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The Bear Case for Apple Inc. Stock: An In-Depth Look

There’s a seeming contradiction when it comes to Apple Inc. (NASDAQ:AAPL). Apple stock now sits just off an all-time high. Last Thursday, its market capitalization hit $934 billion — the highest ever for a U.S. company. The iPhone is the most profitable product ever created — and it’s driven huge returns in AAPL stock, which has nearly tripled over the past five years and risen 600%+ over the past decade.

And yet Apple stock remains cheap. Dirt-cheap, it would seem. At these all-time highs, AAPL still is valued at a little over 14x FY19 (ending September) consensus EPS estimates. The figure is even lower when considering Apple’s huge cash balance.

The S&P 500 as a whole trades at more than 17x forward earnings, according to data compiled by Birinyi Associates. In other words, the world’s most valuable company, and the world’s most profitable company — ever — trades at a discount to the overall stock market. How can that be?

But looking closely at Apple’s financials and its outlook, there are good reasons why AAPL stock looks so cheap. Apple is the world’s most valuable company — and it’s also one of the most analyzed. The cheap multiple here isn’t due to the market not paying attention. Real risks lie ahead for Apple.

Given the importance of AAPL stock to the market as a whole, investors of all stripes need to understand those risks. And even AAPL bulls should understand who’s on the other side of the trade — and what the downside could be in AAPL stock.

How Cheap is Apple Stock?

At the moment, AAPL stock trades at about 16.5x consensus EPS for fiscal 2018. That’s a relatively cheap multiple — but it’s even cheaper considering the company still has about $31 per share in net cash, roughly one-sixth of its market capitalization. Backing out that cash, Apple stock trades at what seems like a ridiculously low multiple: 13.8x earnings.

It’s a number that seems like an outlier, particularly among large-cap tech. Alphabet Inc (NASDAQ:GOOGL,GOOG), Facebook Inc (NASDAQ:FB), and Microsoft Corporation (NASDAQ:MSFT) all trade at at least 20x 2018 earnings, even backing out their own net cash balances. And of course Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX) trade at nose-bleed valuations (80x forward earnings for AMZN, 71x for NFLX).

Simply applying a 20x earnings multiple — still below most of its large-cap tech rivals, which by the way all make much less money than Apple — would value AAPL stock at about $260, 38% higher than current levels. Even the 24x multiple (again, excluding net cash) assigned to Microsoft stock doesn’t seem particularly out of line for Apple. It’s not as if Microsoft is a growth juggernaut. In fact, the Street projects Apple to grow revenue faster than Microsoft in their respective fiscal years. 24x earnings plus the $31 per share in cash would value Apple stock at over $300, 62% higher than current levels.

AAPL stock isn’t just being treated by the market as an average stock. It’s being valued well below the average stock, and sharply less than its similarly well-known and widely-owned tech peers. And this isn’t a new development: Apple’s forward P/E actually is toward the higher end of its multi-year range. AAPL on several occasions has traded below 12x forward earnings — a multiple that suggests its business actually is headed for a decline.

Why? Why is the market acting as if Apple’s earnings growth is going to come to an end?

4 Big Risks for Apple Stock: Source: Oaxis

Risk #1: The Commoditization Risk

There are a number of reasons why investors are skeptical toward Apple’s long-term growth prospects. Most notably, the company remains reliant on the iPhone. And the history of tech hardware shows that eventually even the best products eventually become commoditized.

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It happened to IBM (NYSE:IBM) in mainframes. It happened to Dell Technologies Inc (NYSE:DVMT) and HP Inc (NYSE:HPQ) in PCs — after the Windows operating system helped end Apple’s early leadership in that category. BlackBerry Ltd (NYSE:BB) once was the world’s leader in smartphones; its stock has fallen more than 90% from its June 2008 peak.

All of these companies were victims of commoditization (though all four, notably BlackBerry, also have their share of self-inflicted wounds as well). As hardware products improve, incremental upgrades become less compelling — lengthening replacement cycles. Meanwhile, low-cost competitors inevitably enter with a “good enough” product, undercutting pricing — and margins.

In fact, commoditization already has hit Apple — on multiple fronts. The iPad was introduced in 2010, and basically created the tablet category. It was a massive hit. Revenue neared $5 billion in fiscal 2010 – in less than nine months. By fiscal 2012, sales had exploded to $31 billion — 20% of Apple’s total revenue. But less than three years after its launch, the iPad already had peaked. With cheaper Android alternatives proliferating, iPad revenue would fall 40% over the next four years.

Source: Shutterstock

A worse fate has befallen the iPod. A decade ago, that product drove over $9 billion in revenue. Apple no longer breaks out revenue from the product, but the company now sells just a single model. All of the iPod’s features are built into the iPhone. And consumers can buy a product roughly equal to last decade’s iPods in memory and performance for just a few dollars.

The qualitative driver behind the bear case for AAPL stock is based on the idea that eventually, competition and time come for even the best hardware products. And that process may already have begun for the iPhone as well.

Risk #2: Apple Stock’s iPhone Reliance

The launch of the iPhone X has received intense scrutiny from the media and investors for months now. Reports of potential delays raised initial fears. Concerns about demand seemingly were assuaged by a better-than-expected fiscal Q2 earnings report that has pushed AAPL stock to its new highs.

The focus on the X makes sense. The world’s most valuable company remains heavily reliant on the iPhone.

Source: Apple

62% of Apple’s total fiscal 2017 revenue came from the iPhone, per figures from the 10-K. That proportion has risen to two-thirds through the first half of fiscal 2018.

So the seemingly endless discussion of the prospects for the iPhone X aren’t a matter of investors and analysts having nothing better to do. If the iPhone starts to decline, Apple almost certainly follows. And in fact, the iPhone is showing signs of weakness.

Unit sales peaked in 2015 at 231.2 million. Over the past twelve months, the figure is about 6% lower, at 217.2 million. And in fact, iPhone revenue has declined over that period as well, by about 1%. The strong dollar has been a headwind — constant-currency revenue almost certainly is positive — but what growth Apple is grinding out comes from pricing.

So the bear case for Apple stock starts to become a bit more clear. The iPhone is driving 60%+ of revenue. Increasingly, it looks as if unit sales may already have peaked. The X, then, is a test case for whether Apple can continue its growth by increasing prices – which the entire history of hardware suggests should be impossible to do forever.

That’s why the Street was seemingly so negative on AAPL heading into the report. Weakness in the X suggested the end of revenue growth for the iPhone — for good. And it’s why the better-than-expected numbers on that front in Q2 have led Apple stock to bounce back so sharply. Despite the ecosystem it has built, and despite its other offerings, Apple stock still comes down to the iPhone.

Risk #3: The Rest of Apple

The reliance on the iPhone is magnified by the fact that the rest of Apple’s business has growth challenges of its own. As I pointed out last year, from fiscal 2012 to fiscal 2016, non-iPhone revenue barely moved. iPad growth was offset by declines in the iPod and the Mac line. As the Apple Watch came online, the iPad started to fade.

Apple is making some progress of late. According to SEC filings, non-iPhone revenue rose 11% in fiscal 2017, and another 14% in the first half of FY18. Still, hardware represents an issue beyond the iPhone as well. iPad revenue actually has risen through the first half of fiscal 2018 — somewhat surprisingly. Mac sales rose a sharp 13% in 2017 — but declined over the previous four years and are down again in the first six months of this year.

