Apple Stock dips below $2 trillion
For the first time since November 2020, Apple stock was valued below the $2 trillion mark. Could this be yet another buy-on-dip opportunity, or a sign of a steeper decline to come?
- A look at history
Maybe a surprise to some, Apple was not the first company in the world to be valued at $2 trillion. The title goes to oil giant Saudi Aramco.
The company went public in December 2019, and its stock reached the $2 trillion landmark a few days later. At that time, Apple’s equity was worth only about $1.2 trillion.
Within American companies, Apple was the pioneer. The stock was the first to cross the $2 trillion valuation in the US exchange, in August 2020. Since then, shares have tip-toed around the milestone, dipping below and climbing above the line several times until the end of November 2020.
Since the COVID-19 bear recovery, aided by a market fascination with Big Tech stocks that lasted through the third quarter of 2020, other tech companies got close to the $2 trillion valuation. However, none other has achieved Apple’s feat yet.
Mixed Reality: Apple’s path to growth
Apple could be releasing new augmented, virtual and mixed reality devices. The Apple Maven thinks that this could be the path for increased earnings and share price in the next several years.
- Chatter grows louder
Speculations around Apple’s development of AR and virtual reality (VR) wearable technology are not something new. They have been tossed around since at least 2013, believe it or not, when the tech company was granted a patent for “a head-mounted display apparatus”.
CEO Tim Cook himself has never avoided the subject altogether. Several years ago, even before the launch of the Apple Watch and AirPods, he spoke frequently about the future of wearable technology and the opportunities ahead.
But the chatter has been growing louder lately, as consumers and investors wonder what Apple’s next big thing could be. I talked about the subject only a couple of months ago.
- New product categories: a plus for Apple
Think of the Apple Watch and AirPods. Neither device existed until 2015. Since then, they have helped to shape a wearables segment that now accounts for more than 10% of total revenues and grows at an annual pace of over 20%. Without these products, I estimate that Apple’s total company sales increase in fiscal 2020 would have been one-third lower.
Today, the Cupertino company sits on over $195 billion in cash and securities (not deducted for debt outstanding). While much of this money will eventually find its way to shareholders in the form of buybacks and dividend payments, a good chunk could (and likely will) be used to fund new product development. These investments should result in higher future revenues and earnings.
iPhone 12: Signs of trouble? Not so fast
Reports of a decrease in iPhone production in the first half of 2021 have surfaced, dragging Apple’s share price modestly. However, it may be premature for investors to turn bearish on the 5G super cycle.
- The details
Third-party research firm IDC estimates that Apple shipped about 74 million iPhones in the first half of 2020. For the comparable period in 2021, rumors had surfaced that the number would spike to as high as 100 million units, a strong case in favor of the 5G super cycle.
Now, due in part to soft demand for the $699 mini version, the new projection for the first half is much more conservative: an increase of less than 1 million devices year-over-year. People familiar with the supply chain adjustments estimate that the drop in mini production relative to previous plan could reach an astounding 70% in the first half.
- The Apple Maven’s take
I would not be overly pessimistic about Apple or its stock, following Nikkei’s bearish report on the iPhone 12. Below, I list the key reasons why:
- Full-year unchanged: the alleged production cuts impact the first half of the year only, and likely the second calendar quarter more squarely. Smartphone sales are the weakest and least relevant to the company’s financial performance during the spring period, having accounted for only 18% of total year revenues in fiscal 2019 and 2020.
- Tilted to the higher end: the bulk of the production cuts have happened at the lower end of the product lineup. The iPhone 12 Pro Max with 512 Gb of capacity, for example, retails for twice as much as the entry-level iPhone 12 mini.
- Stock already de-risked: it is possible that some of the softness in iPhone 12 sales has already been factored into the stock price. Apple has been down 16% from the late January peak, far underperforming the S&P 500 and the rest of the FAAMG group.
Apple stock: One year of pandemic, 78% returns
COVID-19 has been one of the most disruptive events in recent human history, but Apple investors have one reason to be happy. As of the pandemic’s one-year anniversary, the stock had climbed 78%.
- Some interest facts
Here are a few fun facts about Apple stock’s performance during the pandemic:
- Apple vs. Nasdaq: While Apple has topped the returns of the S&P 500 by a long stretch, the stock’s outperformance vs. the Nasdaq has been a bit more muted: 10 percentage points. Within the tech-heavy index, other high-growth names helped to push the group higher, including top 10 holdings Tesla and PayPal.
- Apple vs. Dow: Apple did much better than the Dow Jones index, which is dominated by old-economy stocks like Boeing and Honeywell. The Cupertino company’s shares beat the Dow by about 40 percentage points.
- A few old-economy outliers: Although Apple did much better than the Dow, two top 10 holdings topped its performance during the pandemic: Goldman Sachs and Caterpillar.
- Best in a decade: 2020 was a strong year of returns for Apple, but only its 10th best in history. Using March 11 as the last day of each year, the pandemic would have been Apple’s 6th best 12-month period ever, and the best since 2010.
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(Disclaimers: 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)