Apple investors must be happy with the performance of their stock (ticker AAPL). Surely, 2020 has been a rough year in the markets. But shares of the Cupertino company have been doing much better than average.
Year-to-date, Apple stock has climbed nearly 10% in only five months, while the S&P 500 remains in negative territory. In addition, Apple has also managed to beat the technology and consumer discretionary sectors so far this year. Shares are now only a third of a percentage point short of February peak levels.
Stock picks up steam
What I find most interesting is that Apple has been gaining momentum in the past few weeks. The trigger seems to have been the fiscal second quarter earnings report. Up to that point, the stock had been walking hand in hand with the S&P 500. But since that date, Apple shares climbed 10.5%, while the benchmark gained a more modest 3.3%. See graph below.
Investors must have been justifiably concerned about Apple until the end of April. For starters, stores had been closed in the important Chinese market since February. Also, the impact of lower consumer confidence and spending on sales of tech gadgets and services remained a question mark.
But the results of the quarter were very encouraging, given the circumstances. The smartphone business did not do very well once again, but services picked up the slack. Inventory looked clean at the end of the quarter; production and supply chain had returned to normal; and the new iPhone SE was reported to have strong demand out of the gate.
What to expect next
Obviously, predicting what will happen to Apple stock going forward is a hard task. But the worst of the COVID-19 crisis seems to have been left behind.
To be fair, challenges will continue to exist. The company could become a victim of the US-China trade war, which would throw a wrench into Apple’s much-needed recovery in the Far East. And of course, this year’s recession is far from over. A drop in discretionary spending caused by high unemployment and low economic growth could be a longer-term problem.
Still, Apple seems to be better positioned than most companies in the US. It remains a top player in the smartphone, tablet and smartwatch markets. Wearables continue to present opportunities, including brand new ones in virtual and augmented reality. And the business model transition from products to services can be highly beneficial to future financial results – from more reliable revenues to better margins.