APPLE MAY BE SOUR — OR RIPE FOR PICKING
As company’s stock tumbles, bears see red flags while bulls see huge opportunity
Apple is so enormous, with its market value of $660 billion — more than any other U.S. company — that when it struggles, all investors feel the pain.
It seems gravity applies to Apple, too.
Apple stock is down 12% since July 21, following the company’s second-quarter profit report showing iPhone sales that were strong but not the blowout many investors have gotten used to, as well as lackluster Apple Watch sales.
Apple’s decline is a startling development for the markets — and could have broad importance. Apple is one of — if not the — largest holding by many individual investors, says SigFig.
A big decline like this for Apple is noteworthy enough to rattle investors who might not normally pay much attention to the broad stock market. Apple is so enormous, with its market value of $660 billion — more than any other U.S. company — that when it struggles, all investors feel the pain. Apple accounts for almost 4% of the value of the Standard & Poor’s 500 and 17% of the tech sector, says Howard Silverblatt of S&P Dow Jones Indices.
“The combination of Apple’s size and price moves results in an enormous impact on indices, with the only comparison being International Business Machines’ impact in the early 1980s, when PCs were new, and IBM was expected to own the market,” Silverblatt says.
Given the importance and size of Apple, it’s not surprising investors have very different reactions to its stock’s fall. Bulls see it as a giant buying opportunity. Bears see the decline as a repricing due to serious risks the company faces. China, Apple’s last big growth market, is seeing its economy slow. China’s economic growth has been just 7% during the first six months of this year — the slowest growth in 25 years, says Reuters.
That’s a potential problem since China was responsible for 60% of Apple revenue growth and 80% of its operating income growth in the recent quarter, says
Steven Milunovich of UBS.
Here’s how the two sides square off on Apple:
The cautious case. At this point, it’s largely a replacement market for smartphones in the U.S. The effect on Apple is huge. Two-thirds of Apple’s revenue this year is expected to come from smartphone sales, says Trefis.com. December could poten- tially be the first quarter Apple’s smartphone shipments drop compared with the same period a year ago, says Abhey Lamba, analyst at Mizuho Securities, who has a price target of $125. And new products like the Apple Watch aren’t picking up the slack.
The bull case. Concerns about China are overblown and new products will start to contribute more over time, says Daniel Ives at investment firm FBR. He says the stock will be worth $175. The market will determine who was right.