We heard yesterday that Apple is looking to start assembly and mass-production of a new low-cost iPhone next month as demand for the revenue driver’s popularity in India and China, for example, grows. The product is touted to be unveiled in March. According to sources, the phone’s processor will mimic that of the iPhone 11, but will go back to pre-established Touch ID technology instead of the newer Face ID authentication. These new low-cost handsets coupled with the reported 5G capable iPhones (with 3-D cameras, due to be released in September) will no doubt boost sales, helping Apple on its targeted path to not only ship 200 million units (across all iPhone ranges) but bolster iPhone sales return to growth this year. With Q1’20 earnings season in full swing, we look to Apple’s report, due to be released after the US close on Jan 28.
Apple is one of the most valuable companies in the world and was the world’s first USD 1tn company, measured by market capitalisation, back in August 2018. The company’s strong liquidity profile, ability to innovate, and a huge loyal consumer base are some of the reasons why we favour it. Some of the risks faced by the company include increasing competition from other handset providers, its reliance on its iPhone products as its revenue generator, and as much as its premium positioning in the market supports margins, it can hamper demand in times of economic stress. We currently however, feel that the positives more than outweigh any downside risks and Moody’s, S&P and Fitch’s Aa1/AA + ratings, supports this.
Having gained over 22% in total return terms last year the 4.45% 2044 bond continues to offer attractive risk-adjusted returns; our Relative Value Model (RVM) calculates the bond’s expected return and yield at 12%. We tend to hold over 80% in sovereign and quasi-sovereign bonds across our various strategies so highly rated bonds such as this and AAA rated Microsoft, compliment the corporate positioning within the Global strategies. The Apple and Microsoft bonds offer an additional buffer of ~4 credit notches; we feel it will be some time before either company receives a downgrade.