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Looking forward, growth in tablets, desktops, and laptops seems likely to be muted at best. Indeed, given longer replacement cycles, declines wouldn’t be a surprise.

The only two potential growth categories are Services and Other Products. There’s a reason why CEO Tim Cook has targeted $50 billion in services revenue by 2021, up from roughly $30 billion in FY17. Other Products — a category which includes Apple Watch, Beats, the iPod, Apple TV, and the recently released HomePod — has posted consistent double-digit growth since 2015.

But the concern is that those businesses simply aren’t that big. Combined, they generated about 20% of the company’s revenue over the past twelve months. Even assuming the Services business hits its $50 billion target, and is valued at an aggressive 4x revenue, it still would drive barely 20% of the value of Apple stock.

Source: Apple

Apple Watch has been a success — it’s the clear leader in smartwatches, and its growth has sent shares of rival Fitbit Inc (NYSE:FIT) plunging. Yet the product is not even big enough for Apple to break out its contribution. It just doesn’t materially change the company-wide financials.

This is the flip side of the iPhone’s success. It has made Apple so big, and so valuable, that what would be a massive hit for any other company simply doesn’t even move the needle.

The distribution of revenue by product seems to support the bear case that Apple’s growth will end at some point relatively soon. 60%+ of sales come from the iPhone. Unless pricing can go to $1,199 and beyond in perpetuity, revenue from that product is going to peak at some point. Another ~18% of revenue comes from the Mac lines and the iPad. Both of which are in clearly flattish long-term trends that could turn negative. Services and Other Products, then, are going to have to offset any weakness in iPhones on their own.  That’s a big ask given that their contribution to revenue is less than one-third that of the iPhone.

Risk #4: International Concerns

The breakdown of revenue by country, meanwhile, raises its own set of concerns.

42% of sales come from the Americas, the majority of that from the U.S. Apple continues to drive growth in that region, with a 12% increase in sales in FY17 followed by 13% growth in the first half. Still, the core concerns about iPhone growth would seem to apply heavily to the U.S. market, particularly with the end of subsidies from carriers like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T).

Source: Shutterstock

Sales in the company’s Europe segment continue to rise — though that business also includes the Middle East, Africa, and the key Indian market. On the Continent, Apple has lost share in the four largest markets. It’s in developed markets where the commoditization concerns are likely to have the most impact. And in terms of unit sales, the iPhone already has started to stumble there.

Meanwhile, Apple could miss out on the two key developing markets.

Revenue in Greater China dropped 24% between 2015 and 2017. Strong performance in that region admittedly has been a big piece of good news this year. Sales have grown 15% through the first two quarters. But Apple still is losing share in that market to lower-priced in-country competitors. Additionally, trade war concerns are mounting. And at almost 20% of total sales, China is too important for Apple to lose.

In India, meanwhile, a twice-raised import tax makes the iPhone prohibitive. That leaves Apple mostly on the outside looking into the one of the world’s most important markets.

Looking geographically, then, an investor can see the risk to Apple’s revenue. The iPhone has to at least hold sales flat. But that will be a challenge in developed markets. And developing markets aren’t driving the growth needed. And it’s not as if consumers in those markets don’t have phones. They do. They just don’t have iPhones, and even the growing middle classes may not be able to afford them.

Combining the Risks for Apple Stock

Tying all the risks together for Apple creates a model in which revenue is currently at a peak — and earnings likely are as well. The iPhone drives 60%+ of revenue, and its unit sales may already have peaked. That figure has risen just 0.4% year-over-year so far in 2018 — and over the last four quarters remains below fiscal 2015 levels.

The U.S. market is saturated. Estimates suggest that on a unit basis, the U.S. drives about one-third of iPhone sales. China is the second-largest market — and has been negative over the past few years. Add in weakness in large European markets and something in the range of two-thirds of iPhone revenue — thus ~40% of Apple’s total revenue — is at risk of declining if and when Apple no longer can hike prices so aggressively.

Another 20% or so comes from developing markets where the iPhone is falling behind. Apple did post record first-half sales in India, according to the Q2 conference call — but most estimates suggest its presence in that country is small. The iPhone is #1 in China, according to the same call, but in a fragmented market, and revenue has been falling even accounting for currency headwinds.

20% of overall revenue is derived from the iPad and Mac lines, which are unlikely to grow much, if at all, going forward. The last 20% comes from Services and Other Products.

And so the calculation here becomes clear. Apple’s low-teen P/E and P/FCF multiples imply that the company’s growth is about done. But from a revenue standpoint, that’s potentially right.

Barring an acceleration in iPhone sales in China and/or India, the Services and Other Products business have to grow faster than the developed market iPhone business declines. But those businesses combined are half the size. So they’d need to grow twice as fast to account for iPhone declines.

The Bearish Scenario for Apple Stock

Understanding the distribution of revenue across products and geographies highlights the bearish scenario for Apple stock. Here’s how it could happen:

Source: Shutterstock

In developed markets, the iPhone has peaked. The X launch becomes the last major release that drives real buzz — and pricing power. Unit sales fall double-digits in 2019, in line with past performance after major launches. (iPhone unit sales fell 8% worldwide in FY16, for instance.)

Developing markets can’t pick up the slack. In Africa, and the Middle East, iPhone sales grow, but off a small base. Import taxes continue to drive Indian customers to in-country manufacturers as the government intended. Trade war rhetoric and low-cost competitors mean sales in China fall off in FY19 after a rebound year driven by the X.

Apple raises its prices modestly. But a shift to lower-priced models, particularly overseas, leads average selling prices downward. (This, too, is what happened in fiscal 2016: iPhone revenue fell 12%.) iPhone revenue drops from a record $160 billion in fiscal 2018 to $140 billion in fiscal 2019.

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Now, the narrative has changed. iPhone sales in both units and dollars are below their levels from four years ago. Apple breaks out Watch revenue for the first time: it has risen from ~$7 billion in FY19 to $9.5 billion in fiscal 2020. Investors point out that the figure is roughly 4% of Apple’s total sales.

The Services business is growing nicely — still at a double-digit pace — but slowing iPhone unit sales suggest little growth in the user count driving that revenue. A renewed decline in the iPad offsets modest growth in Mac sales. Apple’s overall revenue falls 5% in fiscal 2019 — and investors start asking how the decline will be reversed.

Again, this scenario is one in which most things go wrong for Apple. And I’d argue it’s more likely to occur (if it does) in fiscal 2021 than fiscal 2019. But it’s hardly based on outlandish assumptions.

Developed market iPhone revenues are going to turn south at some point. To offset those losses will require growth elsewhere. Services seems the most likely candidate — but even double-digit growth there only adds 2-3 points to the overall growth rate. The iPhone either needs better performance in developing markets — or the Watch, AirPods, and/or HomePod have to be multi-year winners.

A Cyclical Business

Some version of that bear case has surrounded Apple stock for years now. And, on occasion, it has gained some traction. In late 2012, Apple stock broke $700 (it has since split 7-for-1) for the first time. Within a matter of months, it had lost over 40% of its value. (iPad sales surprisingly turned south and investors worried the iPhone wouldn’t pick up the slack.) In 2015, cyclical worries again hit the stock. AAPL stock dropped about 35% over the next 15 months.

