Tuesday 26 April was a bad news day for Apple. The company announced its first revenue drop in 13 years, sending its shares down 8%. Apple dragged a lot of stocks down with it that day – including those of Polar Capital Technology Trust Plc, one of Europe’s top technology funds – because 6% of the trust’s £800 million in assets is invested in Apple.
Polar Capital’s lead manager, Ben Rogoff, plans to keep things that way for the foreseeable future. “Apple is in a genuine situation right now, where it’s fair to say that the best years of its growth profile are behind it,” he says in a MoneyWeek Research interview. “But the stock remains attractive, at least on an absolute basis, given its brand and its customer base.”
Rogoff says his fund was prepared for the Apple sales downturn. Late last year, he trimmed its Apple holdings down from 7.6% to 6%, because global smartphone penetration now stands at around 80%, and Apple needs a new product to get consumers snapping up the brand again.
So why not cut the investment further? “This company has the best, most recognised brand on earth, with 500 million affluent customers, and those customers are just waiting to buy something else from it”, Rogoff says. “The challenge for Apple is to come out with a device that will drive an upgrade of the installed base, and there’s a question mark there: we don’t know if they can or if they can’t.”
Either way, “there’s not very much downside absolute risk”, because the stock is cheap. It’s currently trading at a single-digit price/earnings ratio – “less than half of the valuation applied to Coca-Cola, a business that doesn’t grow either but has a great brand and great recurring revenues”. In short, “if Apple can demonstrate that it has longevity, it has a very loyal affluent customer base, and the multiple can rerate quite materially”.
Billionaire investors Warren Buffett and George Soros seem to be taking a similar view. Buffett’s Berkshire Hathaway has taken a $1bn stake in Apple, while Soros’s hedge fund – Soros Fund Management LLC – bought 3,100 shares of Apple in the first quarter of this year, spending an estimated $338,000.
Back at Polar Capital, Rogoff names two other technology behemoths he believes in: Google and Facebook. “These companies are delivering growth, and really impressive growth, when you think that global GDP has been revised downwards every year since 2009,” he says. Both companies have defied expectations in a big way, and their prospects are cheery for the simple reason that “together, those two companies are capturing 80% of incremental online US advertising spending”.
“I refute the charge that, because something’s big, it means it can’t deliver strong returns to people,” he says. “Ultimately, these are monopolies with pricing power, and they are beneficiaries of some of the most powerful medium-term themes that we’ve seen in our careers.”
There’s plenty to think about…