!-- Global site tag (gtag.js) - Google Analytics -->
Select Page

More people have died in China, spooking investors around the world. Our stocks are down just less than 1.5% this week, holding up a little better than the market as a whole. Maybe big earnings in the next few days will turn the mood around.


However, because the selling has been so ragged and so indiscriminate, we want to spend a little time here putting the contagion threat into historical context. This outbreak is often compared to SARS back in 2003, which killed nearly 900 people and sent markets around the world into a deep defensive posture. Hong Kong stocks dropped nearly 7% and China's economic boom briefly faltered. By 2007, the world had forgotten and the S&P 500 had climbed a healthy 10% compounded every year.


That's how history works. Unless the world comes to an end (it hasn't yet), every catastrophe only slows the path of progress. It creates opportunities. We don't recommend any of the Airlines and Hotel stocks at the center of the storm now as those companies are going to face near-term challenges. And we don't recommend the Fast Food chains that do so much business in China. Everything else has a clear shot at that 10% a year . . . if not more.


We just need earnings to come through to remind the market that fear comes and goes, but fundamentals are forever. So let's get ahead of what could be the biggest week of the season with our look at the biggest stock on the planet.




Earnings Preview: Apple (AAPL: $309, down 3% yesterday)

Earnings Date: Tuesday, 5:00 PM ET 

Expectations: 4Q19
Revenue: $88.5 billion
Net Profit: $20.2 billion
EPS: $4.55


Year Ago Quarter Results
Revenue: $84.3 billion

Net Profit: $19.9 billion
EPS: $4.18


Implied Revenue Growth: 5%
Implied EPS Growth: 9%


Target: $300 (we will raise if the numbers are good)
Sell Price: We would not sell Apple.
Date Added: February 4, 2016
BMR Performance: 220%


Key Things To Watch For in the Quarter


Disruption in the Chinese consumer market is no reason for Apple to sell off. Investors have already written down the entire country from both a production point of view and where pure device sales are concerned. We can thank the trade war for that. After all, China accounted for 19% of Apple revenue two years ago. Now it's only 17% of a significantly larger global footprint and actively shrinking. We're sure CEO Tim Cook would love to capture a much bigger share of the Asian phone market . . . but if that was really his strategic goal, he would have released a lower-priced iPhone by now. 


Apple is still all about selling luxury devices and add-on services to affluent Western consumers. As far as that goes, the company is doing well. This was the all-important holiday quarter and we're looking for healthy 5% revenue growth, which is a turnaround from last year's 5% decline. Services are coming along nicely to compensate for a mature iPhone market while Wearable Accessories (mostly Apple Watch and headphones) are now as important to the overall company as the iconic Mac computer itself.


The headline numbers are huge either way, but we're looking for signs of dynamism below the surface. Admittedly, our revenue target is on the high end of the company's guidance range, but we know that he would have told us to lower our expectations if he was worried about his ability to make the numbers happen. Likewise, when we get to the bottom line, he'll engineer as much profit as he needs . . . probably by buying enough stock to boost the per-share comparisons. A company this big growing 9% a year is a miracle, especially when the S&P 500 as a whole continues to weather outright earnings deterioration. That's why we're here for the long haul.




Earnings Preview: Equity Residential (EQR: $82, down 1%)

Earnings Date: Tuesday, 5:00 p.m. ET

Expectations: 4Q19
Revenue: $685 million

Net Profit: $132 million
EPS: $0.35 
Funds From Operations: $0.89


Year Ago Quarter Results
Revenue: $653 million

Net Profit: $116 million
EPS: $0.31
Funds From Operations: $0.84


Implied Revenue Growth: 5%
Implied EPS Growth: 14%
Implied FFO Growth: 6%


Target: $85
Sell Price: $55
Date Added: June 16, 2016
BMR Performance: 31%


Key Things To Watch For in the Quarter


While Apple will get most of the glory tonight, Equity Residential may actually be more interesting. There's no suspense around whether the company earned enough to pay its $0.57 dividend this quarter, but this is the time of year management tends to raise its distribution. We're looking for confirmation that the payout is going to at least $0.60.


And apartment buildings are as local as it gets in today's global economy. There's zero China risk here. As long as people keep moving to the biggest cities and inventory of apartments for purchase remains flat, Equity Residential's core business will keep subtly improving, year after year. This company hasn't been a blockbuster for us but it has been extremely steady, giving subscribers close to 8% a year like clockwork. All it needs to do is stay on course.