And it’s not just a matter of perception, either. Apple’s earnings have grown, but hardly in a consistent manner. Net income dipped between 2012 and 2014 before jumping in 2015. It fell again over the next two years, before heading to what seems likely to be a new peak in 2018.

It’s easy at the moment to assume AAPL bears (myself included) simply have been wrong the whole time. Apple stock is at an all-time high. The X looks set to perform better than skeptics believed. Services is growing nicely, and diversifying Apple away for the hardware business. Long-time (and well-respected) Apple analyst Gene Munster argued this month that we have entered a new “Apple story”. But investors need to remember that bulls thought the same in 2012 and 2015 as well.

Does The Bear Case Hold Water?

Admittedly, I’ve been proven wrong on Apple stock. And I’m not sure the bear case is that compelling at this point.

Source: Shutterstock

I do see long-term risk to the iPhone, but there’s also a scenario where Apple can offset any declines in that product. Services, Watch, and maybe AirPods and the HomePod can pick up some of the slack. Apple’s immense cash hoard is setting up a windfall for shareholders, as I wrote back in January. Even ~zero revenue growth likely leads to some profit growth, given that gross margins in the Service segment are higher than those in hardware categories. At 14x earnings, ‘some’ profit growth is enough to justify the current valuation.

Apple’s performance so far in 2018 also has undercut the bear case. I wrote after the Q2 report that even a skeptic like myself had to be impressed. The growth in China so far this year is important. So is the performance of the X. The Services business, as Munster pointed out, is becoming a bigger part of the narrative as it becomes a larger part of revenue. And somewhat quietly, margin pressures from a stronger U.S. dollar and higher memory prices are starting to reverse in Apple’s favor.

Still, from a long-term perspective, I do believe the bill is going to come due for Apple at some point.

Every hardware manufacturer has lost its technological advantage eventually. And I do believe the bear case merits consideration — even from ardent Apple bulls. There’s a reason why Apple stock looks cheap, and why it’s looked cheap for years. While the company may be able to grind out earnings growth, and upside in Apple stock, going forward, the long-term risks to the business model suggest that Apple stock never will get a market-level earnings multiple again.

As of this writing, Vince Martin has no positions in any sec

2018’s Biggest Stock Market Winners so Far

After a nearly perfect 2017 that saw big gains happen alongside mitigated volatility, the stock market hasn’t been able to replicate that success in early 2018.

Year-to-date, the S&P 500 is essentially flat. More than that, at one point in late January, the S&P 500 was up nearly 8% on the year. By the beginning of February, it was down 1% on the year.

In other words, the stock market of 2018 has looked very little like the stock market of 2017. Big gains have been replaced with sideways trading. And volatility has once again reared its ugly head.

But the broad market’s struggles don’t apply to every stock.

Thus far in 2018, the stock market has had some pretty big winners. And by big, I mean big. The market’s best-performing stocks have staged huge rallies of 50% and up thus far in 2018.

With that in mind, here are a few of the stock market’s biggest winners so far in 2018.

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Best-Performing Stocks #1: Netflix (NFLX) Netflix NFLX stock Source: via Netflix

Nothing seems to knock secular growth giant Netflix, Inc. (NASDAQ:NFLX) off its horse.

The other FANG names have struggled some in 2018. Facebook, Inc. (NASDAQ:FB) has been hit with data leak and personal privacy concerns. Alphabet Inc (NASDAQ:GOOG) is struggling to keep its margins up during a big investment period. Even Amazon.com, Inc. (NASDAQ:AMZN) has felt pressure recently due to regulatory threats.

But Netflix has faced zero meaningful threats so far in 2018. Meanwhile, the company continues to report strong beat-and-raise quarters that blow out expectations on every key metric from revenue to margins to earnings to subscribers.

That is why NFLX stock is up 70% year-to-date.

At this point, it seems that Netflix has reached escape velocity and is marching towards becoming the world’s biggest entertainment company. The Netflix streaming service just has such a powerful value prop (only $10-$15 per month for a seemingly unlimited library of exclusive content) relative to alternative entertainment options that global adoption at this point seem likes a question of when, not if.

That said, buyers should beware of valuation on Netflix stock at current levels.

I know that sounds silly for a stock that has done nothing but soar over the past several years, but even under bullish modeling assumptions of global domination and huge margin ramp, I still think the stock is only worth about $290.

Thus, at $320, it feels like the stock price has sprinted ahead of fundamentals in the near-term. In other words, if you want to buy this top-performing stock, it won’t hurt to wait for a meaningful pullback. 

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Best-Performing Stocks #2: Fossil Group Inc (FOSL) Fossil Group, Inc. (NASDAQ:FOSL) Source: Joe King via Flickr (Modified)

Not many people would guess this, but struggling traditional watch giant Fossil Group Inc (NASDAQ:FOSL) has actually outperformed streaming TV giant Netflix so far in 2018.

And its not because Netflix has struggled. Netflix stock is up 70% year-to-date. Fossil stock? It’s up 90%.

What is happening under the hood? Fossil is morphing into one of Wall Street’s most powerful turnaround stories.

For several quarters, Fossil fell victim to the smartwatch trend which destroyed the traditional watch market. Fossil’s core watch business tumbled. Sales got sliced. Margins were crushed. Net profits turned into net losses. And Fossil stock dropped from $130 to $5.

Yes, that is right. Fossil stock went from $130 to $5.

Seem overdone? It was.

Fossil wasn’t just laying idle as the smartwatch market killed its traditional watch business. They invested big into developing hybrid smartwatches, which are essentially the result of traditional watch fashion converging with smartwatch technology. Last quarter, FOSL gave the market signs that these hybrid smartwatches are starting to gain serious traction.

This momentum should persist.

Apple Watch won’t entirely dominate the smartwatch market. Instead, there will be multiple players in the smartwatch market, and one of the bigger players will be the company that most successfully integrates traditional watch fashion with smartwatch technology. Right now, Fossil is doing that best. Considering Fossil is the traditional watch giant, it is also pretty likely that Fossil continues to be the best at this for several years to come.

Meanwhile, Fossil stock is still at just $19. Again, this used to be a $130 stock. Therefore, it is pretty easy to conclude that if the smartwatch business continues to scale, Fossil stock still has a lot of room to run higher.

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Best-Performing Stocks #3: Chipotle Mexican Grill, Inc. (CMG) cmg stock Source: Shutterstock

The comeback in Chipotle Mexican Grill, Inc. (NYSE:CMG) has finally arrived. After the company hired a new CEO (who they stole from Taco Bell) and reported pretty good first quarter numbers, CMG stock has taken off and not looked back.

Year-to-date, CMG stock is up nearly 50%. And that includes a big drop in mid-February on bad Q4 numbers. Since then, CMG stock is up nearly 70%.

I was a vocal bear turned vocal bull on CMG stock. I hated the stock on the way down because it felt like health food trends had moved on from CMG and towards poke and superfood bowls. But then the tide started turning. Chipotle stores started filling up again, and the new CEO gave me faith that a Taco Bell-like turnaround was coming to Chipotle (that means targeted advertising, store redesigns, and menu innovations).

