Apple (AAPL) has good prospects despite the slowdown in China, in the opinion of Mike Mussio, managing director of wealth management firm FBB Capital Partners, who is taking advantage of the stock's weakness to add to the position for the firm's clients.
Apple's stock price fell by more than 14% since it posted quarterly results last month, despite strong growth in the sales of its flagship product, the iPhone. Apple, which is a holding of the Action Alerts PLUS charity portfolio co-managed by Jim Cramer, sold 47.5 million iPhones in its fiscal third quarter, up more than a third year on year, but investors were still disappointed.
"We've owned Apple and, for clients that haven't owned it, we've been adding to that position," Mussio told Real Money in an interview.
He said the Chinese yuan's devaluation -- which lowers purchasing power in China, an important market for Apple -- coupled with the country's weakening economy, are "probably going to have an effect" on Apple, but the general global trend of shifting to mobile devices will continue and Apple will do well, as "it's still growing sales globally."
China's slowdown is a real reason for worry in global markets, because it is impossible to know exactly how bad the country's economy is faring. Mussio said the current commodities rout is a direct consequence of this, and it should benefit positions in the consumer discretionary sector due to the lower oil and energy prices which leave consumers with more money to spend.
"We have had a healthy overweight consumer discretionary for the last few years. A lot of those companies should still continue to do well from lower oil," he said.
Despite data showing investors piling into European and Japanese stocks as the Fed's interest-rate rise approaches, Mussio still sees value in the U.S. domestic markets.
"We've been rounding our positions in the last few weeks, adding a little bit more to sectors we've been focused on: healthcare and technology," he said, adding that FBB Capital Partners doesn't own any Chinese companies directly.
The wealth manager also added to positions in the financial sector, as banks could benefit from an upcoming interest rate rise, which would allow them better margins on loans. But he acknowledged the sector may be weighed down by the regulatory environment, which is "much different than it was a few years ago."
Oil companies are looking much cheaper since their stocks got hammered because of the plunge in the price of crude, but, Mussio pointed out, "we don't know how much cheaper they can get." FBB Capital Partners is underweight the oil sector, as their clients are either towards the end of their careers or retiring and therefore "they're not crazy for the volatility in the sector."
One big unknown for the markets is when will the Fed raise interest rates. Mussio thinks the Fed "probably should start raising rates, but they probably won't." At the beginning of the year, the wealth manager believed the Fed would raise interest rates in September, but since then has pushed back that expectation to December.
"If they start earlier it would give them more room to take their time. Inflation is pretty benign, employment looks a lot better, but the data is mixed," he said. However, the Fed is walking a fine line between maintaining its credibility and looking at the data. And with the IMF and others pleading with the Fed to keep rates on hold, "they may do something just to show the international community that they can."
Some fund managers are switching into Japanese and European stocks, attracted by the fact that the Bank of Japan and the European Central Bank are still printing money while the Fed is on the cusp of tightening. FBB Capital Partners, which is underweight Europe, has also started to evaluate whether it should pick up some exposure over there. European companies' earnings have benefited from the weaker euro lately.
"The question is, are they in the cycle where we were in 2010-2011? We're looking at it. Earnings are great, but earnings quality is key," said Mussio.
He is looking at companies that have very solid revenue growth, above the rate of growth of the economy as a whole, and which do not have a lot of exposure to China. "We'd be looking to companies that are selling to the U.S. and Europe and are growing revenue."