Apple’s (AAPL - Free Report) first-quarter fiscal 2019 top-line guidance cut for the first time in almost two decades dragged down shares by roughly 8% during after-hour trading on Jan 2. The company warned that iPhone sales will decline on a year-over-year basis, primarily due to weak demand in Greater China and fewer upgrades of its flagship device.
The guidance cut has shocked investors and sent jitters across global markets. Warren Buffett’s Berkshire Hathaway (BRK.B - Free Report) lost nearly $3 billion in after-hour trading.
The lowered outlook has also negatively impacted European stocks and the U.S. equity-index futures, as both declined today, per Bloomberg. Asian suppliers, including Hon Hai Precision Industry and Taiwan Semiconductor Manufacturing, also fell.
Apple Investment Backfiring for Buffett?
Warren Buffett, the Oracle of Omaha, has been known for buying railroads and energy firms, until he bought IBM and Apple. While IBM was a questionable choice, Apple was, no doubt, a better bargain.
Over time, Buffett made Apple the cynosure of his portfolio, owning more than 250 million shares worth almost $45 billion. He still has appetite for more Apple shares, as was revealed during the annual shareholders’ meeting in May 2018.
Although the recent price decline makes Apple shares cheap for Buffett, the decline in iPhone demand is a headwind. The lower-than-anticipated upgrades in the holiday season underscore that iPhone is probably losing its status as a “must-have possession” — the theory Buffett put forward in support of his investment in the tech behemoth.
Moreover, weakness in China, and other emerging markets, including India, doesn’t bode well for iPhone’s growth prospects. Also, any further deterioration in the U.S.-China relationship (the uncertainty over trade war still looms) is likely to have an unfavorable impact on Apple’s stock price.
In such a scenario, we believe Buffett can eventually decide to reduce his stake in Apple as he did with IBM.
Here we present 5 stocks that Buffett can add in place of Apple. These stocks perfectly fit his style of investing, as the companies have solid business models and the ability to record significant growth. In other words, these companies have impressive earnings potential and are not concerned whether or not the market will recognize their worth. These firms also generate plenty of cash and provide dividends, which are indicators of a strong and sustainable business.
Moreover, each of these stocks has a Value Style Score of A, and either flaunts a Zacks Rank #1 (Strong Buy) or #2 (Buy), making them good investment opportunities.
Greenwich, CT-based Townsquare Media (TSQ - Free Report) flaunts a Zacks Rank #1, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
The media company delivered average positive earnings surprise of 9.2% in the trailing four quarters. The Zacks Consensus Estimate for its 2019 earnings moved 5% north to $1.05 over the past 60 days.
In addition, its current dividend yield is 5.96%. The stock’s expected long-term earnings growth rate is 12%.
Houston, TX-based KBR Inc. (KBR - Free Report) is a global engineering, construction and services firm, supporting market segments of global hydrocarbons and international government services.
This Zacks #1 Ranked stock delivered average positive earnings surprise of 12.6% in the preceding four quarters. The Zacks Consensus Estimate for its current-year earnings has increased 4.9% to $1.70, in the past 60 days.
KBR’s current dividend yield is 2.04%. Its projected long-term earnings growth rate is 10.6%.
Allegiant Travel Company (ALGT - Free Report) , based in Las Vegas, NV, operates a low-cost passenger airline, through its subsidiary Allegiant Air LLC. Apart from air travel, the company also offers vacation deals, including car rentals and hotel bookings.
This Zacks Rank #2 stock delivered average positive earnings surprise of 18.7%, in the last four quarters. The Zacks Consensus Estimate for its 2019 earnings moved up 3.5% to $11.81, in 60 days’ time.
Allegiant’s current dividend yield is 2.70%. The stock’s estimated long-term earnings growth rate is 22.7%.
Plano, TX-based temporary staffing services provider BG Staffing (BGSF - Free Report) also has a Zacks Rank #2, at present. Furthermore, the current dividend yield is 5.81%. It has an expected long-term earnings growth rate of 20%.
BG Staffing delivered average positive earnings surprise of 53.8%, over the trailing four quarters. The Zacks Consensus Estimate for its 2019 earnings climbed 3.8% to $1.91, over the past 60 days.
Another Zacks Rank #2 stock, Canonsburg, PA-based Cone Midstream Partners LP (CNXM - Free Report) , is an operator of natural-gas gathering and other midstream energy assets.
Cone Midstream delivered average positive earnings surprise of 2.95%, in the last four quarters. The Zacks Consensus Estimate for its current-year earnings inched up 1.2% to $2.49, in 60 days’ time.
Cone Midstream’s current dividend yield is 8.49%. Its projected long-term earnings growth rate is 14%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>