For Immediate Release
Chicago, IL – September 14, 2018 – Zacks Equity Research Cypress Semiconductor CY as the Bull of the Day, Alibaba Group BABA as the Bear of the Day. In addition, Zacks Equity Research provides analysis Apple AAPL.
Here is a synopsis of all three stocks:
Bull of the Day:
The advent of ETF investing in the 1990s with the S&P 500 tracking SPY “spider” shares allowed investors to invest in all the components of a broad market index with a single transaction. Because the shares traded on an exchange just like a single stock, investors could make transactions whenever they pleased – unlike index mutual funds which typically can be traded only at the end of the day. Their popularity soared and their huge traded volumes ensured deep and liquid markets.
Ten years after SPY’s 1993 introduction, there were about 125 ETFs traded in the U.S. Today there are more than 5,000. Investors can now easily buy and sell exposure to every imaginable segment of the market -- from very broad indexes to very focused sectors and everything in between.
Index ETFs have been a boon to investors, greatly increasing the simplicity and reducing the cost of investing in a passively managed basket of stocks. Arbitrage opportunities ensure efficient market pricing of index ETFs, – if the price of the index diverges from the prices of its components, traders can simultaneously buy the index and sell the components (or vice versa) and keep the difference as risk-free profit – but that can also cause a somewhat adverse effect – correlation.
Inflows and outflows to index ETFs cause the component stocks to move in the same direction, even when the fortunes of those companies are quite different. When investors are purchasing an index ETF in large numbers, the rising tide tends to lift all the boats. When investors are selling, sometimes the baby gets thrown out with the bathwater.
Cypress Semiconductor seems to have been the recent victim of ETF outflow selling. The iShares PHLX Semiconductor Index ETF saw outflows of $393M last week including $259 million in a single day. Concerns about softening demand for semiconductors in general, weakening prices due to commoditization, especially in DRAM products, and cautious language from Nvidia and Applied Materials had investors looking to exit the sector - which has been a strong performer over the past two years.
Cypress, though technically a semiconductor manufacturer, is in a fairly unique niche and it's likely to avoid the pricing and demand issues that are threatening to slow the industry as a whole. CY manufactures embedded systems solutions in four main categories – Consumer goods, Automotive, Industrial and Enterprise Hardware. They make the behind -the-scenes components for a lot of the things in consumers’ homes and cars that work together with minimal input. The fact that Cypress’ products are largely invisible in the end product is – paradoxically – proof that they’re working.
Bear of the Day:
The basic tagline on Alibaba Group since its 2014 Initial Public Offering has been that it’s the “Chinese Amazon.” At the time, it was the biggest IPO in history, raising $25B and giving Alibaba a market capitalization of $231B. To date, only Spotify (SPOT) has raised more money by going public, selling $29B worth of shares earlier this year.
The comparison to Amazon made Alibaba a very popular holding, especially with U.S. investors. They had seen Amazon go from an innovative online bookseller to an enormous purveyor of an incredible variety of products, reshaping the retail landscape as it aggressively expanded into virtually every aspect of the business. Other retailers, including venerable Wal Mart, have been forced to change their strategies in the face of Amazon’s might. Many lesser firms have been marginalized or forced out of business, prompting the coining of a new phrase that’s applied when traditional retailers lose market share to the reigning retail king – “getting Amazoned.”
The Alibaba opportunity is obvious. With a population of more than 1.3 billion and a growing middle class which increasingly desires a wide range of once-unobtainable goods, Chinese retail represents an almost unfathomably large market and Alibaba is the biggest player. What’s not to like?
Alibaba has largely delivered on that original promise, becoming the world’s largest online retailer and, like Amazon, has expanded into Entertainment, Food Delivery, Fintech and Cloud Computing services. Revenues and earnings grew quickly and the share price more than doubled in less than four years, topping out at $210/share in June of 2018. Far from being exclusively Chinese, Alibaba operates in over 200 countries worldwide.
It’s been a rough period lately however, with reduced earnings estimates, concern about the strength of the Chinese economy and the recent announcement of the planned departure of founder and Chairman Jack Ma. Ma has actually not been CEO of the company since 2015, but now plans to leave the company entirely to pursue philanthropic activities full-time.
Apple: A Strong Buy Way Beyond iPhone XS Max
Apple saw its stock price jump nearly 3% Thursday following the firm’s highly anticipated unveiling of its latest iPhones. But investors should look beyond the iPhone XS and the XS Max to Apple’s more diversified future to help them see why AAPL stock looks like a strong buy at the moment.
Apple’s CEO Tim Cook and other executives showed off the tech giant’s latest offerings at its now-standard event to hype products ahead of the vital holiday shopping period. One year removed from the debut of Apple’s 10th anniversary iPhone X, the company introduced three new iPhones: the iPhone XR, the iPhone XS, and the iPhone XS Max.
The company boasted that all of the phones feature faster processors and longer-lasting batteries, among other new features. Apple’s extravaganza highlighted its push into bigger, more expensive phones as the company banks on its ability to continue to attract consumers at eye-popping price points—the iPhone XS Max is set to start at $1099 and could cost up to $1,449.
Overall, Apple’s three new iPhones have an average selling price of $949, which is roughly 15% higher than the three phones launched last year. It is these kind of high price points that helped see Apple’s most recent quarterly iPhone revenues surge 20% to $29.91 billion, while iPhone unit sales only saw a 1% jump.
Investors should also note that Macs and iPads were left out of Apple’s big release event where the firm also showed off its new Apple Watch Series 4. Macs were the products that helped bring the company to prominence decades ago, but it seems like some of Apple’s growth might no longer come from the firm's traditional devices.
Apple became the first publicly listed U.S. company to reach $1 trillion in market value largely on the back of its flagship consumer product that has only been around for roughly 11 years. But over the last year or so investors have become increasingly focused on Apple’s new growth areas beyond the iPhone.
At the forefront of this expansion is the aptly named Services unit. This business is comprised of AppleCare, Apple Pay, Apple Music, and other divisions, and saw its quarterly revenues soar 31% to $9.548 billion.
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