There’s no doubt that Apple‘s (AAPL) fortunes are linked to China.
It’s the reason AAPL has been killing it for the past few quarters. Huge demand for the iPhone 6 and 6 Plus was the reason analysts and pundits couldn’t say enough good things about this hip tech titan.
And, it wasn’t just about the number of orders that AAPL already had, it was the tremendous potential for more, as smartphone demand in China is expected to go parabolic for the next 5-10 years.
The China story was sending AAPL to new highs. Responsible, sober-minded market analysts were talking about AAPL hitting a $1 trillion market cap by the end of the year.
And then, China-geddon
As usual, the market’s biggest cheerleaders became the stock’s biggest hand-wringers. If China was getting weaker, surely AAPL was doomed.
However, as quickly as these AAPL bulls boarded the bear train, they jumped off again a day or two later to proclaim that AAPL is still the brightest tech stock in the market firmament.
This love-fear back-and-forth has left many investors wondering what to do.
Well, as is usually the case, the answer is a little bit of both.
AAPL certainly has been hurt by the massive selloff in China, and with the country’s recently-devalued currency, future revenue on Apple’s Chinese sales will surely be affected.
But, the Chinese stock market is not like the U.S. stock market. It’s younger, there’s less regulation, and less experience on the part of investors and regulators. Remember, China is still relatively new to the free market concept. Plus, participation is completely different in the Chinese markets than it is in the West. Simply put, Shanghai is a lot more Wild West than the Western markets, and these types of swings are to be expected. There’s no need to panic.
To put it in broader terms, the Shanghai exchange was up more than 130% in the past year. And, even after this massive correction it’s still only off about 40% from its highs.
Overblown Reaction in the U.S.
There’s no doubt some of the reaction in the U.S. has been significantly overblown. Many traders likely took advantage of the continued weakness in the Chinese economy, and the continued selloff in Chinese stocks, to readjust their portfolios in anticipation of both U.S. rate increases and a slowing global economy going into the last quarter.
But, these macro factors don’t change the micro dynamics of telecom growth in China, as well as India and Asia. All of these countries will experience expanding long-term growth trends in mobile telecom.
In these developing nations, AAPL’s iconic branding is akin to a 21st Century Marlboro man. In fact, AAPL is even building lower-priced versions of its phones to sell in these markets.
In the fall, AAPL is expected to release three sizes of its iPhone 7 — a 4-inch, 4.7-inch, and 5.5-inch — with the smallest model likely to be geared to hopeful owners who can’t afford the larger, more expensive models.
Bottom Line on Apple Stock
The point is, AAPL still has a big future ahead of it, no matter how volatile things get in the near term. Long-term growth trends in emerging markets means AAPL is going to sell a lot of phones. The only real adjustment will be that a stronger dollar may not mean the company will throw off the revenue expectations that have been set up for the next quarter or two.
But, most of that is priced in at this point. So, as usual, about the only thing that AAPL investors need to worry about is how well the iPhone 7 sells — that’s the real value behind the stock.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
