One thing smart traders always seem to do is buy weakness and sell euphoria. It seems easy, but many investors are often scared of having seller’s remorse when stocks may go higher. A new report from RBC says to take advantage of selling in three top tech stocks now, for what could be solid gains not far down the road.
Often investors, and certainly Wall Street analysts, become myopic on stocks and focus so closely on the near-term results that the big picture gets lost in the sell-off dust. The RBC analysts are focused on positives that could be just a quarter or so down the road.
These three tech stocks are all rated Outperform at RBC.
This remains the world’s biggest and boldest technology company in the world. Apple Inc. (NASDAQ: AAPL) came in with numbers for the quarter that were above expectations, but the actual iPhone sales were somewhat below what was a pretty high bar. The company has an incredible $200 billion in cash, most of it stored overseas, that could be used to buy back shares and make strategic investments.
The RBC team acknowledged in the research report that near-term selling of the shares not only Wednesday, but possibly for the foreseeable short term, is inevitable. But they pointed to four major points that investors positive on the long-term outlook for the stock to consider.
- Only 27% of the installed base of iPhone owners have migrated to the iPhone 6 models. This leaves a huge part of the very loyal Apple nation still waiting to step up to the plate and purchase.
- They feel that the gross margin guide down on 70 basis points, or 0.70%, is minimal given the program transition and current strong dollar headwinds. The analysts feel that this could lay the groundwork for 40% or more gross margins in fiscal year 2016.
- Only 12% of China, which is the market that many are crazy bullish on for Apple, has 4G coverage. As that coverage expands, it obviously opens the door for huge increases in iPhone sales. It is also important to remember that Chinese consumers covet the Apple brand.
- The average selling price for the iPhone still remains very strong at $660, which is flat quarter over quarter. With a move by many to the higher memory models, this could start to trend higher.
The company is also widening its lead over Google in the app marketplace. In fact, revenue at Apple’s global App Store was about 70% higher than on Google Play in the first quarter, compared with about a 60% advantage last year.
Toss in the recent huge streaming music announcement, with some concessions made due to push-back from superstar Taylor Swift, and the company continues to expand the gigantic reach it already commands. Apple has updated the iOS operating system, updated and added new apps and is quickly expanding Apple Pay. In other words, it continues to add to its 800-pound gorilla status.
Apple investors are paid a 1.68% dividend. The RBC price target for the stock is $150. The Thomson First Call consensus figure is $149.28. The stock closed Wednesday at $125.22, down over 4%.