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Does Apple Watch Dominance Matter for Apple Inc.? (AAPL)

Lately, Apple Inc. (AAPL) has been caught in a negative news spin, as Wall Street analysts have suddenly gotten in a tizzy about potential weakness in iPhone sales.

Does Apple Watch Dominance Matter for Apple Inc.? (AAPL)But of course, sentiment on the company can often go to extremes. After all, in the past month or so, AAPL stock has lost nearly 10% of its value

But despite all the noise, things are really not so bad. Hey, just Friday, AAPL did get some much-needed good news from International Data Corporation (IDC).

The firm has published an extensive report on the wearables market. And yes, it looks like the Apple Watch will be a big winner. Overall, IDC predicts that the market will jump from 80 million devices in 2016 to 111.1 million by 2016. Oh, and by 2019, the firm believes that shipments will reach a whopping 214 million.

As for the watch category, IDC expects that the Apple Watch will capture a hefty 61.3% of the market share for this year, followed by Alphabet (GOOG, GOOGL) at 15.2%.

The research firm also believes that this leadership position will be maintained for some time. By 2019, IDC predicts 45.2 million shipments of the Apple Watch, translating into a market share of 51.1%.

Impact on AAPL Stock

Now, this does not necessarily mean that APPL earnings will get an immediate boost. The fact is that the Apple Watch is still in the early innings. But then again, there is the advantage of the Apple brand, which commands premium prices, as well as the benefit of the massive ecosystem of third-party iOS developers who will build apps that should make the Apple Watch more useful.

“Not only does the Apple Watch meet Apple’s goal of diversifying away from the iPhone,” said Stephen Nichols, who is the CEO of GameSalad, “but it taps into the Apple fan base and positions Apple to further tap into its app ecosystem. Apps will drive the Apple Watch forward over the long-term.”

Of course, in the meantime, the key driver for AAPL stock will be the iPhone. Unfortunately, there are signs of weakness as various Wall Street analysts have cut back on their shipment estimates. To this end, UBS’s Steven Milunovich has lowered his forecast for the current quarter to 75 million, down by about 3 million. He also reduced his March quarter numbers from 61 million to 56 million. … and this is far from the most negative.

Just look at Mizuho Securities’ Abhey Lamba, who has an estimate in the low 40 millions for the March quarter.

OK, why all the negativity? Well, there has been deceleration in the global economy, which is likely to weigh on handset sales. But there is also the issue of maturation in the handset category.

The fact is that the upgrade cycles may not be as frequent for consumers.

But whatever the reasons, the forecasts on iPhone sales have generally been dicey.

AAPL Stock Still in a Good Place

Let’s face it, in the latest quarter, there were also lots of worries, but AAPL cranked out stellar results. Consider that revenues shot up 22.3% to $51 billion and net profits came to $11.1 billion.

Besides, the valuation on AAPL stock is now much more attractive, with the forward price-to-earnings ratio at a lowly 10X. By comparison, Microsoft’s (MSFT) is at 18X, Alphabet has a multiple of about 22X and Facebook (FB) trades at a lofty 37X.

So, for a relatively low valuation, AAPL provides a way to get exposure to the critical mobile market. And not only does the company have a premium global brand, but there is an extensive logistics platform, a thriving ecosystem of developers and other support systems such as retail and app stores.

Yet there are also potential massive opportunities with Apple Watch as well as other technologies like Apple TV and Pay.

In other words, with the recent drop in the stock price, it does look like a good time to take a look at AAPL stock.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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