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Is Apple's Safe-Haven Status Under Threat? 

Published 10/11/2022, 01:10 PM
Updated 07/09/2023, 06:31 AM
  • Apple has been the best-performing mega-cap technology company this year
  • However, its momentum could be under threat due to slowing global consumer spending
  • Bank of America recently downgraded Apple stock to neutral from buy
  • Investors have been treating Apple (NASDAQ:AAPL) as one of the few safe long-term options amid this year's rout. The reason for that seems obvious: the iPhone maker has a diversified source of revenue on the back of a robust global portfolio of products and services.

    With a nearly $2.249 trillion market value, Apple is still the world's most valuable company. It has also been the best-performing stock among the mega-cap technology companies, falling about 20.5% in 2022, compared to a 32.8% decline for the Nasdaq 100.

    Apple's 1-Year Performance Vs. Benchmarks

    Source: InvestingPro

    But that could be under threat as slowing global consumer spending begins to hurt the company's growth momentum, especially in markets like Europe and China, where growth is faltering due to geopolitical conflicts and COVID restrictions.

    Pressure from a stronger dollar is another headwind that could hurt the company's bottom line.

    In the previous quarter, Apple reported an almost 11% decline in profit after weathering supply constraints and shutdowns in China. On the bright side, however, iPhone sales continued to grow despite economic challenges.

    The latest test of Apple's resilience will come when the company reports its fiscal fourth-quarter earnings on Oct. 27.

    Apple's rival, Samsung Electronics (OTC:SSNLF), the world's biggest maker of semiconductors, smartphones, and televisions, has already lowered expectations for smartphones this year.

    A Rare Downgrade

    In a recent note, Bank of America downgraded Apple stock to neutral from buy, citing incremental risks to the company's earnings going forward. The note says:

    "Shares have outperformed significantly YTD...and have been perceived as a relatively safe haven. However, we see risk to this outperformance over the next year, as we expect material negative estimate revisions driven by weaker consumer demand."

    Bank of America's downgrade is a rare event for Apple stock as the majority of analysts are still bullish on the company's growth prospects. According to an Investing.com poll, about 70% of the 49 analysts covering the stock recommend buying Apple shares, while only one suggests selling.

    AAPL Consensus Estimates

    Source: Investing.com

    The major driver of this optimism is Apple's wealthy and loyal consumer base, in theory, more resilient to macroeconomic headwinds.

    Investors also consider Apple a safe bet in the current market turmoil due to its vast global market share in the cellphone market, its long-term track record of profitability, and its fortress balance sheet.

    This year, Apple also introduced the iPhone 14, new AirPods Pro earbuds, and new Apple Watch models. The latest pre-order data showed that the iPhone 14 Pro Max was the best-selling model, surpassing what the older version did in a similar timeframe, according to a report by Bloomberg.

    Apple's cash pile offers another solid reason for investors looking to take refuge in the current uncertain times. With the world's largest corporate cash reserves of more than $200 billion, the company has enough firepower to support its stock through share buybacks.

    Investors like repurchase programs as they reduce a company's share count and lift earnings, especially during turbulent times like the ones we're now facing.

    Warren Buffett, whose investment firm is one of the largest shareholders of Apple, has immensely benefited from this trend. Buffett has built a $153-billion stake in Apple since his Berkshire Hathaway (NYSE:BRKa) started buying the stock in late 2016. Now it's the company's top holding.

    Bottom Line

    Apple's earnings this month may feel the impact of a worsening economy and more cautious consumers. But that doesn't mean the company has lost its haven status. In my opinion, any weakness should be taken as a buying opportunity for long-term investors looking for a company that is likely to rebound strongly, backed by a robust share buyback plan, a resurgence in sales, and impressive margins.

    Disclosure: At the time of writing, the author was long on Apple stock. The views expressed in this article are solely the opinion of the author and should not be taken as investment advice.

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Latest comments

Apple's shine is rotting, finally!
and that's what they said about IBM..
AAPL is more than a phone company. If anything, I'd argue that their service revenues are growing at a much more rapid rate than selling products. This company is innovative, always thinking outside the box, delivering quality products, what more can a consumer ask for? As an investment idea, 22x P/E might not be the cheapest but when you're sitting on bucket loads of cash, the world pretty much is your oyster. They can either buyback shares, or straight up do M&A on all the cheaper tech stonks out there.
Buy - yes. At this level? NO...Apple's PE Ratio is still 22 versus a low term average of 16. There will be no more QE and stimulus to boost sales, plus die-hards will buy the latest iPhone - but for the man on the street most will leave it for a year or buy a cheaper phone. So can see at BEST Apple revenue staying flat - but the share price will still need to fall in line with its long-term PE Ratio which implies a fair value of about $90 (and only then if revenue stays flat and doesn't fall). Could see it fall back to pre covid level around $80 if deep recession and revenue does fall.
another Apple pumper in disguise
What was apple before the QE glut pandemic money print to the rich grab? Oh, 8 bucks a share …. Really think its all that safe now that debt must be paid and printer is broken for a decade !!!
Apple hasn't been $8 since 2009. It was at $80 in 2020 just before the pandemic
You want safe haven, buy I bonds. Simple. Better return than anything in this pathetic ponzi scheme.
130  122   110
Apple have been in a massive uptrend for ages - when the dirt hits the fan it might get messy, as a steep recession will have to bring consumtion massively lower. In Europe many are already feeling the energy price crisis and households and companies trying to scale down on consumption - this should inevitably hit the "nice to have"-stocks first. And I believe it will hit pretty hard. BR Mogens | www.mps-solutions.dk
https://www.mps-solutions.dk/
never was a safe haven 🌎👨‍🚀🔫👨‍🚀
More or less a monopoly and $200 Billion in cash reserves sitting in the bank...
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