When AAPL Turns to Rot

By John Del Vecchio  |  June 6, 2019

Tuesday, May 4, was the best day for the market since January 4. And you know what? Odds favor a continuing rebound for stocks.

But you have to be smart about how you play it.

The chart below — courtesy of — shows that “Dumb Money” and “Smart Money” have “crossed paths.” Smart Money sentiment tends to be a good indicator of intermediate-term trends (otherwise it wouldn’t be “smart money”).

You can see that, over the last year, Dumb Money performance has been a complete disaster…

Now, with the odds of interest rate cuts topping 98%, we’re quickly going back into a period of an artificial boom. The question is, how long will it last?

Stocks have some hurdles to clear. Tax cuts have come and gone. Companies have bought back boatloads of shares. Where’s the foundation for upward market cap growth?

Indeed, according to my Forensic Accounting Stock Tracker (FAST) platform, several stocks represent potential clunkers beyond 2019…

It claims to reveal the details of a little-known way to generate income that’s estimated to pay out $17 billion a year.

For example, I’ve highlighted Tesla’s (Nasdaq: TSLA) financial and operating issue. It’s the lowest-ranked stock according to FAST, a point I emphasized on May 2: The Genius Musk and His Failing Grades.

Other big names face problems as well.

Deere & Company (NYSE: DE) recently chucked up an airball with its quarterly report. Obviously, this isn’t a fly-by-night operation; Deere’s been making agricultural equipment for over 180 years. What’s troubling is that it’s heavily financed sales in recent years.

Financing can be dangerous because aggressive terms may cause a customer to buy something today that they otherwise would have waited until a later date to purchase. As a result, revenue is “pulled forward” — or “stolen” — from the future.

Now, you have to find a new customer to fill that “lost” revenue. Of course, if business were booming, a company wouldn’t have to offer favorable terms in the first place…

Apple (Nasdaq: AAPL) poses a big risk for the market because it’s the most widely held stock. It’s often the biggest component of virtually any portfolio you can own, especially if you own exchange-traded funds.

Not only is Apple over-owned. Its finest days may be behind it.

How so? Well, Apple’s management told investors that it’s decided to stop disclosing iPhone unit sales. According to CFO Luca Maestri the “number of units sold in a quarter is not representative of the underlying state of the business.”

That’s a ridiculous statement.

Of course iPhone unit sales matter. Analysts and investors burn the midnight oil trying to forecast iPhone unit sales. It’s a key metric in the performance of the company, whether Maestri likes it or not.

And, unfortunately for Apple and its CFO, unit sales numbers are losing a lot of luster, fast. The average selling price has saved the company… but, maybe, not for long…

The stock rally for another name, Alphabet (Nasdaq: GOOGL), is looking a bit long in the tooth. Of course, you know it as Google, and it’s so ubiquitous it’s become a verb in the 21st century.

But, recently, GOGGL got smashed over antitrust concerns. It’s dominant in search and online advertising. And that’s led to boatloads of cash flow. However, that cash flow hasn’t translated into much of a second act. Remember Google Glass?

There’s the cloud and hardware businesses, but many other players are in those, too. Why would Google command premium profit margins in such a competitive space?

Google’s FAST letter-grade for “Expectations” is an “F.” That means Wall Street is too bullish on prospects for these smaller business units.

One disturbing trend sticks out like a sore thumb in the company’s numbers. It’s CAPFLOW, which is the amount of capital expenditures relative to its cash flow. It’s soaring.

Historically, this number has been less than half of what it is today. That means Google is investing more and more to maintain cash flow, with no apparent “homerun” payoff. It could be an indication that the company is struggling to find footing in other markets beyond search and advertising.

Stocks might rebound… and companies will still have a lot of problems. The deeper we go into this bull market the greater the risk they represent.

Get ready for plenty of stomach-churning volatility…

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John Del Vecchio

John Del Vecchio is the author of the bestselling book, Rule of 72: Compound Your Money and Uncover Hidden Stock Profits and What’s Behind The Numbers: A Guide To Exposing Financial Chicanery And Avoiding Huge Losses In Your Portfolio.

As the in-house stock market guru and forensic accountant for Dent Research, John stood on the shoulders of the great David Tice, James O’Shaughnessy and Dr. Howard Schilit, and built a framework of algorithms and a multi-factor grading system that has made him one of the more successful short-sellers around.

John is also the executive editor of our Hidden Fortunes newsletter and our trading service Small Cap All-Stars.

He graduated Summa Cum Laude from Bryant College with a B.S. in Finance and was awarded Beta Gamma Sigma honors. He earned the right to use the Chartered Financial Analyst designation in September 2001.MORE FROM AUTHOR