Apple and Intel have been prominent holdings in the simulated newsletter portfolios for some time now, and we’re interested in what Facebook has to say regarding recent developments in its upcoming earnings release.
By Brian Nelson, CFA
Apple (AAPL) is now a $205+ stock. I can barely contain my excitement. Remember when shares were laboring under $160 when we went to “fully invested” in December 2018? We also explained why we liked Apple quite a bit, despite the share price decline, not only because of its solid net cash position on the balance sheet but also its strong future expected free cash flow generation. We value shares at $218.
We don’t chase product cycles that are already implicitly embedded in our free cash flow forecasts that derive our fair value estimates, and we love moaty companies with fantastic dividend growth prospects. Apple remains one of the higher-weighted stocks in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. As we’ve stated time and time again, we’d only look to remove Apple when its shares are significantly overpriced and when its technical/momentum indicators turn lower.
We’re not viewing the settlement with Qualcomm (QCOM) as significantly material for Apple (it is material for Qualcomm), and it does little to alter our thesis on Intel (INTC), too, one of the top-weighted ideas in the Dividend Growth Newsletter portfolio. Intel’s shares have frankly been on fire since the summer of 2017, and the company has been a part of both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio for some time. Shares of Intel actually rallied materially on news that it would drop 5G phones. But why?
Well, exiting the 5G smartphone modem business may truncate some of its long-term revenue growth potential, but Intel’s admission that the “there is no clear path to profitability and positive returns” makes it the right move. The executive team remains excellent stewards of capital, and this only makes us more confident in the sustainability of the dividend. On the basis of our enterprise valuation process, we value shares of Intel at $56 per share, and while its price at north of $58 is getting a bit stretched, we’re letting this winner run until its technical/momentum indicators turn over.
Facebook (FB) is now a $180+ stock, and it is rallying in sympathy April 23 on a strong report from Twitter (TWTR). We’re less interested in whether Facebook will beat or miss the numbers when it reports, as we are in getting a clearer picture on the issues that have been an overhang on the stock: regulatory oversight, data security, and its cost structure in the coming years. We would expect some very positive commentary about Instagram Checkout, which we think might change the face of online retail in coming years. We maintain our $228 fair value estimate heading into the report, expected after the close April 24. Our thesis remains firmly intact.
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.