Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Apple Stock Is Bucking the Tech Selloff
Transcript
- Lucas: The Nasdaq is down three and a half percent over the past five days. Amazon, Meta, Alphabet—each off six to eight percent. And then there's Apple, up nearly three percent, pushing three thirty-seven. That's a 900-basis-point divergence in a single week. Luna: It's jarring. Apple is the largest stock in the world, and it's basically ignoring the tech rout. What's the secret sauce this time? Lucas: It's not secret—it's structural. Let's start with revenues. Apple's total revenue in the June quarter was about ninety-one billion, and services alone contributed twenty-three billion. That's roughly a quarter of sales, and services carry gross margins above sixty percent, compared to hardware's mid-thirties. So the mix shift toward recurring, high-margin income is a real earnings stabilizer. Luna: So when investors panic about AI capex blowing out—the data-center buildout that Amazon, Microsoft, and Google are spending billions on—Apple is largely off the hook? Lucas: Exactly. Apple's capex last fiscal year was around eleven billion. Amazon's was sixty-two billion. Microsoft's was fifty-five. Apple is not building giant AI clusters; it's buying chips from others and integrating them into devices. So the 'AI spending is out of control' narrative hits the cloud giants directly, but Apple sails past it. Luna: But doesn't Apple face iPhone demand risk? The last cycle had a tough compare in China. Lucas: That's the other part. Even if iPhone units are flat, Apple is raising average selling prices—the Pro models now start at eleven hundred dollars. Plus, they're buying back stock at a furious pace. In the last twelve months, Apple spent ninety-five billion on buybacks and dividends. That's a four and a half percent shareholder yield, which is double the average S&P 500 company. When the market struggles, that cash return becomes a powerful support for the stock. Luna: So it's defensive tech. But if you run a concentrated portfolio of just ten to fifteen names, does that mean you should overweight Apple right now? Or is this relative strength a sign that Apple is a crowded trade and the next leg down catches up? Lucas: That's the million-dollar question. At a trailing price to earnings ratio of about thirty-two, Apple is not cheap. Its forward PE is twenty-nine. That's a premium to the market, but it's below where it traded in 2021. When I look at the rotation, value stocks—like those in the IWD ETF—are up about one percent over the same five days. So money is moving into defensive value. Apple is a growth stock trading at a value-like multiple in some respects, but it's still a tech stock. Luna: And tech is still losing. So is Apple just a safe port in a storm, or is it actually attracting new money? Lucas: I think it's both. The recent insider selling data is interesting—Tim Cook sold about forty million dollars worth of shares in July, which is a lot for him. But that's part of a pre-arranged trading plan. Generally, insider selling at Apple is at normal levels. The real signal is in the option market: put-call ratios suggest traders are hedging Apple less than other megacaps. So the market is treating Apple as the anchor. Luna: For a concentrated portfolio, then, the decision might not be whether to own Apple, but how much. If you already have a big position in, say, Amazon or Meta, do you trim those to add Apple? Lucas: That's the discipline of a concentrated portfolio. You have to rank your best ideas. For me, Apple's free cash flow generation is unmatched—it generates over one hundred ten billion dollars a year. The question is whether the growth outlook justifies the multiple. Services revenue grew twelve percent year-over-year last quarter. That's not explosive, but it's steady. Apple is becoming a utility-like cash machine. Luna: So you're leaning toward overweight. But what about the risk that the AI rotation isn't over? If the cloud giants stabilize, Apple could lag during the rebound. Lucas: That's a real risk. In fact, I'd argue that for a concentrated portfolio, you shouldn't go all-in on Apple. If the rotation ends, the beaten-down names like Amazon—down six and a half percent this week—could snap back faster. But the key is the time horizon. If you're investing for three to five years, Apple's services compounding and buyback math look very attractive. Over the next three months, it could go either way. Luna: Let's zoom out. The Nasdaq is now down about eight percent from its June high. The S&P is down about two percent. So tech is in correction territory. Historically, when the Nasdaq enters a correction of five to ten percent, Apple tends to fall less than the index. This week is confirming that pattern. Lucas: And it's not just this week. Over the past twelve months, Apple's beta to the Nasdaq is 0.85. So it's less risky on the downside. That's exactly what a concentrated portfolio manager wants in a volatile sector: a core holding that reduces overall portfolio volatility without sacrificing return entirely. Luna: Bringing it back to stock picking: what specific metric should our listeners watch to gauge whether Apple's relative strength is sustainable? Lucas: Watch the services gross margin. It's been hovering around seventy percent. If it starts to slip—say, due to regulatory pressure on the App Store—then the defense weakens. Also watch the buyback pace. Apple has authorization to buy back another ninety billion or so. If management slows the buyback, that would be a warning sign. But as of today, both are strong. Luna: So for a concentrated portfolio, Apple is a core holding. But you wouldn't bet the house on it? Lucas: Correct. I'd own it as a ten to fifteen percent position. Not more. Because concentration also means you need to have conviction in your other picks. If Apple is twenty-five percent, you're effectively making a huge bet on one company's valuation multiple staying elevated. That's fine if you're Warren Buffett, but for most of us, diversification within concentration still matters. Luna: And you can't ignore the fact that Apple is now a five trillion dollar company. The days of doubling in a year are probably over. Lucas: Exactly. The upside is from earnings growth and multiple expansion of maybe one to two turns. That's a mid-single-digit annual return. But it's a high-confidence return. And in a concentrated portfolio, high confidence beats high uncertainty every time. Luna: Speaking of high confidence, if you find value in our deep dives on individual stocks, and you want to help us keep this show ad-free and independent, we've set up a simple way to support us. Lucas: Yeah, it's just a small gesture that goes a long way. You can find us at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. And as always, we don't ask for anything more than what you feel the episodes are worth to you. Luna: Exactly. Now back to Apple: one final thought. If you're building a concentrated portfolio, don't just look at the stock's recent performance. Look at the business. Apple's installed base is over two billion active devices. That is a lock-in that few companies can match. Lucas: That's the ultimate moat. So whether you use this week's divergence to add Apple or to take profits into a better opportunity, the key is to have a thesis and stick to it. That's what separates good stock pickers from the noise.