In what have unfortunately become seemingly more frequent occurrences, terrorist activity across the globe appears to be proliferating. The latest, three explosions in the Belgium capital of Brussels, have taken the lives of at least 34 individuals, while wounding as many as 170 more, according to CNN and the Belgian media. Twenty were killed at the Maalbeek metro station while 14 more were killed at Brussels’ international airport, and while at the time of this writing, there has been “no official claim of responsibility,” ISIS appears to be most likely responsible for the terror, tweeting that “What will be coming is worse,” CNN reporting.
The events March 22 come only a few short months after the terrorist attacks that rocked Paris and its northern suburb Saint-Denis, where suicide bombers and mass shootings in a coordinated attack at cafés, restaurants and a music venue killed 130 people, injuring nearly 370 others. The December 2015 San Bernardino, California, attack, where 14 people were killed and another 22 were seriously injured remains fresh on the minds of all Americans. We expect the timing of such an attack to have widespread implications in a number of areas, with perhaps the biggest impact on the presidential race for the Republican nomination. Whether you like Donald Trump as a Republican candidate, it may not matter. The business mogul has positioned himself in the eyes of supporters as being the “toughest” on terrorism, oftentimes revealing course and “offensive” language that has made onlookers cringe at times.
With Trump’s candidacy likely augmented in the eyes of voters that want greater control over US borders and a harsher stance on immigration and terrorism, we’d expect any efforts by the Republican establishment to derail the “Trump Train” to become even more fruitless, regardless of money spent. Many voters have already made up their minds, even if late-deciders are opting for a candidate other than the real estate personality. The biggest question now is whether Donald Trump will win the 1,237 delegates needed to clinch the nomination by the end of primary season, or will there be a contested ballot at the Republican National Convention in Cleveland July 18. Though all signs point to Trump getting very close to the necessary delegates to win (he would have to win ~65% of the remaining pledged delegates), establishment Republicans are still doing all that they can to stop the momentum.
Whether they succeed will be another thing, but at the very least, it will be an interesting next few months. If Donald Trump does not get the Republican nomination, despite a plurality of the votes and delegates, surely one might argue the democratic process has failed? In any case, the #NeverTrump movement won’t go away amid “hard-core” Republicans, and at least one high-profile hedge fund manager is claiming a Donald Trump nomination will cause a “global growth scare.” From our perspective, a Donald Trump presidency is not as profoundly negative as many may be making it out to be, and while “the Donald” may not rank among the best executives of all time, at the very least, he may be able to bring new perspectives to Washington to move closer to solving a large number of issues in gridlock. Hillary Clinton will be doing all that she can to prevent the inauguration of one Donald J. Trump.
With all of this said, most of the travel and lodging industries are getting pummeled today as a result of the reminder in Brussels today of the very real threats to peace the world faces. Best Ideas Newsletter portfolio holding Priceline (PCLN) is trading off modestly ~2.5% at the time of this writing, but we think its fundamental performance was tracking far ahead of targets to this point in the quarter, and we’re expecting a solid first-quarter report and conservative forward guidance all the same when it issues an update in coming weeks. Peers Expedia (EXPE) and TripAdvisor (TRIP) are also facing weakness today, while airline equities are also under some pressure during the trading session, with American Airlines (AAL), Delta Airlines (DAL) and United Continental (UAL). The cruise lines, Norwegian Cruise Line (NCLH), Royal Caribbean (RCL), and Carnival Corp (CCL), may be experiencing the most selling pressure, and hotel stocks including Intercontinental Hotels (IHG) and Marriott (MAR) are hurting.
In other news, Apple (AAPL), a holding in both newsletter portfolios, has been making headlines quite a bit lately. The stock has quietly snuck back past $100 and now is trading near $107 per share, and we continue to be comfortable with a position in shares, despite concerns about global growth and slowing iPhone momentum. Apple held a press event March 21, and from our perspective the company didn’t disappoint. The company released a new successor to the iPhone 5s, the iPhone SE, which it describes as the “most powerful phone with a four-inch (Retina) display.” The iPhone SE features a much-stronger 64-bit A9 chip (introduced in the iPhone 6s and iPhone 6s Plus), an advanced 12-megapixel iSight camera, faster LTE and Wi-Fi, Touch ID and Apple Pay, among other exciting attributes, including “Hey Siri,” which allows for the voice activation of Siri without having to pick up the phone, and fitness tracking capabilities. Prices for the new phone will start at $399.
Apple also announced that it would cut the price of the Apple Watch Sport by $50, to $299, and we generally agree that a sub-$300 price tag may be less intimidating for incremental adopters of the world’s top-selling smartwatch. Wearables rival Fitbit’s (FIT) shares have been under tremendous pressure since the company’s share price peaked in August 2015, having gone public just a few short months earlier. Fitbit set full-year 2016 revenue in the range of $2.4-$2.5 billion and adjusted EBITDA in the range of $400-$480 million and non-GAAP diluted net income per share in the range of $1.08-$1.20, and while the outlook is respectable if not back-end loaded, bumping heads with Apple in the wearables market may keep its multiple capped, even if the wearables industry is growing like a weed. We think Apple will be the long-term winner in the wearables market, and while Fitbit’s shares may be unfairly beat down at ~13 times forward earnings, the company still has a lot to prove.
Apple’s unveiling of the 9.7” iPad Pro March 21 may also turn some heads and help revitalize this market segment, to a degree. In Apple’s fiscal first-quarter results, for example, unit sales of versions of its iPad fell 25% on a year-over-year basis, so reinvention in its second-largest revenue driver at ~9% of revenue was not only expected but much needed (the iPhone still accounts for ~70% of revenue, by comparison). The newly-released iPad Pro weighs less than a pound, features a new pro Retina display, boasts the 64-bit A9X chip, a four-speaker audio system, 12-megapixel iSight camera, and 5-megapixel FaceTime HD camera. The 9.7” variety will also support the Apple Pencil and new Smart Keyboard, but one of its most interesting features, in our view, may be the new True Tone display technology, which “uses new four-channel sensors to dynamically adjust the white balance of the display to match the light around you for a more natural and accurate, paper-white viewing experience.” The 9.7” iPad Pro will start at $599 for the 32 GB with Wi-Fi model and $729 for the 32GB Wi-Fi + Cellular model and be available to order March 24.
In somewhat-related news, the Federal Bureau of Investigation noted that an “outside party” was identified as being able to unlock the San Bernardino terrorist’s iPhone. Was it John McAfee or probably not? In any case, we’re not sure if the FBI’s announcement has made Americans feel more or less safe. Are there really “outside part(ies)” that can hack into phones? Many conspiracy theorists will be sure to point out that it’s probably not too far of a stretch to assume that the FBI already had the ability to hack into the phone and that it wanted to use Apple’s cooperation to avoid the “invasion-of-privacy” issue altogether. The public may never know, and there may be a lot of things that may never truly come to light, now that one of the biggest cases of the digital age is on pause. US Magistrate Judge Sherri Pym has ordered the government file a status update by April 5. We’ll keep monitoring the situation.