Barring a bullish miracle between now and the end of the year, 2015 is going to be uncharacteristically forgettable for Apple (AAPL) shareholders. The current Apple stock price is just a hair below where AAPL ended 2014, and down an alarming 18% from its June high.
The really strange part: This was the year Apple finally launched its greatly ballyhooed smartwatch, and the release of the iPhone 6s in September once again broke the company’s owns sales records. It should have been a banner — and bullish — year.
So what gives, and more important, will 2016 be any better for fans and owners of Apple stock?
Possibly, though to what degree remains to be seen. Apple’s best day may well be in its past.
AAPL Ain’t What It Used To Be
Way back in January of 2013, yours truly here posed the premise that Apple stock was no longer a must-have, can-do-no-wrong kind of holding. The company had proven it was mortal by posting disappointing sales figures for the then-new iPhone 5, and I suggested it was a subtle sign that Apple (like any other company) can’t be heroic forever.
It wasn’t a well-received idea.
In the meantime, AAPL shares have advanced more than 50% from their value then, yet loyal owners have suffered a 16% loss over the course of the past six months, and the selling pressure seems to be picking up rather than abating heading into the home stretch for the year. It’s the second sizble setback Apple stock owners have been handed in the past four years.
The frustrating part is the lack of clear reason for the weakness. The Apple watch was met with (mostly) good reviews while the iPhone 6s, as was noted, broke sales records … again. So what’s wrong with Apple stock?
The answer depends on how philosophical you want to get.
In just the raw basic sense, while the Apple watch was a novel idea, not even Apple thought it was going to be a huge seller. Meanwhile, though the iPhone 6s has been a hit, Apple was warning as far back as two months ago that the current quarter’s top line wouldn’t exceed estimates — as tradition had typically dictated — with a slowing iPhone sales pace being the biggest culprit for the reeled-in enthusiasm. Apple shareholders simply aren’t used to anything but stellar results.
In a deeper, philosophical sense, owning Apple stock has become tougher to justify because a lack of real innovation (as opposed to mere reiteration) has allowed competitors to enter — and dominate — markets that Apple essentially created.
Case in point No. 1: While the Apple watch is more than impressive, with a starting price tag of nearly $400 (with the next-to-least versions costing considerably more) it’s not impressive enough compared to a similarly powerful and meaningfully less-expensive Samsung (SSNLF) smartwatch.
Case in point No. 2: As game-changing as the iPhone series has been, and as rapidly as it has reached first-time smartphone owners, it can’t be denied that it’s still losing market share to Android in the U.S. and Europe. Not even China, which was once touted as the next great frontier for Apple, is the slam-dunk many thought it would be for Apple now that Xiaomi is on the scene.
It all points to the notion that (and this will be a bitter pill for some to swallow) Apple is no longer creating new product categories and then creating category killers. Each iteration of existing products is less impressive than the last, allowing competitors like Samsung, Microsoft (MSFT) and Alphabet (GOOG, GOOGL) to catch up. And they did.
Looking Ahead for Apple Stock
As for what this has to do with Apple in 2016, it’s simple … Apple has to fix its innovation problem.
That’s not to say the Apple stock price at the end of 2016 won’t be higher than 2015’s closing price. It is to say, however, that until Apple creates something new rather than improves the old, shares could be just mediocre.
That’s not a bad thing, mind you. As I expressly explained on July 22, “Even on its worst days, AAPL stock is still a better long-term investment than most other stocks on their best day.”
On the other hand, that doesn’t inherently make AAPL a surefire winner for 2016.
With that being said, inasmuch as the stock is watched and handicapped, Apple’s 2016 may be just as much about the stock’s technicals as it is the fundamentals (though it should be noted the technicals largely reflect the changing faith in the fundamentals).
Click to Enlarge Since late last year, three key levels have emerged for Apple stock … $133, $120 and $95. Each has been a floor and/or a ceiling at least once over the course of the past fourteen months, and are apt to be key inflection levels again.
And well they should.
Assuming 2016’s projected income of $9.78 per share of AAPL is on target, those levels (respectively) represent forward-looking price-to-earnings levels of 13.6, 12.3 and 9.7.
The first and last of those P/E readings effectively tag Apple’s most plausible high and low P/E levels. A move to $133 would mean a respectable 25% gain from the stock’s current price, but is a tall order at this time.
A target of $120 might be the more realistic target to start with, particularly in light of potential headwinds.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
