Apple Stock: What To Expect After Vaccine Announcement

Daniel Martins

This is how CEO Albert Bourla reacted to news that Pfeizer’s coronavirus vaccine was more than 90% effective in preventing COVID-19. The Dow Jones skyrocketed on the news, with “out of the home” stocks (e.g. airlines, restaurants, oil and gas) leading the charge.

As Apple climbed 1% to 2% on Monday mid-morning, investors might be asking themselves: how might the Cupertino company’s shares behave after the vaccine announcement?

Best days are probably behind

I believe that the best way to project Apple’s stock performance is to think about what has happened so far this year.

Apple has been one of the beneficiaries of the stay-at-home economy. Product categories that were once considered to be in the mature or declining stages of their lifecycles rebounded strongly in 2020.

Think of the Mac and the iPad. In the past two quarters, these segments saw revenues grow year-over-year by 26% and 38%, respectively. I am willing to bet that not a single expert had forecasted such performance of personal computers and tablets as recently as January 2020.

As consumers upgraded their devices in 2020 to be better equipped for at-home learning, working and entertaining, I find it reasonable to expect a cool down in demand in 2021. To be fair, the 5G-capable iPhone 12 could help to offset some (if not all) of that decline. Also, any impact to sales from a slow return to pre-coronavirus life would likely not be felt until the March or even June quarter.

But as we know, the market tends to react in anticipation of future developments. As investors become more interested in what we call cyclical stocks (i.e. those that benefit from a normalization in the economy), Apple could fall out of favor.

Valuations do not help

Had Apple shares not skyrocketed in the past several months, one could still be optimistic that the stock will perform well, alongside the rest of the market. But the following graph looks a bit concerning.

Source: Portfolio Visualizer

The two lines above represent two similar long-short strategies. The blue line depicts the performance of a long Apple, short Russell 2000 (small cap stocks) portfolio. The red line replaces the Russell 2000 with the Dow Jones Industrial Average (“old-economy” stocks). The higher the climb, the stronger Apple’s share price performance has been relative to the benchmarks.

Notice that Apple consistently outperformed small cap and value stocks since the dot-com recovery of the early 2000s. But starting in late 2019 and early 2020, shares went into overdrive.

It is not outrageous, in my opinion, to expect the recent trend to return to more reasonable levels, especially now that we are closer to a COVID-19 vaccine.

Keep these in mind

As much as the narrative above may sound bearish for Apple, investors should keep a couple of important points in mind:

  • Underperformance relative to a benchmark is not the same as absolute underperformance. For example, cyclical stocks could be up 30% over the next year while Apple climbs 20%. In this hypothetical scenario, Apple investors should still be satisfied – just not as much as they were in 2019 and 2020.
  • Relative weakness in Apple stock, if it happens, is more likely to impact shares in the short-to-medium term. Over a period of several years, I expect Apple’s strong fundamentals to prevail and push the stock higher.

Read more from the Apple Maven:

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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)

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