Apple Inc. (AAPL) ‘Fear Trade’ in Beginnings: Goldman

Updated on

Apple Inc. (AAPL) 'Fear Trade' in Beginnings: Goldman

While there was plenty of news across the hardware group this week, Goldman Sachs conversations with investors tended to be most focused on their Buy-rated Apple Inc. (NASDAQ:AAPL)

Goldman Sachs take on Apple Inc. (NASDAQ:AAPL)

Goldman says they now seeing the beginnings of “the fear trade” on Apple Inc. (NASDAQ:AAPL). With Apple’s share price rebounding heftily since it reported earnings on April 23rd, their conversations with investors this week suggest that many are starting to worry they may be underexposed to a continued near-term rally in the name.

This dynamic is interesting in that it’s the reverse of the process we saw in late 2012, where investors were trimming as the stock continued to sell off aggressively. In both cases, the common refrain from investors was “am I missing something.” Goldman noted in last week’s report, they believe the stock’s rebound was partially driven by a delayed reaction to Apple’s surprisingly large capital allocation program and the fact that consensus has come down enough to narrow the risk of an earnings shortfall this summer.

Goldman also assumed that both of these factors removed many of the negative catalysts that could have attracted incremental shorts, and of course that potentially exacerbated the rally. On that front, however, they were surprised to see that the April 30th short interest data (released May 9th) shows thatApple Inc. (NASDAQ:AAPL)’s short interest increased by 107.2% over a 2 week period. While many still believe the company needs to have a hit product cycle to drive a meaningful share price recovery this year, the shorter term downside risk certainly appears to be less severe than many had previously feared.

Parade reports below-consensus 1Q2013 results, but indicates optimism for 2H2013 Parade Technologies Ltd (4966.TWO): Below expectations: Turning the corner in 2Q13


Parade’s1Q2013 earnings came in well below consensus estimates, driven in part by lower gross margins and revenues that were below consensus and at the low end of the company’s guided range. Parade gave 2Q2013 revenue guidance that was also below the Street, with gross margin and operating margin guidance coming in weaker than expected. Despite the disappointing revenue guidance, Parade expects to see an impact from PC restocking and a potential iPad inventory build-up in late June, and the company is optimistic about growth in 2H2013, with margin recovery expected with an increasing mix of Apple products.

Goldman’s take

Parade has a high concentration of revenue exposure to Apple, with majority of that revenue coming from the iPad and to a lesser degree the Macbook and iMac. Given the company’s Apple exposure, Goldman does not view the soft 2Q2013 sales guidance as a surprise given Apple Inc. (NASDAQ:AAPL)’s conservative June-quarter guidance. This said, they would look to the 2H2013 recovery that Parade is expecting as an indication of the upcoming product refresh cycle that they expect to occur in the fall time frame. Indeed, Parade’s Apple Inc. (NASDAQ:AAPL)sales already showed a healthy rebound (mom).

Further reading:

Apple Inc. (AAPL) Is Beating Samsung, Now Is The Time To Buy: MS

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!