For most of this year, Apple Inc. (NASDAQ:AAPL) stock has been a Wall Street darling. The highwater mark for AAPL stock came back in May, when shares cleared the $156 mark, but Apple also managed to return close to that level earlier this month.
Then the air started coming out of the tires.
A note from Goldman Sachs back on June 9 that said the newly dubbed FAAMG stocks — Facebook Inc (NASDAQ:FB), Apple, Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Google parent Alphabet Inc (NASDAQ:GOOGL) overvalued and trading too much like safe-haven stocks. All of them turned tail in response, including AAPL stock.
The run-up before that, of course, was on optimism about the iPhone supercycle hitting full stride with the upcoming release of the iPhone 8. I have been saying for some time that the Super Cycle is getting far too much hype. But AAPL stock kept going up, even after poor second-quarter results. Bears like me have just been waiting for the momentum to slow.
It looks like that time has finally come.
A Mizuho downgrade back on June 12 — the first trading day following the June 9 Goldman note — stated that the supercycle was already “fully captured” in the price. That appears to have been the straw that broke the camel’s back. Apple still is off 6% since June 9 and hasn’t really looked the same since.
Some bulls are saying that Apple is retooling. Other investors think this might just be the beginning of a more serious, longer-term decline for AAPL stock.
Apple Has Some Serious Competition
Last year, the iPhone 7 benefited from a massive screw-up by competitor Samsung Electronics Ltd (OTCMKTS:SSNLF). The iPhone 7’s main foe, the Galaxy Note 7, was quite literally an exploding disaster. Phones were recalled and production was halted. Overall, consumers were really left with only one mainstream option for a smartphone upgrade — the iPhone 7.
That isn’t the case this time around.
Samsung is back, and with more firepower than ever. Across the board, data points suggest that the Samsung’s Galaxy S8 is doing exceptionally well.
Samsung management has given a bullish early read on S8 sales, noting they are far ahead of S7 numbers. Consumer Reports indicate that the S8 and S8+ are the top-rated smartphones in the market right now, far ahead of the current iPhone. Consumers are praising the phone’s long battery life, vibrant display and enhanced camera.
None of that means the iPhone 8 won’t be great. Heck, it might be the perfect upgrade. But the S8 is pretty darn good, and it represents competition that simply wasn’t around last year.
I feel the mere possibility of this hasn’t even been priced into AAPL stock.
The market has too much faith in the iPhone 8 supercycle succeeding. And when expectations are too high, then not met, stocks usually fall.
Bottom Line on AAPL Stock
I think history is about to repeat itself.
Apple’s valuation is highly cyclical, and right now we are still very near a valuation peak. Last time we were at this sort of peak? Mid-2012 and early 2015. In both cases, shares tanked during the next few months.
We are now at the beginning of a long-term downtrend in AAPL stock. The downtrend could be broken for a little if telecoms like AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) report super-charged demand early, but restricted iPhone 8 supply will likely short-circuit any positive effect that could have on earnings.
Over the next six months, there’s no good reason to buy AAPL stock. It is richly valued thanks to sky-high expectations, competition is as fierce as ever, smartphone market growth is slowing, and supply issues could short-circuit demand.
Apple stock will correct by at least low double digits from here. Until it does, Apple is a sell.
As of this writing, Luke Lango did not hold any positions in the aforementioned securities.