Angelo Zino, VP and Senior Equity Analyst at CFRA Research joins Cheddar to discuss the latest news from Apple and what to expect from the iPhone 16. Watch!
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00:00Hello everyone and welcome to The Headline.
00:06I'm Dave Briggs here on the floor of the New York Stock Exchange.
00:09Friday the 13th, pre-orders open for the iPhone 16.
00:14Will the results frighten investors or will AI again save the day?
00:19This time for Tim Cook and company in Cupertino.
00:22Let's ask Angelo Zeno, Vice President and Senior Equity Analyst at CFRA Research.
00:28Good to see you, sir.
00:29The Apple stock price barely blinked during the unveiling of the 16 and really hasn't
00:34moved since.
00:36Is that simply buy on the rumors, sell on the news or is there something more to it?
00:41Well, historically is kind of Apple stock works in the sense is the best performing
00:46time for Apple stock is usually around kind of the April, May to kind of the September
00:52timeframe to your point, you're kind of buying into that hardware event in September.
00:57There's also a number of other catalysts along the way from May to September, kind of them
01:03announcing kind of stock buyback plans.
01:05The bottom of kind of an iPhone cycle usually takes place around the June, July timeframe
01:10as well.
01:11So we do believe this is kind of a buy the rumors, almost sell the news, but not necessarily
01:16sell the news.
01:17Historically, Apple's worst performing period is actually around the month following the
01:23event.
01:24So it's actually been able to hold up pretty well here, I think is actually a positive
01:28indicator out there for investors.
01:30So it's buy the rumors, sell the news, but you've got a buy on the Apple stock and a
01:33price target of $260 and pretty considerable upside.
01:37Why?
01:38So, yeah, we do have a buy recommendation and listen, going into this iPhone 16 cycle,
01:44we do believe kind of the worst of what you've seen here for Apple is kind of now played
01:48itself out.
01:49We've kind of gone through pretty essentially two no growth cycles in terms of the iPhone
01:5415 and the iPhone 14.
01:56We do expect growth to start to accelerate here with the iPhone 16 cycle.
02:01We see a mid to high single digit growth rate for the iPhone.
02:04Doesn't seem like a lot, but that said, I mean, this is a very mature product.
02:09I think what they announced on the wearable side of things this week in terms of some
02:13of the health care enhancements for wearables is an absolute game changer.
02:18We didn't really see the Vision Pro do anything for that wearables division.
02:22We do think what they did on the watch as well as AirPods Pro side of things will kind
02:26of help reinvigorate growth on that side of things.
02:29And then they start laughing some easy comparisons here in the December quarter with China kind
02:34of essentially being a no growth area for them in six of the last seven quarters.
02:39We think that returns to growth.
02:40That's going to kind of help the sentiment for Apple there.
02:43And then finally, I would say as far as this kind of AI evolution for Apple, that is exactly
02:48how we see it in evolution.
02:49It's not something that's going to necessarily kind of skyrocket this iPhone 16 cycle.
02:54What it's going to do, we think is going to help kind of essentially lead to growth for
02:58iPhones here over the next three or so cycles.
03:01Another feature that I thought was cool coming down the road is you can actually ask your
03:06phone to find a photo and just tell them about some of the impact of factors and it can go
03:11back five, six, seven years and find that photo.
03:14But again, we don't know when we're going to see that feature.
03:17Meanwhile, Huawei got more than three million preorders for a twenty eight hundred dollar
03:22trifold phone.
03:25Any rumors of Apple producing a foldable phone?
03:28Do they need to?
03:30So we've been hearing rumors about Apple working on a foldable phone for years here.
03:35But to this day, we haven't seen anything.
03:37Our view is we would have expected to see it by now.
03:40We haven't.
03:41We don't think it's going to be a 2025 event either.
03:44We do think there is a possibility you start seeing something along the lines of foldables
03:48in 2026.
03:49Again, this thing continues to get pushed down the road.
03:52But the reason it is important for we think Apple to eventually come out with foldable
03:57devices, whether it be on the tablet side of things, on the phone side of things, likely
04:00on both side of things, is because China really kind of the China consumer really gravitates
04:06to it.
04:07So the fact that kind of Apple has not done extremely well on the growth side of things
04:10here in China over the last kind of six to eight quarters makes us believe that they're
04:15really missing two things.
04:17One is on the foldable side of things that we kind of just highlighted.
04:20The other is kind of the evolution towards AI.
04:22The problem with both is, again, foldables are probably years away for Apple.
04:26On the AI side of things, regulatory issues are probably going to keep them from really
04:30kind of ramping up some of the AI capabilities within kind of in the China market.
04:34But that said, we do think, again, easy comps in China and the fact that the consumer will
04:39probably start buying the iPhone 16 in anticipation that eventually those AI capabilities will
04:45roll into China a reason to buy that iPhone 16.
