It has been a turbulent start to 2016 for Apple (AAPL), as worries about the stagnation of iPhone sales persist. And it’s going to be a “white knuckle period” for Apple stock, an analyst said in a note to investors on Monday.
Daniel Ives, an FBR & Co. analyst, said the growing fears about the economic situation in China coupled with worries about stagnating iPhone 6s sales is pushing Apple stock into a difficult period. However, he believes that Apple stock will be fine just in time, stating that “we believe Apple represents a compelling risk/reward and would be buyers.”
The argument in the note in strong. Here are some things to keep in mind.
iPhone Sales Will Eventually Pick Up — As Always
Ives noted that only about 30% of iPhone users have transitioned to iPhone 6/6s, meaning that there’s still a respectable upside sales potential. And here’s a fact that supports that claim. In the U.S. alone, 51% of iPhone users upgrade their iPhones as soon as their carrier allows it, according to data from Statista via Forbes.
In addition, 47% of iPhone users would upgrade to a new model when the phone stops working or becomes obsolete, with the remaining two percent preferring to upgrade to a new model as soon as it reaches the market. Again, that is in the U.S. alone. So this suggests that the upside sales potential for iPhone 6/6s over the next few quarters to few years is respectable when you add global data to that.
Huge Cash Reserve Still Makes Apple Stock Strong
Ives made mention of how the smartphone market is changing and how it will continue to change, citing Samsung (SSNLF) CEO’s discussion of a “difficult business environment” as competition within the market becomes more intense. As I mentioned in a previous article, the mobile market is open to all, and any company with a creative team can make it there. One thing I didn’t add, though, was the importance of cash in the new mobile reality. And Apple stock has both factors in abundance.
In fact, it has arguably the largest war chest among its competitors. Apple stock has about $200 billion in cash, while a notable competitor like Alphabet (GOOG, GOOGL) only has about $64.4 billion in cash, including $39 billion abroad.
So as competition heightens, Apple stock is well positioned — more than its competitors — to stay strong. And its cash pile also means it can diversify as it sees fit. After all, we’ve been hearing about how AAPL is targeting the autonomous auto market, and it’s already making waves in the wearables market.
China Worries Are Genuine, But Overblown
Yes, you should worry that the market Apple stock is looking to for much of its growth over the next few years is struggling. But, hey, financial crises are part of the economy. It’s just not avoidable.
China has come a long way already, and its economy won’t disappear into obscurity overnight. So AAPL stock investors have to bear in mind that this cycle will eventually be over in China. The growth potential in China is still strong, contrary to what The Street wants us to believe.
Bottom Line for AAPL Stock
As always with Apple stock when it comes to sentiment, the next few months could be rocky. However, to assume that iPhone 6 sales will put it out of business is unthinkable. Apple remains a good buy, especially as we’re headed for a discounting period.
And oh, it’s an opportunity for dividend investors too.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.