That said, after this blistering 70% rally off its 2018 low, CMG stock looks maxed out. The company faces a lot of competition in the quick casual restaurant space. Poke and superfood bowls are still very popular. Meanwhile, McDonald’s Corporation (NYSE:MCD) is actually reinventing themselves to be somewhat healthy with fresh beef patties and “Better Chicken” offerings (maybe not entirely healthy, but at least healthier than before).

Plus, margins will remain under pressure into the foreseeable future thanks to wage hikes.

Overall, then, if you put the current turnaround euphoria in context with the broader picture of a rebounding food chain in an only increasingly competitive QSR space, it is easy to see that CMG stock may have sprinted ahead of fundamentals in the near-term. Indeed, by my numbers, any price tag over $400 seems a little overdone here and now.

As such, while Chipotle has been one of the best-performing stocks so far in 2018, I expect gains from here through the rest of the year to be largely muted.

As of this writing, Luke Lango was long FB, GOOG, AMZ

3 Stocks Growing Faster Than Both Amazon & Netflix

In the stock market, e-commerce and cloud giant Amazon.com, Inc. (NASDAQ:AMZN) is considered the superhero of growth stocks. Meanwhile, Netflix, Inc. (NASDAQ:NFLX) is the very noteworthy sidekick. But these aren’t the fastest growing stocks on the market.

There is good reason for Netflix and Amazon’s shared reputation. Despite their increasing scale, Amazon and Netflix are among the fastest growing stocks in the world. Just last quarter, Amazon reported revenue growth of 43%, while Netflix reported revenue growth of 40%.

That is pretty impressive considering both Amazon and Netflix are already among the largest companies in the world. Thus, not only are they among the fastest growing stocks, but they are also among the biggest stocks. This combination of size and strength has led to AMZN and NFLX stock being big winners.

But just because these two stocks are the headline growers, that doesn’t mean that there aren’t stocks out there which are growing faster.

Back in March, I highlighted 3 stocks growing faster than Amazon and Netflix.

But things change quickly in the stock market, so let’s take a look at the fastest growing stocks now, in light of earnings season. Indeed, there are a handful of stocks which reported revenue growth in excess of Netflix’s 40% last quarter.

Not all of them are winners. Nor are all of them destined to be like Amazon or Netflix one day. In fact, most of them won’t ever get close to Amazon or Netflix’s size. But a few could, and those few could be huge winners over the next several years.

With that in mind, here’s a list of the 3 of the best growth stocks in 2018, all of whom are growing faster than Amazon and Netflix.

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Fastest Growing Stocks #1: Facebook (FB) Congressional Hearings Likely Harden the Battle Lines Over FB Stock Source: Shutterstock

Surprise, surprise.

The most troubled stock in the FANG group, Facebook, Inc. (NASDAQ:FB), is also the fastest growing. Revenue growth at Facebook last quarter was nearly 50%, basically 10 percentage points higher than what was reported at Netflix and Amazon.

What is driving this growth? Well, no one seems to care at all about a loss of privacy in social media. And that make sense. At the end of the day, consumers are getting Facebook’s platforms (Facebook, Instagram, Messenger, and WhatsApp) entirely for free, and this “for free” value prop seems to outweigh compromised personal privacy.

As such, everyone is using Facebook and its suite of products as much as they ever have. Meanwhile, advertisers continue to pull money from traditional mediums and throw it into Facebook’s advertising ecosystem, which features 1 platform with 2 billion-plus users, 2 platforms with 1 billion-plus users, and 1 platform with nearly a billion users.

This trend will continue. Instagram is clearly dominating ad spend in the youth-oriented market. Just look the recent miserable numbers from Snap Inc (NYSE:SNAP). Clearly, Facebook’s Instagram is winning and Snapchat is losing.

Meanwhile, Facebook is pushing forward with enhanced revenue opportunities through Watch and Marketplace, two features which haven’t even scratched the surface of their potential. Even bigger yet, Messenger and WhatsApp, with a combined 2.8 billion users, have barely begun monetization efforts.

All together, this a huge growth story with longevity. Facebook stock, though, trades at a rather paltry 23.5-times forward earnings. This combination of big growth and cheap valuation should power FB stock significantly higher over the next several quarters and years.

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Fastest Growing Stocks #2: Shopify (SHOP) Shopify Inc (SHOP) Stock’s Earnings Dip Is a Chance to Buy! Source: Shopify via Flickr

Shopify Inc (NYSE:SHOP) makes the list of fastest growing stocks for the second time. I’ve been pounding on the table about the digital commerce solutions provider for a while now. And I continue to pound on the table today.

Over the past year, Shopify stock has risen by 60%. That big rise has been driven by a red-hot growth narrative that isn’t slowing down by all that much. Last quarter, revenue growth was 68%. That is basically the same as it was in the prior quarter (+71%) and the year ago quarter (+75%).

The reason for this sustained robust growth is that the company continues to thrive in the overlap of the sharing economy and digital commerce.

The sharing economy is the future. Look no further than mega-successful companies like Uber, Lyft, Airbnb, YouTube, Instagram, and others to see proof of this. Each of these companies has made an absolute killing by taking power from the few and giving it to the many.

Uber and Lyft said you don’t need taxis to get around. All you need is a car. Everyone has a car, so everyone can be a “taxi.” That idea has worked out brilliantly.

Airbnb did the same thing with hotels. YouTube did the same thing with video personalities. And Instagram did the same thing with aesthetic models (think the whole class of Instagram models that became popular simply as a result of Instagram.)

Shopify is doing this same thing in the digital commerce space.

Shopify is saying that you don’t need to be a big and powerful retailer in order to sell stuff online. Everyone has a computer, and everyone has access to Shopify’s suite of digital commerce solutions. Therefore, everyone can be their own “online store” and make money through the internet.

It is a brilliant concept that mirrors the success stories of Uber, Lyft, and Airbnb. But it mirrors them in the secular growth digital commerce market, meaning Shopify’s growth trajectory could ultimately be more impressive.

All together, SHOP stock is a long-term winner. Valuation looks challenged in the near-term, but this stock is one to own for the next 5-10 years.

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Fastest Growing Stocks #3: GrubHub (GRUB) 3 Reasons to Be Cautious About GRUB Stock Source: Shutterstock

Whereas Shopify is the sharing economy play on digital commerce, GrubHub Inc (NYSE:GRUB) is the at-home economy play on food ordering and delivery.

There is no denying the fact that we are moving increasingly towards the at-home economy. Consumers are doing everything from the convenience of their homes. As opposed to going out and shopping, consumers are now more frequently shopping on Amazon. Likewise, as opposed to going out and watching movies, consumers are now more frequently watching Netflix.

GrubHub fits this same narrative. As opposed to going out and grabbing a bite to eat, consumers are now more frequently turning toward food ordering and delivery apps and having lunch/dinner served directly to them.

GrubHub is the king of this space. That is why revenue growth was 49% last quarter.

This space is also really, really big. That is why, despite increasing competition, GrubHub’s revenue growth trajectory is actually accelerating.

As such, GRUB stock is not only one of the fastest growing stocks in the market, but it also has an exceptionally long runway for that big growth to continue.

There are competitive threats here. Uber Eats is stealing market share away from GrubHub at a very quick rate, and especially so in critical, high-value urban markets. GRUB stock doesn’t appear priced for these competitive threats. The stock trades at nearly 60-times forward earnings.

For these reasons, I’m not a buyer of GRUB stock here and now. But any meaningful pullback of 10-20% should be viewed as a long-term buying opportunity.

