Apple, she says, should be regarded as a consumer electronics company, not a tech company, one that primarily sells iPhones, but whose continued success requires the constant reselling of that product. “The phone has gotten good enough now and you don’t have to replace it every two years. If you replace it every four years, that’s a 50% reduction of revenues for Apple.” Meanwhile, popular apps and features, she said, are not proprietary to the company and can be found on competing products. The feature set that fetched a premium is no longer that much farther along, yet the premium still remains, she complains.
Netflix, meanwhile, is finding itself facing down cheaper alternatives like Disney+ and users are loyal to content, not the platform, she says.
Her MANG stocks, meanwhile, are unloved even though they make products that should be considered recession-proof consumer staples. Tire manufacturers are a good example. Michelin, Bhansali says, makes a “mission critical” product that is both high tech and differentiated. Tires contribute to fuel efficiency and safety, and the ability to do both has given Michelin a growing share of the OEM market, which also means there is going to be a strong aftermarket. “The barriers to entry to making a tire are excruciatingly high,” she said, and the global demand for SUVs (and their bigger tires) is going to help this market even more. Even if car sales wane, the number of miles driven is increasing, she said.
Ahold, the food retailer that owns such American grocers as Stop & Shop, Giant Food, Peapod and Food Lion, took a hit (and became a value) when Amazon got into brick-and-mortar food retail when it bought Whole Foods, Bhansali said. “Food is perishable. The logistics of food are extremely hard to handle.” She noted the differences of temperature for different items, even in the trucks. “The Amazon supply chain cannot be made fungible for food. It’s not optimized for it at all.” Ahold, she says, has had redoubtable margins and revenues, despite the incursions from players like Walmart, and has benefited from the regional dominance of grocers and food supply chains. Whole Foods and Amazon haven’t made a better mousetrap for that.
She said that in the next cycle, the winners are going to be net cash companies, dividend yields and growers, and cost-led business models (which can lower prices) as opposed to price-led business models. She calls it a “Minsky moment.”
“All of the risks you took in the previous cycle, you’re going to have to pay for.”
Bhansali currently manages more than $7 billion in portfolios for both institutional and retail clients at Ariel Investments, including the Ariel International Fund.