The article was written by Jacob Saphir, a Financial Analyst at I Know First.

Apple Stock Prediction

“It’s not about charisma and personality, it’s about results and products and those very bedrock things that are why people at Apple and outside of Apple are getting more excited about the company and what Apple stands for and what its potential is to contribute to the industry.” Steve Jobs

Summary:

Apple, Inc. recovers stock loss form aftermath of the 2016 US election

Strong fundamental despite unfavorable currency rate

Apple Service becoming the fastest growing business segment

Revitalizing the iPad

Investing in Research and Development

I Know First’s algorithm indicates a bullish signal for AAPL

Background:

Apple, Inc. has been a pioneer in the technology sector for seeking new innovations to continuously challenge our capabilities. The introduction of the iMac, iPad, iPod, and iPhone changed the way we live and access information. In the volatile technology sector, a word of mouth or the introduction of a new technology can determine a company’s fate. Earlier this year, Donald Trump’s comments from his tweet to boycott Apple for failing to share cellphone info with the FBI in February to proposing a 35% tariff to encourage companies to manufacture domestically, left investors with a gloomy look of Apple’s future. How would Trump’s policy impact Apple’s future profit during his term as president? Since Trump’s victory in the 2016 US election, many speculated Apple’s stock along with the technology sector to decrease in value. However, despite the stock’s initial decline, it has risen beyond its price level on the day of the election. So, what is causing the stock to rise? Why does the market have a bullish view for Apple? To answer these questions, one has to look at Apple’s fundamentals, diversifying its revenue source, investing in its future.

Fundamental:

According to the 2016 annual report, the company data is encouraging. Despite net sales decreasing by 8% or $18.1 billion, and gross margin declining by 10% or approx. $9 billion from last year, this may not be due to a loss in competition. Apple benefited hugely in the three months ending in October. On the contrary, Apple’s biggest competitor Alphabet’s Android system has posted its fifth quarter in a row losing market share in the smart phone industry. The iPhone constitute over 60% of Apples net sales. As the Android loses market share, Apple’s iOS operating system stands to gain from Alphabet’s loss. One explanation, leads to the result of the appreciation of the dollar value compared to foreign currency. Recently, the dollar has strengthened to a new high not seen since early 2003. International net sales account for 65% of the company’s total sales. Although domestic customers within the US benefits from favorable currency rate, foreign buyers will have less purchasing power.

Although the decreasing figures may worry investors, Apple is not discouraged. Moreover, Apple is undergoing perhaps one of the largest stock repurchase program in corporate history. On April 2016, the company announced it would increase its capital return program. By the year 2018, Apple will fulfill its commitment to repurchase $250 billion dollars worth of stocks. As among the most cash rich companies in the world, the company foresees its future sales and assets to afford such an ambitious plan. During the year 2016, the company repurchased $29 billion of common stock shares and increased its dividend payout from $0.52 to %.57, nearly a 10% increase. The company has paid out equivalent to $12.2 billion in dividends to its shareholders.

Apple Services

Although net sales by product decreased for the iPhone, iPad, and Mac, its services department has become the fastest growing business segment for the year. In the chart below, we can see how services grew by 22% from last year compared to other segments that have unfortunately decreased. In a previous article from I Know First, Apple disclosed on the month of November 2016, Apple App Store achieved the highest level of sales ever. This is an important indication of the company relieving its dependency on its sales for the iPhone. Through diversification into other products and in this case services, Apple may be able to seek growth elsewhere. As indicated in Apple’s 2016 annual report, the increase in net sales was due to growth from the App Store, licensing and Apple Care sales.

Apple services has been also providing customer care for troubleshooting. Apple’s product has been known for its quality and the principle of relative ease of use. This philosophy has influenced IBM to switch its PC computers to be operating Macs due to lower overhead cost . In a previous article, IBM revealed how much it has saved and how fewer each employees sought troubleshooting. This not only showed Apple’s promotion to brand loyalty but also its quality. If more companies find the savings in overhead cost to be justified for its premium in price, Apple stands to earn more revenue for its Mac product line and its services for future clients. Besides diversifying its revenue sources away from its cash cow from the iPhone, Apple has been exploring into its other products for revitalizing.

iPad:

Over the years, the iPad has seen it popularity decline. However, Apple is searching for a way to revitalize the product. In a previous article from I Know First, the company will releasing a new iPad Pro, featuring Apple’s largest screen of 12.7 inches. If the iPad Pro becomes a success, it will fulfill CEO Tim Cook’s vision of “the iPad Pro [as] a replacement for a notebook or a desktop for many, many people. They will start using it and conclude they no longer need to use anything else, other than their phones.” If Apple increases the size of the screen, it may influence buyers to purchase this product as Steve jobs once predicted the world entered a “post PC era” with its introduction in 2010.

Teaching the future:

Apple invests over $10 annually into research and development. Besides investing in the products, one of Apples main drive is creating an ease in creating apps for developers. If Apple wants to overtake Android as the leading market share in the smart phone industry, it needs to invest its resources in influencing its app development platform, Swift. CEO Tim Cook, knew about this and as a result expanded the research and development into China and opened its first iOS Developer Academy in Naples, Italy. The program proved such an interest that before the semester started, applicants surpassed capacity. Apple plans to increase capacity into the future. Investing in future products, applications, and developers through education is vital for Apple in this highly competitive market to increase its market share.

Conclusion:

We are maintaining a bullish forecast of the stock. I Know First’s algorithm forecast the stock as a potential long-term investment.

Past I Know First Forecast Successes With AAPL:

In such as the one dated on March 18, 2014, the algorithm accurately forecasted a bullish signal for AAPL. In its 1 year time span since the forecast’s release, the stock increased by over 70%.

In another example, the algorithm accurately forecasted a bullish signal for AAPL on May 15, 2016. In a 3 months time span, the stock increased by 25.46%.

Below is the latest forecast I Know First algorithm released on December 15, 2016. If we were to compare the forecast back in May 15, 2016, we can see both forecasts rate Apple, Inc. as a buy. If the previous forecast accurately predicted the stock would increase and it did by 25.46%, the latest forecast below could indicate future increase in the stock’s value.

The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number flush right in the middle of the box and the predicted direction (not a specific number or target price) for that asset, while the predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecasted strength of the prediction, while the predictability represents the level of confidence.