As of this writing, Luke Lango was long AMZN, F

How Amazon Is Saving Sears

Sears Holdings Corp. (NASDAQ: SHLD) saw its shares make an unprecedented gain after it was announced that the retailer would be collaborating with Amazon.com Inc. (NASDAQ: AMZN). Specifically, these two companies will be working to provide full-service tire installation and balancing for customers who purchase any brand of tires on Amazon.

The collaboration stems from a growing relationship between Sears and Amazon, when Sears began selling Kenmore appliances on Amazon in July 2017.

With this collaboration, Sears Auto will become the first nationwide auto service center to offer Amazon customers the convenient Ship-to-Store tire solution integrated into the Amazon checkout process, which is easy and convenient. Amazon customers simply select their tires, the Sears Auto location and their preferred date and time for the tire installation. Sears Auto Centers then contact them to confirm their appointment.

The new Ship-to-Store capability will be initially available at 47 Sears Auto Centers in eight metropolitan areas. Following the initial launch, Sears Auto Centers quickly will expand this service to Amazon customers through its 400 plus Sears Auto Centers nationwide.

Tom Park, president of Kenmore, Craftsman and DieHard brands at Sears Holdings, commented:

Amazon.com customers can expect terrific performance and reliability from DieHard tires and professional installation from Sears Auto Centers. We’re thrilled to expand our assortment of this iconic brand to include passenger tires on Amazon.com.

This service will be rolling out to customers across the United States over the coming weeks.

Shares of Sears were last seen up about 22% at $3.37 on Wednesday, with a consensus analyst price target of $2.00 and a 52-week trading range of $1.99 to $11.49.

Amazon traded up just less than 1% at $1,604.73 a share, with a consensus price target of $1,820.20 and a 52-week range of $927.00 to $1,638.10.

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Snap Is Losing Its CFO Now, Too

In Snap’s (NYSE:SNAP) short life thus far as a public company, it has already suffered from numerous high-profile departures. Snap’s head of human resources, vice president of security, and general counsel leftthe company last summer, just a few months after the IPO. Engineering chief Tim Sehn quit back in November, and was followed by VP of product Tom Conrad shortly thereafter.

CFO Andrew Vollero is now on his way out, too.

A revolving door

Image source: Getty Images.

Out with the old

Snap confirmed the departure in a filing with the SEC, merely saying that the company and Vollero recently “agreed that he will depart Snap.” Vollero will stay on as CFO for about another week until May 15, followed by serving as a non-employee advisor for three more months to help with the transition. Snap will give him a severance payment equal to one year of his base salary and the company will generously accelerate the vesting of all unvested restricted stock units (RSUs) that he still holds. Vollero’s base salary was $450,000, accordingto the company’s annual report.

In the filing, the company says that the departure is “not related to any disagreement with us on any matter relating to our accounting, strategy, management, operations, policies, or practices (financial or otherwise).” In the transition letter to Vollero, Snap thanked him for helping the company “build a cost structure that will enable us to scale our business into the future.” However, Snap’s strategy of outsourcing all cloud infrastructure and hosting is the opposite of scalable, given the high proportion of variable costs associated with that model.

In with the new

The Snapchat operator has poached a finance veteran from Amazon.com (NASDAQ:AMZN), Tim Stone, for Vollero’s replacement. Stone had spent approximately two decades at the e-commerce giant. Stone will earn an annual salary of $500,000 and is receiving a hefty RSU bonus worth $20 million in addition to another 500,000 options to buy Snap shares. These equity components will vest over four years, a common vesting schedule for many companies.

During his time at Amazon, Stone held a diverse range of finance roles, including in investor relations and serving as CFO for several businesses such as Kindle devices and Amazon Web Services (AWS), accordingto his LinkedIn profile.

CFO news is good news

The CFO transition appears to be a net positive for Snap, given Stone’s extensive background in finance at a tech giant. That’s especially true when it comes to his time being the finance chief for AWS, as Snap’s reliance on third-party cloud infrastructure providers is easily the worst part of its overall cost structure. Stone could potentially argue for Snap to transition to first-party infrastructure over time, knowing firsthand the kind of cost savings that it would yield.

Still, even if Stone makes that argument — a big if — it will take several years before Snap can even do so, since it has committed to spending $3 billion through 2021at its third-party infrastructure providers, one of which is none other than AWS. Snap shares jumped this morning, so investors seem to agree that the CFO news is good news.

Investor Movement Index April Summary

This article was originally published on TD Ameritrade's IMX page.

Monthly Summary

The IMX moved lower for the fourth month in a row, ending the period down 8.24 percent at 4.79.

The April IMX period started out with volatility in equity markets, and the IMX took another dip lower. Continuing their behavior for the past year, TD Ameritrade clients were net buyers during the period. However, many widely held positions saw their volatility relative to the overall equity market decrease once again, causing a decrease in the overall IMX score. Volatility of the S&P 500, as measured by the Cboe Volatility Index, or VIX, averaged over 20 for the first five days of April before subsiding near the end of the period.


April began with equity market volatility, and all three major equity indices moved lower during the first five business days of the month. The S&P 500 traded lower by 2.2 percent during the first day of April, its worst start ever to a second quarter. Markets rebounded during the last three weeks for the period, with the S&P 500 ending the period up 1.10 percent. The NASDAQ Composite Index and Dow Jones Industrial Average also increased during the period, up 0.80 percent and 0.86 percent, respectively. Market volatility was in part driven by global economic concerns following the Trump administration's proposed tariffs on $50 billion of goods from China. Following the market selloff early in the period, the S&P 500 traded at the lowest price-to-earnings ratio in nearly two years compared to expected earnings over the next 12 months, although the metric is still higher than historical averages. Later in the period, geopolitical tensions in Asia seemed to ease and some solid corporate earnings helped push equity markets higher.


TD Ameritrade clients were net buyers during the April period, buying some volatile names during earnings season. Netflix, Inc. (NASDAQ: NFLX) was net bought for the third month in a row. The company reported better-than-expected earnings during the month, but traded lower after reports it may purchase a movie theatre chain. For the first time in 2018, AT&T Inc. (NYSE: T) was net bought as the company traded lower following an earnings miss due to cord-cutting increases. Spotify Technology SA (NYSE: SPOT) was also a net buy following the company's IPO early in the period. Advanced Micro Devices, Inc. (NASDAQ: AMD), which has seen volatility recently and posted an earnings beat, was net bought. For the fifth month in a row, Amazon.com, Inc. (NASDAQ: AMZN) was net bought. The company traded higher during the period on the back of an earnings beat and analyst upgrades. Square Inc. (NYSE: SQ), which was off approximately 20 percent from recent highs as the company announced an acquisition of another online company, Weebly, was also a net buy.

Additional popular names bought include General Electric Company (NYSE: GE), Alibaba Group Holding Ltd. (NYSE: BABA), and JPMorgan Chase & Co. (NYSE: JPM).