04:48Yeah, I was skeptical about the foldable phones until I played with the Samsung recently,
04:52and it was impressive, man.
04:54I couldn't believe the screen and what the folding allows you to do with Zoom and FaceTime
04:59and things of that nature.
05:00OK, Google, meanwhile, facing its second antitrust trial.
05:04I'm not going to make you an attorney, but what are you hearing about the likely of it
05:07being broken up?
05:09But most importantly, what would be the impact for investors?
05:12Yeah, so our view is it's probably not going to be broken up, but you don't you never know.
05:18But that said, I mean, listen, when you kind of look at Alphabet here, you look at where
05:22how much the stock has gotten hit here over the last four to five months.
05:26I think it's corrected north of 20 percent here or around 20 percent.
05:30You look at the valuation of the stock now trading, in our view, less than 14 times on
05:34our calendar, 26 spaces, well below historical levels, well below even broader market indices.
05:43So you and you actually look at this company, the amount of free cash flow they're generating,
05:47they've actually got the best balance sheet out there in terms of their net cash position
05:51relative to even the apples of the world.
05:53So there is a lot of value in this company, if you were to even consider breaking them
05:57up or even leave it intact across not only search, but of course, YouTube, as well as
06:02that all important cloud business, which is, we think, going to double here over the
06:06next three years in terms of that revenue base.
06:09So our view is this is probably the most undervalued, underappreciated name among those mag seven
06:17names when you even start thinking about kind of doing some of the parts analysis.
06:21And for that reason, we continue to recommend it.
06:24But if you're an investor out there, there's going to be a lot of noise, whether it be
06:29their ad tech business that's under scrutiny, that search business for many, many months
06:34and even years.
06:36Of course, every company, in particular, the mag seven watching next week is Jerome Powell
06:41and the Fed comes down and really is a question of how much they cut rates.
06:46What will be the impact on tech stocks on the mag seven?
06:50Do you expect a 25 point cut as opposed to a larger 50?
06:54Yeah, so our chief economist is right now forecasting a 25 basis rate cut here this
07:01month and actually looking for another 25 basis points in each of the following two.
07:06So think about 75 basis points reduction by the end of this year.
07:10So that's on that side of things.
07:13But when you kind of look at the performance of tech, the first 12 months after a rate
07:18cut, the actual best performing sector since 1990 has actually been tech.
07:23And many people don't realize that many people out there are actually kind of focusing more
07:28on kind of some of these non tech plays out there, kind of more of these cyclical type
07:34of markets.
07:35But when you actually think about it, rate cuts actually bode very well for big tech
07:41for a number of reasons.
07:42One, it actually kind of has a positive impact in terms of how we see valuations out
07:48there. A lot of these companies typically kind of have kind of longer time
07:53horizons towards profitability and what have you.
07:55And those type of names, especially on the growth side of things, will typically see
08:00kind of a boost to the valuation when rates get cut.
08:03The other thing I'd also say is as rates get cut, that's typically it typically leads to
08:08a weakening of the dollar.
08:09And when you think about kind of big tech out there, they are probably the most exposed
08:15among kind of the 11 sectors out there to international markets.
08:19Right. So they should benefit on a weaker dollar outlook.
08:22And in fact, if you kind of look here over the last three months or so, the dollar has
08:25indeed weakened. Bullish historical trend there for big tech.
08:29How about the election? Any expected impact on tech stocks in the next 50 plus days and
08:35then depending upon the candidate who is elected?
08:39Yeah, I mean, it's tough.
08:40I mean, what we told investors back in July actually was, you know, expect a choppy
08:45market for the broader tech market and specifically for semis going into the election.
08:50So kind of over four or five months span.
08:53And we think you're kind of still in this trading range here over the next kind of two
08:57months or so ahead of that election.
09:00Typically what you do see happening after elections is you typically get kind of a nice
09:05rally because a lot of the uncertainties that kind of exist today, whether it be in this
09:10market related to tariffs, whether it be related to taxes or what have you.
09:15A lot of those concerns start to alleviate once kind of the event has happened, even
09:18though those concerns still lie out there.
09:21I will say this, the fact that, you know, potentially if you do get a Kamala Harris
09:26victory, which maybe those odds have increased here over the last couple of days or so, we
09:30do think that kind of bodes a little bit better for certain areas within tech in terms of
09:35the semiconductor names out there, because I think it kind of takes away maybe some of
09:39the extreme risks related to tariffs that are out there.
09:42I think you've just got better visibility under Kamala Harris administration than you
09:46may under a Trump administration where he's a lot more of a wild card out there.
09:51Very interesting.
09:52Excellent stuff, as always.
09:54Andrew Lozano, Vice President and Senior Equity Analyst at CFRA Research.
09:58Good to see you, sir. Thanks so much.