Apple (AAPL) Shares- A Bearish Trend or An Opportunity?

Tim Cook is Apple’s (AAPL) sixth CEO, taking over from Steve Jobs in 2011. Steve Jobs, the legendary founder and innovative genius, stepped down from the position on August 24, 2011. Sadly, he passed away weeks later, on October 5, 2011. 

AAPL was the first U.S. company to eclipse a $1 trillion market cap on August 2, 2018. Two years later, on August 19, 2020, the value rose above $2 trillion, and in early 2022, it rose above the $3 trillion level. APPL shares opened in September 1984 at 12.0 cents and peaked at $182.94 on January 4, 2022. Since then, AAPL shares have been in a bearish trend, making a series of lower highs and lower lows.

At the $154 per share level on February 15, 2023, AAPL declined 15.8% from the high, which could be an opportunity for America’s leading technology company. 

AAPL shares moved into a bearish trend

After reaching its all-time high of $182.94 during the second trading session in 2022, AAPL shares turned lower. 

The chart highlights AAPL’s path of lower highs and lower lows throughout 2022. The stock dropped to its most recent low in January 2023 when it reached $124.17, an over 32% decline. 

The most recent correction is not the first time the leading company experienced significant percentage declines. From October 2018 through January 2019 and from January 2020 through March 2020, AAPL shares fell 39.2% and 35.2%, respectively. 

Since the most recent low, AAPL shares recovered to over the $154 level on February 15.

The reasons for the decline

Marco and microeconomic factors took AAPL shares from the early 2022 high to the early 2023 low. From a macro perspective, rising interest rates have weighed on equity prices, and Apple has not been an exception. Moreover, geopolitical turmoil caused by the first major war in Europe since WW II has not supported the overall stock market. In September 2022, the U.S. dollar index reached its highest level since 2002 when it traded at a 114.745 high. The strong U.S. currency caused U.S. multinational companies’ earnings to decline as they experienced more competition from foreign businesses. AAPL shares trade on the tech-heavy NASDAQ, which suffered a 37.75% correction from the November 2021 high to the October 2022 low. 

From a microeconomic perspective, supply chain and other issues caused a potential shortfall of six million iPhone Pro units.  The shortage translates to fewer revenues. Another factor weighing on AAPL shares is its high price-to-earnings ratio compared to the QQQ and SPX ETF products that reflect the NASDAQ and S&P 500 indices. AT $154.54 on February 15, AAPL’s P/E stood at 26.12, and QQQ and SPY’s were at 21.05 and 17.36, respectively. In a market where investors and traders are becoming a lot more value-sensitive, AAPL’s P/E makes it an expensive stock. Meanwhile, AAPL’s long-term debt has substantially grown over the past years, weakening the company’s balance sheet. 

Apple’s presence in China has also contributed to the stock’s weakness over the past year. 

An excellent EPS track record, but a rare miss 

Tim Cook has managed the quarterly earning process for years by underpromising and overdelivering. 

The chart shows while AAPL reported better-than-expected earnings in three of the past four quarters, the company missed estimates in Q4 2022. On February 2, 2023, AAPL reported $1.88 per share quarterly earnings for the period ending December 31, 2022, versus consensus estimates of $1.93 per share. For the quarter ending in March and June 2023, the market now expects earnings to decline to $1.43 and $1.25 per share. AAPL shares have recovered despite the gloomy forecasts, but the company, with an over $2.38 trillion market cap, faces challenges. 

Reliance on China is an issue

Markets reflect the economic and geopolitical landscapes. In February 2022, Chinese President Xi and Russian President Putin shook hands on a “no limits” alliance. Less than one month later, Russia invaded Ukraine. Throughout 2022, the relations between China and the U.S. deteriorated. 

Apple’s long-standing relationship with China could be one of the most significant factors weighing on the company’s stock. A former Apple engineer recently said that while AAPL has been striving to move its operations outside China since 2014, progress has been slow. “China is going to dominate labor and tech production for another 20 years.” In the U.S., there are bipartisan concerns that Apple’s business in China and its relationship with the Chinese government is “untenable.” In late 2022, Apple produced “about 90% of its products in China.

The U.S. military recently downed a Chinese balloon that traversed across U.S. and Canadian airspace. While China claims it was a weather balloon that flew off course, the U.S. says it has evidence it was on a spying mission. The bottom line is that U.S.-Chinese relations have been rapidly deteriorating, which has severe ramifications for AAPL’s Chinese business ties. 

Tim Cook has guided AAPL well- A pay cut in 2023- AAPL’s prospects

Tim Cook has done an excellent job guiding AAPL since Steve Jobs passed. When he assumed the CEO role in August 2011, the high in AAPL shares was $14.21 per share. At above $154 per share on February 15, AAPL shares were over ten times higher. Meanwhile, AAPL

shareholders voted to reduce Tim Cook’s pay 40% in 2023 after only 64% voted to approve his 2022 compensation.

The most recent price forecasts are for AAPL shares to rise to $172.87 in twelve months, with a high price target of $210 per share. Driving earnings in a company with an over $2 trillion market cap is like turning a massive ocean liner; it takes time to make significant progress. AAPL’s iPhones, iPads, and other products and services have a worldwide technology franchise. Diversification of risk away from China would likely improve the company’s prospects. However, the catch-22 is the process will be expensive, and future production costs will rise. 

So far, the selloff in AAPL has been a buying opportunity, but the odds of the shares rising ten times from the current level over the next decade are low. 

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On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.