TD Ameritrade clients appeared to take some profits in multiple names during the period. Oil companies were popular sells with ConocoPhillips (NYSE: COP), BP  PLC (ADR) (NYSE: BP), National-Oilwell Varco Inc. (NYSE: NOV), and Transocean LTD (NYSE: RIG) all net sold. Oil prices traded near three-year highs on higher global demand and possible OPEC-led production cuts. COP and BP both traded at multi-year highs, while NOV and RIG reached 52-week highs, enticing clients to take profits in all four names. Alcoa Corp. (NYSE: AA) traded at levels not seen since before the financial crisis following proposed tariffs on steel and aluminum, and was net sold. For the third month in a row, Facebook, Inc. (NASDAQ: FB) was net sold after CEO Mark Zuckerberg testified before Congress regarding the misuse of user data and a beat on earnings.

Additional names sold include Starbucks Corporation (NASDAQ: SBUX), Chipotle Mexican Grill (NYSE: CMG), and Frontier Communications Corp. (NASDAQ: FTR).

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Historical Overview

TD Ameritrade's Investor Movement Index (IMX) has generally correlated with the S&P 500 as clients react to equity price movements, but the index has gone through uncorrelated periods. Beginning in January 2010, when TD Ameritrade started tracking the IMX, the index rose with equity markets until April 2010, when it peaked at 5.40. In May 2010 investors experienced the "Flash Crash" and the IMX began a sharp downward trend. The IMX didn't reach 5.00 again until the S&P 500 was well above April 2010 levels.

The index eventually peaked at 5.56 in June 2011. This peak was immediately followed by a plunge in equity markets, and in the IMX, as the media was dominated by the U.S. debt ceiling debate, S&P downgrade of U.S. debt, and European debt concerns. The S&P 500 began to recover in the fall of 2011, but the IMX continued to decline until it reached a new low at the time in January 2012. As the S&P 500 began to sustain an upward trend in early 2012, the IMX started to rise. In 2013, as economic conditions improved and the S&P 500 climbed to record levels, the IMX rose to the high end of its historical range, finishing 2013 at 5.62, and continued to rise in 2014 amid geopolitical tensions related to Ukraine and the Middle East, until seeing slight declines in October and November.

By the middle of 2015, the IMX had seen increases, as equity market volatility had reduced to near historical levels while the market continued its upward trend. As 2015 ended its third quarter, volatility had returned to markets as global economic concerns and speculation around the timing and trajectory of Federal Reserve rate increases seemed to rattle overall equity markets. This uncertainty continued to play a role in the equity markets through the fourth quarter of 2015 and into early 2016. The volatility accompanying this uncertainty abated in the second quarter of 2016 and remained low until late in the third quarter. Just as it had in 2015, the IMX saw increases mid-year during the period of lower volatility. The IMX continued to climb into the fourth quarter reaching 5.83 in October 2016, its highest point in two years. A brief spike in volatility during November, timed around the U.S. presidential election, coincided with a slight pull back in the IMX, which then ended 2016 at the high end of its historical range.

The IMX started 2017 with an upward trend and reaching an all-time high in March, before pausing in April as lower volatility led to a decrease in the IMX. The momentum resumed in May, with the IMX breaching 7.0 for the first time ever in July of 2017. The IMX took another brief pause in September, before following markets higher and breaching 8.0 for the first time ever in November and ending 2017 at an all-time high. Volatility returned to the markets in early 2018, and the IMX decreased for three consecutive months to start the year.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Apple Inc. Results Show Importance of Services Revenue to Face Challenges

One of the strong points of Apple Inc.’s (NASDAQ:AAPL) second-quarter earnings was its Services division. Once again, Apple Services revenue was up, this time by 31% year-over-year. However, a closer look reveals some challenges on the horizon if services like Apple Music and the App Store are going to help take the pressure off iPhone sales in driving future AAPL stock growth.

CEO Tim Cook had this to say about his company’s stronger-than-expected performance: “We’re thrilled to report our best March quarter ever, with strong revenue growth in iPhone, Services and Wearables.”

That Apple Services revenue is worth spiking out. It increased 31% year-over-year. Services is the second-largest division in AAPL, with nearly $9.2 billion revenue for the quarter –more than double what the company made selling iPads. We’ve been pointing out for more than a year that as the smartphone market matures and iPhone sales level out, Apple Services revenue is increasingly important to the bottom line –and to the performance of AAPL stock.

Infographic: Beyond the iPhone | Statista Source: Statista
Services like the App Store, Apple Music, AppleCare, Apple Pay and iCloud storage provide ongoing revenue based on AAPL’s existing pool of iPhone, iPad and Mac users. The revenue isn’t cyclical and doesn’t require convincing someone to buy a $999 iPhone X. And the sustained growth of that Apple Services revenue shows the potential for it to help keep investors on board as the iPhone mad money begins to dry up.

But as pointed out by Reuters’ Stephen Nellis, there are challenges facing this division.

Services Revenue Does Not Guarantee Profit Margins

One of the reasons the iPhone has pushed AAPL stock so high isn’t just the revenue from iPhone sales, it’s the profit margins the company makes on these smartphones. The iPhone X is estimated to have a profit margin of over 60%. Company wide, Apple reported margins of 38.3%. But within the Services division, the margin levels are mixed and likely lower than that average.

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For example, the App Store is considered a higher margin source of Apple Services revenue. AAPL collects 30% of the price of apps and 15% of App Store subscriptions that extend beyond one year. That’s well below the 38.3% average. While iCloud storage likely has margins that are considerably higher than that average, Apple Music likely makes much less. Reuters points out that Apple Music’s primary streaming music competitor Spotify Technology SA (NYSE:SPOT) reported 20% margins for 2017.

Growing Competition, Maturing Business Lines

In addition to lacking the consistently high profit margins of hardware sales, many sources of Apple Services revenue face increased competition and maturing markets.

App Store revenue is projected to continue growing, but at more modest rates compared to the days when iPhone adoption was on fire and new users loaded up on apps. Apple Music has a way to go yet before the streaming music market begins to level off, but it also faces increased competition from the likes of Amazon.com, Inc. (NASDAQ:AMZN), which has been posting impressive growth rates.

Reuters points out that competition not only means the potential for slowing sales, it puts pressure on Apple to spend more to stay competitive — such as the $1 billion it’s projecting to spend this year developing original video content. Higher expenditures can eat into those margins even more.

That’s not to say that Apple Services revenue isn’t going to continue the recent trend of being increasingly important to the company. However, the future impact of the division’s performance on AAPL stock may be tempered by growth that doesn’t keep up with Q2’s 31% rate, and the likelihood of lower profit margins than Apple hardware pulls in.

Meanwhile, Warren Buffett heartily endorsed AAPL stock at this past weekend’s Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) annual meeting, revealing to CNBC that Berkshire bought an whopping 75 million shares of Apple during the first quarter. That adds to the 165.3 million shares Berkshire already owned at the end of 2017, making it one of Apple’s largest shareholders, according to CNBC.

Following on from Apple’s news of a new $100 billion stock buyback program, Buffett told meeting attendees: “From our standpoint we would love to see Apple go down in price.” “We very much approve of them repurchasing shares.”

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

More From InvestorPlace 10 Apps, Websites and Companies With More of Your Data Than You Realize Services Will be a Key Driver of Apple Inc. Stock Growth Tax Season Tips: 10 High-Tech Ways to Take the Stres

Amazon Wants the Keys to All Your Stuff

Not content to have only the keys to your front door, Amazon.com (NASDAQ:AMZN)also wants the keys to your car.

