Apple has fallen into what Wall Street refers to as bear market territory. The hypothesis for the decline is that consumers are no longer buying or have become disenchanted with the iPhone.
The company’s share price was at a record $232.07 on October 3. It has since fallen by about 22.1 per cent, thereby exceeding the official bear market threshold of 20 percent. One key reason is that multiple suppliers have indicated that Apple is cutting back on parts orders for the latest iPhones.
Moreover, the company’s recent earnings announcement added to concerns when Apple reported flat unit growth and stated that it would stop disclosing the quantity of smartphones sold each quarter.
Apple does also generate revenue and earnings growth by charging more per device and selling customers an increasing amount of digital music, movies and other services.
The difficulty is that investors have become complacent given the past decade of iPhone ascendance. Apple’s latest earnings report has not only snapped some out of their stupor but instilled a degree of fear that is now compounding on itself.
Apple shares were recently trading at $180.69. Goldman Sachs cut its price target on the stock for the third time this month, citing signs of weak iPhone demand in China and some emerging markets.
Apple is also subjected to buffeting by signals from its massive, global supply chain. Recent warnings from some manufacturing partners sparked concerns that Apple’s newest iPhones would be poorly received. Having just upgraded to the newest iPhone XS max, I would certainly disagree.
Yes, it is true that some iPhone suppliers and assemblers have warned of weaker orders. In addition, there have been underwhelming earnings by Hon Hai Precision Industry and a quartet of smaller companies, such as Japan Display that have reduced revenue estimates. The result is that analysts are extrapolating out that Apple has hit a brick wall.
The iPhone accounts for about two-thirds of Apple revenue, so a lack of unit growth could be a problem. For fiscal 2019, the consensus is for sales to expand 5 per cent, down from 16 per cent in the previous year, according to data compiled by Bloomberg.
Analysts are also less bullish on Apple’s stock than on any of the other technology giants. About 56 per cent have a buy rating on Apple, according to Bloomberg. Compare that to Alphabet with 91 per cent, Facebook with 81 per cent and Amazon with 94 per cent.
Apple shares are up about 7.18 per cent year-to-date, trading at 12 times forward earnings. A comparable multiple for the S&P 500 is 17 times. The consensus 12-month price target is $234, or about 30 per cent above current levels, so there must still be some confidence left.
Why the critique on Apple? Because Apple could be considered a bellwether for Wall Street in general. And the Street’s attitude towards Apple is typical of what many see as Street’s outlook going forward. Specifically, that the sky is falling.
With a plethora of prognosticators claiming that the end is near, I entreat you once again not to let market forecasts impair your investment strategy. Instead direct your attention to the performance of individual companies with a record of navigating their way through the seas of economic uncertainty.
Meanwhile, if you maintained and maybe grew a portfolio throughout 2018, you should take a moment to congratulate yourself on your forward thinking and your fortitude in ignoring the prophets of doom.
By now you should know exactly how your investments have performed over the past 11 months. Furthermore, you should be able to assess any possible damage. Since a portfolio should have an investment horizon extending out over two or more years, any “difficulties” (also known as unrealized or paper losses), will mean only a bit of psychological tsuris, Yiddish for aggravation.
A major investment firm once said of the markets, the easy money has been made. Easy money? I always thought financial returns were the result of hard work and diligent research. There is no animal named easy money.
Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddInternational.com.