Tuesday, Jan 11th 2022

We’ve rightsized a few legacy Flagship holdings

Investor Update

We’ve trimmed our holding in Apple (AAPL) and added to our position in Disney (DIS) for clients in Titan’s Flagship strategy.

We believe these moves accomplish two key things for clients:

  • Taking profits in a long-term winner; and
  • Increasing our exposure to what we believe to be a positive risk/reward name.

Taking profits on a General

We’ve held Apple (AAPL) for clients in Titan’s Flagship portfolio since inception. AAPL is, in our view, one of the great consumer companies of all time and recently became the first business to have a market value above $3 trillion.

AAPL, along with a handful of other “Generals” like Flagship holdings Microsoft (MSFT), Amazon (AMZN, and Alphabet (GOOG), has been a safe haven for many investors throughout the recent growth sell-off. However, our work currently shows AAPL is trading at a premium relative to what we believe may be its growth trajectory.

AAPL shares currently trade at 29x next year’s earnings against the stock’s 5-year historical average of 20x. In other words, we believe the business is expensive for a company that is expected to generate mid-single-digit annual earnings growth through 2025.

Though we're reducing the size of our position in AAPL, the stock is still nearly a full-sized position within our Flagship strategy given our strong expectation for the 5G cycle, the potential upside from virtual reality adoption, and Apple possibly stepping into the electric vehicle market.

Adding juice behind the Happiest Place on Earth

Using the proceeds from trimming our AAPL position, we have increased our investment in Disney (DIS). Our work currently suggests DIS may be able to deliver a 20%+ average annual return, net of fees, through the end of 2024.

In recent years, investors have focused on the growth of Disney+ after decades of living and dying on box office numbers and theme park attendance data, and for good reason. With 118 million global subscribers, the Disney+ subscribers base has grown to roughly half the size of Netflix in just over three years.

Disney management recently stated they plan to launch 340+ local original titles in international markets over the next few years, and given the breadth of upcoming content for the service we see a long runway for growth. Some believe the streaming wars will result in a winner-takes-most market. However, our research suggests that households may average 3 paid streaming services, and multiple players could be able to generate recurring revenues and favorable unit economics.

Given Disney's IP, brand awareness, and track record of producing quality content, we believe that Disney+ may cement itself as a top 3 Subscription Video on Demand (SVOD) player globally, generating substantial cash flow for shareholders long-term.

We also believe Disney’s Parks business may come out of the pandemic stronger than ever, as we expect spend per guest to significantly exceed pre-Covid levels. Near-term, we expect the Parks recovery to strengthen in 2022, with our research indicating attendance continued to grow through December 2021 despite increased Covid cases.

As of this writing, AAPL, DIS were a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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