When I say Dave Zeiler is an "expert" on Apple Inc. (NASDAQ: AAPL), that's not hype.
Not at all.
Right now, Dave is a colleague of mine here at Money Map Press, where his expertise on cryptocurrencies and Apple is well known.
His insights into Apple were the result of consistent hard work - long before Wall Street understood what a wealth machine the company would become.
When Dave started following the company in earnest in the late 1990s, Apple was a rebound-tech candidate still struggling to find its identity - and the prototypical "cult stock," whose ardent followers drank the Apple Kool-Aid and denounced all naysayers.
Around that same time, Dave wrote a weekly column for The Baltimore Sun website called "The Mac Experience." In 2003 he managed an in-person sit-down interview with legendary Apple co-founder Steve Wozniak.
A few years later, Dave launched an Apple-focused news and analysis blog for The Sun.
He cut through all the emotion, the cultish hype, the gloom-and-doom prognostications - and instead focused all his analytical efforts on the facts and the trends.
And he ended up painting some highly predictive portraits of Apple's future.
Other than the sports blogs there, Dave's "Apple a Day" was one of the best-read blogs at The Sun.
It had a huge following - and among those followers was Apple itself. The "suits" at the company read what he was writing, connected with Dave personally, and listened to what he thought.
That's why I sat down with Dave earlier this week for an in-depth interview on what's going on with Apple.
We'll see why Dave believes the company will successfully navigate the COVID-19 pandemic. And he'll explain why he's so confident that Apple's stock will eventually eclipse the $400 level.
Here's an edited transcript of our talk...
WPIII: There's a lot of investor interest in Apple right now - for a lot of reasons. It's got tons of cash, and a bulletproof balance sheet. It was a pioneer of the technology "ecosystem." It's an innovator. And it's an "adaptor" - a distinction I want to make here.
In the long run, I know it's moving into new business realms where its technology can make a difference - and make a splash - while giving the firm a new "annuity stream."
In the near term, it's got a timely new product hitting the markets - a product I know you're quite bullish on.
In sports like Major League Baseball, you'll hear references to the "complete" player - a player who's able to do it all. Such players are a rarity.
The same is true of "complete" companies, of which Apple is one. That's why investors are so interested in the stock right now.
We've got a lot of ground to cover - hence the thorough introduction. I really wanted folks to understand why you're a guy to listen to when it comes to Apple.
Back in August 2018 - just after Apple crossed the $200 threshold - you predicted the stock would eclipse the $300-a-share plateau by 2020. You were right. The shares soared to nearly $328 before selling off.
Let's start with that stock price prediction - and Apple's share price journey. Tell us what happened. And why.
Then I want you to tell us where you think the stock goes from here ...
DGZ: I'd rather not shatter the illusion, Bill, but my Apple stock predictions are based on two things:
For some reason with Apple, Wall Street always seems to lag behind. It's almost like the analysts can't believe what they're seeing, can't believe the company can keep succeeding. I think some of them just want to be the first to proclaim that "the party's over."
So the sell-siders publish much lower price targets. I will say this for them, though - they're consistent. Consistently wrong!
[Bill and Dave both laugh.]
As for where the stock goes from here, the coronavirus pandemic is obviously going to throw a monkey wrench into the company's earnings for a while. Goldman Sachs just downgraded Apple to a "Sell" based on much lower-than-expected iPhone shipments for the current quarter. I think that's very short-sighted and misleading advice for investors.
With Apple, you need to keep a long-term view.
Last year, I revised my target for Apple to $400 a share by mid-2021. That might get pushed back a bit because of the economic damage from the coronavirus. But the stock will get there. Mark my words.
WPIII: For a stock to move higher, catalysts are required. I prefer to refer to them as "triggers."
No matter what you call them, Apple has plenty.
But let's start with one that you recently tweeted about with some enthusiasm. I'm referring to the new iPhone SE.
Tell us about the phone, its features and its pricing - and explain the strategic benefits.