Following the start of the in-home delivery service called Amazon Key, the online retail giant is launching a service that will deliver packages to your car, whether the trunk or other cargo space. If your car is parked at home, work, or another publicly accessible area, and you have a 2015 or newer General Motors (NYSE:GM) or Volvo vehicle equipped with OnStar or On Call, respectively, you can get packages delivered using this method.

An ad for Amazon Key car delivery service showing a cell phone and a delivery guy with a package waiting by a car.

Image source: Amazon.com.

Keying in on convenience

For people comfortable with giving strangers access to some of their most private spaces, the Key service continues to make Amazon the most efficient, convenient, and perhaps fastest delivery option available. And Amazon insists the new service is safe, so you don’t have to worry about the delivery driver making off with your ride.

Before requesting vehicle access, Amazon Key verifies the delivery driver, the car, the driver’s location, and that the package being delivered is the one you ordered. Amazon Key only obtains your vehicle’s location on the day of delivery, and because the driver never gets an access code or the key to your car, there’s no need to worry he can come back at a later time to take it.

Moreover, the Key service confirms that your car is locked before the driver leaves, and in the event it isn’t locked, the service automatically activates the locks.

A daunting level of trust is needed

There are obviously benefits to these delivery services. So-called “porch pirates” stealing unattended packages has become a very real phenomenon, which in-home delivery helps to thwart. It also gives Amazon more access into your life — and more data it can collect about you — while creating a greater bond of trust between you and the retailer. And it all comes under the cover of convenience.

Of course, letting a stranger into your house when you’re not home — or even if you are there — takes a great leap of faith.A survey of 2,201 consumers by Morning Consult found that 68% of people were uncomfortable with letting delivery drivers into their homes and 53% were “very uncomfortable” with it. Although those 18 to 29 years of age were twice as likely to be comfortable with it than those 55 to 64 years old, more than half of even that younger cohort was still uncomfortable with the idea.

Giving access to your car’s cargo space likely reduces the stress level for many people, because you can make sure there are no valuables there. But short of removing everything important from your car, it’s not completely secure, either. Not every car is a sedan — hatchbacks, SUVs, minivans, etc. give full access to the interior when the rear hatch is opened. Many cars have folding rear seats that are accessible from the trunk, so storing your valuables in the passenger compartment won’t make them safer either. (It’s probably not a good idea to do that anyway.)

Although the chances of an Amazon driver rummaging through your personal effects is probably low — or that he will hot wire your car to steal it — there remains the increased risk of vandalism to a vehicle by having a package delivered to it.

Delivery may not actually be the point

Amazon Key seems like a solution in search of a problem. If we’re at home or at work, are we really so much farther away from our car that we can’t just have the package delivered to us? And if we’re out at the mall, do we really need Amazon delivering packages to our car?

It’s true people seem far too willing to give up their privacy to social media networks in the service of staying connected with family and friends, but that doesn’t mean we need to extend it to the businesses we shop from.

The universe of Prime members this service is available to is already strictly limited due to the fact it’s currently only available in 37 states and you have to have a specific brand of car equipped with a remote vehicle service to be eligible. For those reasons it’s not going to be widely adopted. Although other car manufacturers like Fordthat come equipped with Sync could be included, Amazon doesn’t even need it to be a huge hit.

What the in-home and in-car Key service really shows consumers is that Amazon is willing to do what it takes to be the most innovative, quickest, most convenient package delivery service around. Whether someone avails themselves of the opportunity is immaterial, as Amazon still drives home the point that you need and want its services — and that may be the most important benefit of all for the company.

Why the Bears Are Wrong About Walmart

It’s not so easy to size upWalmart(NYSE:WMT) these days. For decades, the retailer’s strategy was as reliable as the sunrise: Open up hundreds of supercenters every year, keep costs low, and offer customers “everyday low prices.”

For a long time, that strategy drove consistent profit growth and propelled the big-box chain to retail dominance, but like many things in business, it worked until it didn’t. The rise ofAmazon(NASDAQ:AMZN)and e-commerce disrupted Walmart’s leadership and undermined the strength of both its pricing strategy and brick-and-mortar expansion.

Under CEO Doug McMillon, who took the helm in 2014, Walmart has reinvented itself. The retailer has essentially stopped opening new stores, instead investing that capital into paying employees better, providing more training, cleaning up stores, and eliminating out-of-stockages — all in an effort to improve the in-store experience. The company has also aggressively pivoted to e-commerce, quickly adding grocery pickup stations at its stores, expecting to have more than 2,000 of them by the end of this year. It boosted its exposure to e-commerceby acquiring Jet.com for $3.3 billion and followed that up with smaller e-commerce acquisitions like Bonobos and Modcloth.

In other words, Walmart is staking its future on e-commerce, omnichannel, and better-run stores. That strategy paid off last year as the stock jumped 43%, but after a weak fourth-quarter earnings report in February and slowing e-commerce growth, the stock plunged as investor fears about the competitive landscape returned. Walmart stock has remained down since then, off 12% year to date, indicating that the bears’ fears remain. However, there are still a number of factors working in the company’s favor. Let’s take a look at a few of them.

A Walmart grocery pickup station.

A Walmart grocery pickup station. Image source: Walmart.

1. Growth is still on track

Walmart stock plunged on its fourth-quarter earnings report as U.S. e-commerce growth suddenly slowed to 23% from 50% in the previous quarter. That deceleration took investors by surprise, and the company blamed it in part on lapping the acquisition of Jet.com and on operational problems. However, there were plenty of positive signs in the quarter. Two-year comparable sales improved to 4.4%, the company’s best mark in eight years, as one-year comps were up 2.6% in the quarter, following 1.8% growth the year before. Sam’s Club was also seeing impressive growth, with comps up 2.8%.

Both results show that Walmart’s investments in its stores have paid off. Looking ahead, the company still expects U.S. e-commerce growth of 40% in the current year, driven by the expansion of its online grocery program. It also sees earnings-per-share growth returning with the help of tax reform, eyeing a range of $4.75 to $5.00 this year, up from $4.42. For the current fiscal year, it’s calling for 2% comparable sales growth at Walmart U.S. stores. Assuming the company can hit those targets, there is little reason to question its growth strategy. The stock also looks cheap, trading at a P/E ratio of less than 18 based on the high end of that range.

2. Optionality

Optionality is the potential of companies to deliver growth in unexpected ways, through things like acquisitions, new technologies, or new business lines. While the concept is generally applied to growth companies like Amazon, more mature companies like Walmart can also take advantage of it, much as it did with its acquisition of Jet.com. Walmart appears set to strike such a deal again as it’s reported to be in talks to acquirehealth insurerHumanaand to take a majority stake in Flipkart, the leading e-commerce operator in India.

While we don’t know yet if either of these deals will go through, it shows that Walmart is focused on expanding its business outside of its traditional base in brick-and-mortar U.S. retail. As one of the world’s largest employers, Walmart could likely add scale and efficiency to an insurer like Humana as well as bundle its services into its stores, as Walmart already has pharmacies in many of its stores. India is one of the fastest-growing e-commerce markets where rival Amazon has invested billions. Taking a majority stake in Flipkart, which would cost Walmart around $10 billion, would give it a valuable position in the growth market, and again, Walmart’s scale and retail expertise would benefit Flipkart’s growth.

