic light-emitting diode technology, a positive for our Universal Display (OLED) shares.

This commentary was originally sent to subscribers of Trifecta Stocks on Jan. 10. Click here to learn more about this exciting portfolio and market information service. Apple, Amazon, Facebook and Universal Display are holdings in the Trifecta Stocks Portfolio.

-- Chris Versace and Bob Lang are co-portfolio managers of the Trifecta Stocks Portfolio.

Apple and Facebook are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL and FB? Learn more now.

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