DGZ: This is actually the second incarnation of the iPhone SE, even though Apple has declined to acknowledge that with a name like "iPhone SE2." What the company has done here is to re-use technology and designs from previous models. That greatly reduces development costs and has allowed Apple to offer a budget iPhone that delivers an incredible value for the money.
WPIII: I like that kind of shrewd, cost-focused thinking - not for the company as a whole, but for a specific, targeted product like this.
DGZ: I do, as well, Bill. I do as well.
Here, for instance, the case design is based on the iPhone 8, which it essentially replaces. Like that model, the new iPhone SE has a 4.7-inch screen and a "Touch ID" button on the front. For those who like a smaller phone and dislike the Face ID features on the other iPhone models, that's a selling point right there. But on the inside, the SE packs a lot of the muscle of the iPhone 11 - which was only introduced last fall.
That means an A13 Bionic processor and support for all the latest wireless protocols - you know, Wi-Fi, LTE, Bluetooth 5.0. The 12-megapixel camera is only a single-lens offering. But it has many of the same features as the more advanced iPhones, including Smart HDR and the ability to shoot 4K video at 60 frames per second.
But the best feature of all is the price tag. This very capable phone starts at just $399 for the 64-gigabyte model, with the upgrade to 128 gigabytes just $449. That's quite a bit less than the $700 starting price for the iPhone 11.
The original iPhone SE helped Apple increase its sales because it expanded the potential market. In other words, people who wanted an iPhone but could not afford to pay $700 to $1,000 could manage an SE. It was particularly popular in price-sensitive markets outside the United States and Europe. I think the new SE could do even better - at least once the global economy gets back on its feet.
WPIII: But the iPhone is just one piece of the much bigger Apple puzzle. With this company, we're talking about the pioneer and perfector of the "ecosystem" strategy.
I think this is an important point for folks to understand, Dave.
Explain the "ecosystem" concept. What you mean by that, and then talk about some of the most alluring pieces of it. Perhaps newer pieces? Like Apple TV? Services?[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
DGZ: What a lot of folks don't really understand is that Apple sells more than just tech - it sells what I like to refer to as an "aspirational lifestyle." Everything Apple does has to serve this goal. But that's not all. Apple takes care to make sure all of its devices, software, and services work together seamlessly, which has cemented the firm's reputation for ease of use. This integration is one of the things personally I like the most about using Apple products. It's a huge advantage over the competition that I don't think gets enough credit from the Wall Street crowd. And I'm talking about all of Apple's products, from the venerable Mac to the iPhone, to the iPad, to the Apple Watch. Over the past decade, it's added lucrative services to the mix, such as the App Store, Apple Music, and the new Apple TV Plus streaming service.
WPIII: Let's break a few of these out...
DGZ: OK. Let me start by saying this: While it won't stray from the "ecosystem" concept, Apple is shifting its emphasis away from hardware and toward services. Hardware will become more like the bait that lures customers into the ecosystem while the services will generate the bulk of the revenue growth. That's been true of the Mac business for a long time. Mac sales have been mostly flat since 2012, but Apple keeps making Macs. The same transition is starting to happen now with the iPhone. Wall Street continues to focus on iPhone sales, but that's looking backward.
WPIII: Or maybe not looking at the entire picture?
DGZ: Exactly, Bill.
The iPhone still makes up about half of the company's revenue, but has shrunk from two-thirds just a couple of years ago. The iPhone will still play a major role in the ecosystem: It will remain the hardware foundation for the company - but it will no longer be the main growth engine.
The growth, like I said, is going to come from services.
WPIII: What about services? Healthcare?
DGZ: Healthcare is the one big piece of Apple's overall strategy that many people are overlooking. I believe healthcare will be the single biggest source of growth for Apple over the next decade.
WPIII: Really? Now that's got my attention. What are you basing that on?
DGZ: Apple has already said as much. Well, CEO Tim Cook has. Last year, he went on CNBC and said that - in the future - people will consider Apple's greatest contribution to mankind to be what it did for healthcare. Not the Apple II. Not the Mac. Not the iPhone.