The company has made similar moves to partner with e-commerce companies in foreign markets, investing in China’sJD.comand forming a strategic alliance with Rakuten in Japan.

3. The old advantages still apply

Walmart rose to prominence by blanketing rural and suburban America with superstores and offering low prices and a wide selection. While competitors likeCostco Wholesaleand Amazon have taken share from Walmart with similar strategies, Walmart is still in a better position than most retailers to compete in the changing retail landscape. The chain claims to have a store within ten miles of 90% of the U.S. population, giving it an edge for fast delivery, or to beckon customers to stores to pick up goods they’ve ordered online. It also has one of the biggest private trucking fleets in the country, which should help aid deliveries. Last year, the company introduced free two-day delivery for orders over $35, a program designed to counter Amazon Prime.

Similarly, Walmart’s massive size gives it a cost advantage and sway with brands as it’s often the biggest customer for many of its vendors. As other retailers likeBed, Bath & BeyondandSears Holdingstruggle and lose customers, Walmart, with its ubiquity, wide selection, and low prices, is in an excellent position to grab those sales. Even with intense competition from Amazon, the chain is still one of the strongest brick-and-mortar retailers out there.

Investors may be nervous after the most recent quarterly report, but I’d bet it was probably just a blip. Management is making smart strategic moves for the long term, and e-commerce sales should bounce back with the expansion of the online grocery program. I’d expect shares to recover over the course of the year.

FANG’s Deliver On Earnings But Fail On Price Action

Alphabet (NASDAQ:GOOGL) did a great job alleviating fears that large-cap tech would be dragged through the mud and fading earnings would dishearten investors.

The major takeaways from the recent deluge of tech earnings are large-cap tech is getting better at what they do best, and the biggest are getting decisively bigger.

Of the 26% rise to $31.1 billion in Alphabets quarterly revenue, more than $26 billion was concentrated around its mammoth digital ad revenue business.

Alphabet, even though rebranded to express a diverse portfolio of assets, is still very much reliant on its ad revenue to carry the load made possible by Google search.

Its other bets category failed to impact the bottom line with loss-making speculative projects such as Nest Labs in charge of mounting a battle against Amazons (NASDAQ:AMZN) Alexa.

The quandary in this battle is the margins Alphabet will surrender to seize a portion of the future smart home market.

What we are seeing is a case of strength fueling further strength.

Alphabet did a lot to smooth over fears that government regulation would put a dent in its business model, asserting that it has been preparing for the new EU privacy rules for 18 months and its search ad business will not be materially affected by these new standards.

CFO Ruth Porat emphasized the shift to mobile, as mobile growth is leading the charge due to Internet users migration to mobile platforms.

Google search remains an unrivaled product that transcends culture, language, and society at optimal levels.

Sure, there are other online search engines out there, but the accuracy of results pale in comparison to the preeminent first-class operation at Google search.

Alphabet does not divulge revenue details about its cloud unit. However, the cloud unit is dropped into the other revenues category, which also includes hardware sales and posted close to $4.4 billion, up 36% YOY.

Although the cloud segment will never dwarf its premier digital ad segment, if Alphabet can ameliorate its cloud engine into a $10 billion per quarter segment, investors would dance in the streets with delight.

Another problem with the FANGs is that they are one-trick ponies. And if those ponies ever got locked up in the barn, it would spell imminent disaster.

Apple (NASDAQ:AAPL) is trying its best to diversify away from the iconic product that which consumers identify.

The iPhone company is ramping up its services and subscription business to combat waning iPhone demand.

Alphabet is charging hard into the autonomous ride-sharing business seizing a leadership position.

Netflix (NASDAQ:NFLX) is doubling down on what it already does great create top-level original content.

This was after it shed its DVD business in the early stages after CEO Reed Hastings identified its imminent implosion.

Tech companies habitually display flexibility and nimbleness of which big corporations dream.

One of the few negatives in an otherwise solid earnings report was the TAC (traffic acquisition costs) reported at $6.28 billion, which make up 24% of total revenue.

An escalation of TAC as a percentage of revenue is certainly a risk factor for the digital ad business. But nibbling away at margins is not the end of the world, and the digital ad business will remain highly profitable moving forward.

TAC comprised 22% of revenue in Q1 2017, and the rise in costs reflects that mobile ads are priced at a premium.

Google noted that TAC will experience further pricing pressure because of the great leap toward mobile devices, but the pace of price increases will recede.

The increased cost of luring new eyeballs will not diminish FANGs earnings report buttressed by secular trends that pervade Silicon Valleys platforms.

The year of the cloud has positive implications for Alphabet. It ranks No. 3 in the cloud industry behind Microsoft (NASDAQ:MSFT) and Amazon.

Amazon and Microsoft announce earnings later this week. The robust cloud segments should easily reaffirm the bullish sentiment in tech stocks.

Amazons earnings call could provide clarity on the bizarre backbiting emanating from the White House, even though Jeff Bezos rarely frequents the earnings call.

A thinly veiled or bold response would comfort investors because rumors of tech peaking would add immediate downside pressure to equities.

The wider-reaching short-term problem is the macro headwinds that could knock over techs position on top of the equity pedestal and bring it back down to reality in a war of diplomatic rhetoric and international tariffs.

Google, Facebook, and Netflix are the least affected FANGs because they have been locked out of the Chinese market for years.

The Amazon Web Services (AWS) cloud arm of Amazon blew past cloud revenue estimates of 42% last quarter by registering a 45% jump in revenue.

Microsoft reiterated that immense cloud growth permeating through the industry, expanding 99% QOQ.

I expect repeat performances from the best cloud plays in the industry.

Any cloud firm growing under 20% is not even worth a look since the bull case for cloud revenue revolves around a minimum of 20% growth QOQ.

Amazon still boasts around 30% market share in the cloud space with Microsoft staking 15% but gaining each quarter.

AWS growth has been stunted for the past nine quarters as competition and cybersecurity costs related to patches erode margins.

Above all else, the one company that investors can pinpoint with margin problems is Amazon, which abandoned margin strength for market share years ago and that investors approved in droves.

AWS is the key driver of profits that allows Amazon to fund its e-commerce business.

Cloud adoption is still in the early stages.

Microsoft Azure and Google have a chance to catch up to AWS. There will be ample opportunity for these players to leverage existing infrastructure and expertise to rival AWSs strength.

As the recent IPO performance suggests, there is nothing hotter than this narrow sliver of tech, and this is all happening with numerous companies losing vast amounts of money such as Dropbox (NASDAQ:DBX) and Box (NYSE:BOX).

Microsoft has been inching toward gross profits of $8 billion per quarter and has been profitable for years.

And now it has a hyper-expanding cloud division to boot.

Any macro sell-off that pulls down Microsoft to around the $90 level or if Alphabet dips below $1000, these would be great entry points into the core pillars of the equity market.

If tech goes, so will everything else.

If it plays its cards right, Microsoft Azure has the tools in place to overtake AWS.

Shorting cloud companies is a difficult proposition because the leg ups are legendary.

If traders are looking for any tech shorts to pile into, then focus on the legacy companies that lack a cloud growth driver.

Another cue would be a company that has not completed the resuscitation process yet, such as Western Digital (NYSE:WDC) whose shares have traded sideways for the past year.

But for now, as the 10-year interest rate shoots past 3%, investors should bide their time as cheaper entry points will shortly appear.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.