Apple is in great shape; it’s frustrating to see the pullback: Analyst

Tom Forte, D.A. Davidson Sr. Research Analyst joins the On the Move panel to discuss the acceleration of the current tech sell-off and where tech giant Apple stands with investors.

Video Transcript

JULIE HYMAN: Tom Forte is joining us now, though. He is D.A. Davidson senior research analyst. I believe you have a different view when it comes to Apple, Tom. And so as we see it and many of the other tech stocks pull back today and recently, what's your level of concern here?

TOM FORTE: So basically, I think what's happening in technology is a one-way trade all up is now becoming a two-way trade, up and down. And I think for the market in general, that's healthy. I would argue for Apple specifically, there has not been a material change in the fundamentals. The company achieved a $2 trillion valuation without selling a single 5G iPhone, which is remarkable.

So to the extent that Logitech pointed out that you have 1 billion consumers working remotely and 1 billion consumers learning remotely, there's still a very significant need for tablets, for laptops, for a lot of Apple's products independent of the iPhone. And be it September 15 or later, we anticipate a launch for a 5G iPhone. So I think fundamentally, Apple is in great shape. It is frustrating to see the pullback. But I do think it's healthier for the market to have stocks go up and down rather than just up.

AKIKO FUJITA: Tom, it's interesting that you highlighted all the hardware side of things for Apple when we've heard consistently from the company that service is going to-- is going to be the big growth driver. Given the dynamics at play right now, should be we-- should we be looking at those numbers on the iPhone, particularly the iPad, given the big boost they've gotten so far? Or is it really still the services side of things that's going to be the driver, at least in the medium term?

TOM FORTE: So I think the three factors that together combined to drive the shares to $2 trillion were your comments on services and the company's ability to generate a double in services revenue in a short period of time. Foundationally, though, the smartphone is still the most important product to Apple, bears the best economics. And when I think about how COVID-19 has ignited unit growth for laptops, for tablets, I think it's a confluence of those three factors that has driven the stock higher.

So on a go-forward basis right now, again, given the importance of the iPhone, the potential of a multi-year upgrade cycle due to 5G, I think that's the next leg of growth for Apple's shares at this point.

JULIE HYMAN: Tom, at the same time, whether you're talking about Apple or Amazon or any of these other stocks that have done so well, they've gotten expensive, right, on a PE basis, on a price of sales basis, on most of the various valuation metrics you look at. So if you're an investor and you're sort of looking for something maybe that hasn't had that run, is there-- can you find it anywhere? Is there any sort of next Apple, the next Amazon that's even out there and hasn't been bid up?

TOM FORTE: So, Julie, that's a great question. And I would argue on two fronts. One, you have to look for company-specific catalysts. So we talk about Apple. We talk about a multi-year cycle for 5G iPhones.

I think about Overstock, for example. It's had a tremendous run up because of home e-commerce, which is the hottest category within e-commerce. But investors may be overlooking that they won a government contract along with Amazon and Fisher Scientific. And that government contract is for potentially $6 billion of revenue. So if they were able, for example, to get a third of that, they could double their total sales in a short period of time.

So I do think if you think about the iPhone for Apple and you think about this government contract for Overstock, that there are examples out there where companies can still grow their earnings and then justify their high valuations.

AKIKO FUJITA: Tom, I'm curious to get your thoughts on that report that came out last week about how SoftBank had been kind of behind the tech rally prior to what we've been seeing the last several days. They essentially bought up options in tech stocks that fueled the rally. I mean, how do you assess the SoftBank hand at play here in the broader tech market?

TOM FORTE: So SoftBank, I think, has one or two black eyes when you think of WeWork and some of the other investments they made that haven't done so well. I do think, though, that I'm a buyer on the notion that smart technology investors I think are looking at the pullback and saying is there a point in time, for example, where Etsy, which has benefited from COVID-19, it's getting multiple purchases from consumers now. You think about how it expanded their total addressable market with everything they're doing in masks.

So SoftBank may be the poster child right now for buying on the pullback. But I do think other investors are looking at this opportunity and maybe hoping that some of these names pullback even more so they can take advantage of it.

JULIE HYMAN: Everybody likes to bargain. Thanks, Tom. Tom Forte is D.A. Davidson senior research analyst. Always good to talk to you, Tom. Appreciate it.

TOM FORTE: You too, Julie. Take care.