Let's run through some earnings reports and see what's what.
Apple (AAPL): IPhone unit sales slightly underwhelmed, but the average selling price of the iPhones in the quarter had sell-side analysts raising their earnings per share number for the quarters immediately ahead. No specifics were provided on the Apple Watch, but CFO Luca Maestri did mention in the conference call that it beat internal company projections. He also said watch sales were highest in June. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
I'd mentioned in my recent Apple earnings preview article that. anecdotally, I had yet to see anybody shopping for, much less actually buying, the Apple Watch when I'd been in the Albuquerque, N.M., Apple Store several times in the last few weeks. Most analysts were looking for Apple Watch sales of about 3 million units for the quarter, and Apple's internal company projections could have been anywhere from 1 million to 3 million, so that CFO comment doesn't help much. The next couple of earnings reports will have a lot of focus on Apple Watch and whether it's a loser, like most of Wall Street thinks it is. IPhone 6's and 6-PlusS, or whatever they're going to call the next iPhones, and how well they're received by the marketplace are probably the next major catalyst for this stock.
Synaptics (SYNA): This iPhone supplier is down along with just about every other Apple iPhone and Apple Watch supplier. Heck, almost every single semiconductor stock on the planet is down 3% to 7% today, and it's just downright ugly in the chip world. I bought the bulk of my Synaptics stock when it was in the low $60s a few months ago and trimmed some in the $90s. I bought some of those shares back a couple of weeks ago near $82. Synaptics is likely more than pricing in an ugly quarterly report and guidance here, and the selloff has been exacerbated by rumors that Apple's going to internally develop its own touchscreen controller chips to replace Synaptics.
Given that it would take at least a few quarters for Apple to do so, even if it's successful in designing it in the next few quarters, I think that exacerbation probably gives the bulls the edge for the near term because any decent, or especially a better-than-expected, quarterly report would probably make this stock pop back toward $90 in a hurry. Of course, if the entire semiconductor supply chain is getting glutted up in the smartphone sector as Samsung struggles and Apple's iPhone numbers weren't good enough to offset that Samsung softness, then Synaptics could miss the quarter and guide down. And that, even with the current discount, would likely take the stock lower anyway. I might nibble a little more Synaptics in the next few days if it drops down closer to $70, but the stock's still 25% above my cost basis and I'm not in a rush yet. I'll post any moves I make at TradingWithCody.com.)
Microsoft (MSFT): Microsoft's riding the tailwinds of Windows legacy products with a few very exciting, smaller, fast-growing products that keep dreamers in the stock. Microsoft sort of reminds me of Nortel and Lucent back in the late 1990s as they rode the legacy telecom and enterprise telephone switches business into its sunset, but each had a lot of smaller, faster-growing fiber optic and router businesses to keep dreamers in the stock. Case in point, Windows OEM revenues dropped 22%. But Surface revenue grew 117% to $888 million. That's great growth, but that's still just 20% of Apple's $4.5 billion in iPad sales it reported last night. Commercial cloud revenue grew 88% (up 96% in constant currency), which gives it an annualized revenue run rate of over $8 billion. Microsoft did less than half as much in sales as Apple did in the last 90 days. Microsoft's market cap valuation is just slightly more than half of Apple's. Isn't it remarkable to think that Apple had a market cap of less than one-tenth its value today and that Microsoft has exactly the same value as back in 2005 when I wrote that someday Apple would be worth more than Microsoft? I've owned Microsoft at times in the past decade when the stock's been crushed and there's some valuation upside. I've owned Apple for 12 years, though, and am still holding it. It's obviously grown into being my largest position over that time frame, and regardless, I would still rather own Apple than Microsoft.
