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Apple Stock: The Key Takeaways From An Action-Packed Week

Apple stock price bounced around quite a bit during an action-packed first week of December. Here is how Wall Street made sense of all the key developments.

Apple stock  (AAPL) - Get Apple Inc. Report investors who like to follow price action closely must have been quite busy last week. The combination of renewed COVID-19 fears, monetary tightening, and alleged softening of demand for iPhones sent AAPL bouncing around. Surprisingly, the stock still ended the week up a solid 2%.

What should investors make of the barrage of recent news and developments impacting Apple shares? Today, we look at how three Wall Street analysts processed all the information.

Figure 1: Apple's iPhone 13 (PRODUCT) RED model.

Figure 1: Apple's iPhone 13 (PRODUCT) RED model.

(Read more from the Apple Maven: Apple Stock: Slowing iPhone Demand Or Strong Quarter Ahead?)

iPhone 13: lead times improving

Based on the most recently published sell-side reports, there seems to be a consensus: lead times for the iPhone has been improving. Bank of America’s Wamsi Mohan provided some of the most detailed accounts on the availability of Apple’s smartphones in the holiday period:

“Availability of iPhone 13 Pro and Pro Max models seem to be more extended vs. iPhone 13 and 13 mini. In China, ship dates for all configurations of the iPhone 13 Pro and Pro Max are on average 18 days out, which is significantly better than the 39 days last month.”

What is not evident in these numbers is whether this is good or bad news for sales. Perhaps the supply chain challenges have started to ease, allowing for faster shipment of iPhones. This seems to be the argument made by UBS analyst David Vogt, who has a buy rating on Apple stock.

The other side of the argument is that demand could be softening, which explains the decline in lead times. There is an even worse take, offered by Goldman Sachs’ Rod Hall: the drop in demand could have been even worse, if not for promotional activity in the US (likely offered by service providers).

(Read more from the Apple Maven: Wall Street Expert Says: Apple Stock Will Reach $3.2 Trillion)

Apple: a safe haven

The other hot topic of the week was the macroeconomic impact of the COVID-19 Omicron variant. This is what largely explains the S&P 500  (SPY) - Get SPDR S&P 500 ETF Trust Report having dipped 1.3% for the week, after diving another 2.3% during the shortened Thanksgiving week.

BofA’s analyst made sense of why Apple’s share price found room to climb amid broad market weakness. Based on his conversations with investors, Apple is perceived to be a haven for its “relatively stable demand and continued strong cash flows and capital return”.

The bull case for seeking shelter in AAPL is even more compelling when one considers the stock’s performance in 2021. Apple shares lagged the S&P 500 through nearly the entire year (see chart below). When so many tech stocks managed to rally ahead of the benchmark in the past several months — think Tesla  (TSLA) - Get Tesla Inc Report, for example — investors may have felt enticed to “park” money in AAPL this time.

Figure 2: AAPL vs. S&P 500 performance throughout 2021.

Figure 2: AAPL vs. S&P 500 performance throughout 2021.

Our take

In our view, Wall Street acknowledges the improvement in the iPhone’s lead time in fiscal Q1. However, analysts don’t seem to agree on whether this means softer demand or a better functioning supply chain.

Without access to more detailed information, I take the signs as a positive. Keep in mind that Apple CEO Tim Cook warned, during the most recent earnings call, of $6 billion in lost sales due to supply chain hiccups. If lead times are declining, it must mean that the revenue pipeline is at least clearing up.

Lastly, on the macroeconomic factors, Apple has served once again as a hiding place to investors looking for quality — something similar happened during the pandemic bear of early 2020. But I fear that profit-taking pressures could cause AAPL to underperform the S&P 500 in the immediate term.

Is the price right?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)