Great Stuff 7-23-2019

We get some interesting mail here at Great Stuff.

You never know what’s going to show up in the inbox. I’ve seen everything from stock advice to insults to poetry.

After last week’s Reader Feedback issue, I received a rather interesting question from Edward M.:

In 30 years of financial writing, an economics writer says he has learned that when he pens a negative article on a security and the feedback is strongest and most strident against his theme, he is always correct. Interesting. So, which of your articles are getting the most hate mail?

The most hate mail … hmm. It isn’t any one article in particular, but it is one specific company: Apple Inc. (Nasdaq: AAPL).

And I’m going to get more hate mail today. I’m sure.

Today, Apple is in the news because it’s in advanced talks with Intel Corp. (Nasdaq: INTC) to buy the company’s 5G smartphone modem business. After shelling out billions on the technology, Intel is calling it quits, as it sees no forward path to profitability.

Apple doesn’t see it that way, and it’s willing to shell out a reported $1 billion or more for Intel’s patents and staff researching 5G smartphone modems. Given Apple’s issues with current modem supplier Qualcomm Inc. (Nasdaq: QCOM), this seems like a no-brainer.

Apple’s stock is up slightly on the news, and Wall Street is set to go gaga over any deal.

The Takeaway:

My problem with Apple is … well, there are many. But my biggest problem is that, much like Fonzie from Happy Days, the company has “jumped the shark.”

Apple’s products were never cutting edge. Rather, Apple made what was out there much, much better … and prettier. But iPhone sales continue to tank, falling 16% in the last two quarters alone.

5G-enabled smartphones will help refresh demand for the iPhone, but the damage may have already been done. When your products rely on being the best to maintain pricing, a lull in the market like this allows everyone else to catch up.

Consumers now have low-cost alternatives that look just as nice — sometimes even better. Many of those alternatives are already promoting 5G capability. Apple is late to this game.

But there’s a bigger problem facing Steve Jobs’ legacy. It’s one every analyst should have seen coming.

Growth in services revenue is starting to decline. According to research firm Sensor Tower, Apple’s App Store sales grew 14% in June, compared to 18% in May, 21% in April and 22% in March.

Services revenue was supposed to be Apple’s saving grace. It was supposed to make up for falling iPhone sales. We now have proof that it won’t.

And it makes perfect sense. When all your services are directly tied to your devices, aka Apple’s “walled garden,” it only makes sense for services revenue to decline when device sales decline.

Now, Apple isn’t dead yet. It has literal tons of cash. So, don’t throw it on the cart. But, it does need that “one more thing” to reinvigorate the company and its customers. Right now, I don’t see that happening.

Great Stuff Good Better Best

Good: Buy the World a Sparkling Soft Drink

Great Stuff 7-23-2019

It just doesn’t fit the song, does it? “I’d like to buy the world a sparkling soft drink and keep it company.”

But, that’s where The Coca-Cola Co. (NYSE: KO) finds itself these days. Coke is out. Sparkling sugar water with vitamins is in.

It’s good for your health, you know.

And it’s good for earnings. Coca-Cola blew past Wall Street’s earnings estimates this morning by $0.02 per share. Revenue hit $10 billion, also topping estimates.

According to Coke, Coca-Cola Zero Sugar and Plus Coffee were standouts behind sparkling water. So, for the record, sugar in water is good; sugar in Coke is bad.

KO shares, meanwhile, are very good and have risen nearly 6% today.

Better: You’re All Clear, Kid!

Great Stuff 7-23-2019

The rise in popularity of Funko Inc.’s (Nasdaq: FNKO) collectable Pop! Vinyl figurines has not slowed toymaking behemoth Hasbro Inc. (Nasdaq: HAS) one bit.

Riding the continued success of My Little Pony, Disney’s Frozen 2 and the Star Wars franchise, Hasbro reported strong earnings this morning.

The company beat both top- and bottom-line expectations, with earning coming in a whopping $0.28 ahead of estimates. Hasbro also said it was “well-positioned for the holiday season.”

Both Frozen 2 and Star Wars: The Rise of Skywalker launch in the fourth quarter and should provide serious drivers for Hasbro’s revenue. It looks like Christmas will be extra special for the toymaker this year.

Best: That New-Car Smell

Great Stuff 7-23-2019

New to you, that is. AutoNation Inc. (NYSE: AN) just named Cheryl Miller as its new CEO, replacing Carl Liebert.

In addition to a new CEO, AutoNation also reported impressive second-quarter earnings, which beat expectations by $0.06 per share. Revenue was also better than expected at $5.34 billion.

However, the feature that had investors most excited was the 10% rise in same-store new vehicle gross profit. In other words, AutoNation has finally snapped out of its pricing slump on new cars.

That’s quite a lot for investors to take in, and AN shares are up more than 8% as a result. The stock might be a bit pricey after this surge, so those looking to buy in on AutoNation might want to wait until the shares cool off a bit.

Great Stuff Quote of the Week

The Banyan Hill experts had an interesting internal exchange yesterday. The article “Psychedelics Decriminalization Moves Forward In Cities Around The U.S.” was shared around, and the question was asked: How do we make money from this?

Leave it to expert Michael Carr to give us a quote worthy of the Great Stuff hall of fame:

No. 1: Ketamine-based drugs for depression, sold by Johnson & Johnson (NYSE: JNJ) division.

No. 2: Invest in a company making products that meet the needs of individuals defending against those using the decriminalized street versions, like Taser-maker Axon Enterprise Inc. (Nasdaq: AAXN).

Clearly this is tongue-in-cheek. We’re not suggesting you go around tasing people you think are tripping on psychedelics. Besides, it might not work. They might just enjoy it. You never know.

If you enjoy Mike’s quick wit as much as I do, you’ll love his trading service, Precision Profits. Mike just closed out his last two trades for 323% and 102.8% gains!

Are you getting those kinds of returns? I thought not. Click here to join now!

Yoo-Hoo! I’ll Make You Famous

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Until next time, good trading!


Joseph Hargett

Great Stuff Managing Editor, Banyan Hill Publishing