Healthcare.
It's a huge focus for the company, but we've only seen a slice of it so far. The Apple Watch was the first salvo. Every new version adds more health-monitoring features.
And Cook knows the value here.
I don't just mean helping individuals monitor their health. That's important - very important, in fact.
But the real benefit is in data - aggregating all the data collected to look for patterns that will help doctors better treat a variety of common ailments. Apple wants to be at the forefront of a revolution in how we use tech to improve our health. And it has the money and technological know-how to pull it off.
WPIII: And the ecosystem...
DGZ: Right, and the ecosystem.
When you start looking at things through that lens, you really start to see the true potential of what's possible. And only Apple really has all the "stuff" in its stable to deliver that.
WPIII: Is Apple TV a big catalyst? Or an ecosystem enabler?
DGZ: Apple TV has never been a huge success, and I'm not sure it ever will be. Right now it's trying to be another Roku Inc. (NASDAQ: ROKU), a company I know Private Briefing subscribers know well - it's been one of your best calls.
WPIII: Thanks, Dave.
[Zeiler nods in acknowledgment.]
WPIII: So what you're saying is that, despite Apple's aspirations, Apple TV won't be...
DGZ: ...won't be a "streaming king."
Look, I know you're familiar with Apple TV Plus, having bought a system for your son, Joey - a huge Apple fan.
So you know yourself, Bill, that you can access all your other streaming content through Apple TV - in addition to the original content Apple has started putting out. That's fine - as far as it goes. There's a ton of competition there.
For now, it's a piece of the ecosystem, and makes a contribution there, but it's not a big one.
From a revenue perspective, I don't see it making a major contribution anytime soon.
WPIII: So that brings me, next, to a market/sector/innovation/growth opportunity I've really been wanting to chat about.
DGZ: I'm betting you're talking about 5G?
WPIII: [Laughing] You read my mind there, maestro...
DGZ: [Chuckles] Lucky guess ...
Look, the thing about 5G is that - unlike 3G and 4G - the story isn't all about speeding up the data to our cell phones.
So, yes, we will probably see a 5G-capable iPhone in September.
But that's not the most exciting part of the 5G story.
What 5G will do is enable both new technologies and better ways of doing things. Some areas where you'll see this aren't too hard to guess - like driverless cars and virtual reality.
But other beneficiaries are less obvious - like manufacturing and healthcare.
And like I said earlier, healthcare is where the biggest opportunities are for Apple. I expect the company to do a lot of innovating with 5G in healthcare and other areas it's interested in - like in augmented reality.
I can't wait to see what they come up with.
WPIII: How about Apple's finances?
DGZ: If you include "treasury securities," you're talking about cash on hand of $207 billion - or about $47 a share. That's about 20% of its share price. But Apple carries $117 billion in debt, which brings net cash down to $90 billion. At a current trading price of $275, Apple is down about 16% from its 52-week high of nearly $328. It also pays a modest dividend of $3.08 a share - for a yield of 1.09%.
That creates a "bulletproof" balance sheet and gives it a nice safety net if the economy goes south. It can also use that money to do deals, if it wants to. And Apple does like to buy up small "under the radar" startups.
It's a strong company, no doubt about it.
WPIII: That should definitely give Apple an advantage if the coronavirus crisis inflicts a lot of damage on the global economy.
DGZ: Definitely, Bill.
I'm of the view that the economic impact of the coronavirus will be worse than Wall Street now expects. Regardless of how long the downturn lasts, or how bad it gets, Apple will get through it.
You know, Apple has a long tradition of continuing to invest heavily in R&D through bad times. That was started by Steve Jobs during the dot-com crash, and Apple did it again during the financial crisis of 2008. Tim Cook recently said he was planning to use that same strategy again.
And it has the cash to do it. So Apple may emerge from this crisis stronger than ever.
WPIII: I really appreciate this, Dave. I always enjoy our discussions.
DGZ: Glad to do it, Bill.
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