Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How Apple's Rout Is a Buying Opportunity in a Rotating Market
Transcript
- Lucas: So Apple is down eight and a half percent in five days, while Microsoft is up nineteen, Amazon up seventeen, Alphabet up nine. That is not a normal tape. Luna: Yeah, that is a violent divergence. And it feels like Apple is the one getting left behind in this rotation. Lucas: Exactly. And for stock pickers, that raises the question: is this a warning sign, or is it the kind of drawdown you actually want to buy? I think there's a real case that Apple's selloff is overdone, and I want to walk through the numbers. Luna: Before we dig into that, I just want to say — if today's episode helps you think about your own portfolio, the reason we can keep making these shows ad-free is listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo. Even a small one keeps us going. Lucas: Yeah, genuinely, it matters. And we get back to the meat — because this Apple move is fascinating. Lucas: First, let's set the scene. The S&P is up one percent over five days, the Nasdaq up one point eight percent. So the market is fine. This is purely a stock-specific issue for Apple. Luna: Right, so it's not a beta selloff. It's Apple being singled out. What do you think is driving it? Lucas: Part of it is valuation. Apple was trading at a premium to the market for years, and investors are now asking what the next growth driver is. But look at the fundamentals — Apple's earnings per share has been growing at a steady clip, they've got a massive buyback, and the dividend yield is now around one percent. The stock just went through a ten percent drawdown, and historically that's been a decent entry point for them. Luna: So you're saying this is more about sentiment than fundamentals? Because when I look at Apple's price to earnings ratio, it's come down a lot from where it was in 2024. Lucas: That's the key. Apple's forward P/E is now below its five-year average. I think it's around twenty-two times forward earnings, versus a historical average closer to twenty-five. That's a meaningful de-rating. Luna: Twenty-two times for a company with Apple's stability and cash flow doesn't seem crazy. Especially when you compare it to some of the other megacaps. Lucas: Exactly. Microsoft is at thirty-five times, Amazon at forty. Apple is cheaper on a relative basis than it's been in years. And that's the kind of thing that should catch a stock picker's attention. Luna: But isn't there a risk that this is a structural decline? Like, Apple's growth has slowed, and the market is recognizing that. Lucas: That's the bear case. And I want to take it seriously. Apple's revenue growth has been low single digits for a while now. But look at the services business — that's growing double digits. And that's a high-margin recurring revenue stream that the market often underappreciates. Luna: So services are the hidden engine. How big is that now? Lucas: Services is roughly twenty-five percent of Apple's revenue now, and it's growing faster than the overall company. That mix shift is a positive for margins and for earnings quality. Luna: So maybe the market is being too short-term. But I still wonder about the product cycle. The iPhone is mature, and there's no obvious new category on the horizon. Lucas: That's true. But Apple doesn't need a new category to be a good investment. They generate massive free cash flow, they return a ton of capital to shareholders, and they have a loyal installed base. At a cheaper multiple, you're getting paid to wait. Luna: That's a fair point. Let's look back at similar drawdowns. Has Apple historically bounced back from these kinds of drops? Lucas: There's a nice study that shows Apple's average drawdown over the past decade is around fifteen percent, and it typically recovers within six to nine months. The last time it fell this far in a week was in 2022, and it was a good buying opportunity. Luna: So the pattern suggests this could be a dip to buy, not a reason to panic. But what about the rotation? Investors are clearly favoring AI names like Microsoft and Amazon right now. Could that continue to hurt Apple? Lucas: It could. But rotation is often temporary. Remember, Microsoft was the laggard earlier this year, and now it's the leader. The pendulum swings. Luna: Yeah, that's a good reminder. So for a concentrated portfolio, would you put Apple in it right now? Lucas: I would. If you're building a portfolio of your best ideas, Apple at this valuation, with this balance sheet, is a defensible core holding. The key is to size it appropriately and have the patience to ride out volatility. Luna: And that's the thing about concentrated portfolios — you need to be comfortable with drawdowns. You can't own five stocks and expect them to all go up at the same time. Lucas: Right. The discipline is to focus on the long-term earnings power, not the short-term price action. Apple's earnings per share is expected to grow about eight percent this year, and that's without any new major product. Luna: Eight percent earnings growth on a stock at twenty-two times forward earnings — that's a reasonable setup. Not a bargain, but not expensive. Lucas: And when you factor in the buyback, which reduces share count by about three percent a year, the total earnings per share growth is actually closer to eleven percent. That's a solid long-term return driver. Luna: So the market's giving you a chance to own a high-quality franchise at a more reasonable price. That seems like the kind of thing this show is about. Lucas: Exactly. And I think the broader lesson is to be careful not to confuse a stock's price action with its business fundamentals. Apple's business is not deteriorating — it's just growing slower than the hype names. Luna: And slower growth at a lower multiple can still be a great investment, especially with a dividend and buyback. Lucas: So if you're looking at your portfolio and wondering whether to grab the falling knife, the question is: do you believe in the long-term cash flows? If yes, then a drop like this is an opportunity, not a signal to run. Luna: And that's a good place to start for anyone building a concentrated book. Thanks for breaking it down, Lucas. Lucas: Always a pleasure. The tape's never boring, that's for sure.