The Time Is Right to Buy Apple Stock, Trade War or No

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apple stock - The Time Is Right to Buy Apple Stock, Trade War or No

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The threat of a trade war really only makes Apple (NASDAQ:AAPL) more appealing and dips from current worries only improve the reasons for buying Apple stock.

Anytime you see a headline like “Apple is especially vulnerable to trade tensions” in the Wall Street Journal, the time has arrived to add the maker of the iPhone, iPad and Apple Watch to your portfolio.

This isn’t a knock against the Journal’s report, which is solid, but a headline like that might scare away some investors from AAPL stock.

As Warren Buffett and others have noted, “fear” can be an investor’s best friend. Though worries about China haven’t yet cast a shadow over Apple stock, it certainly may do that if the trade war with China continues to escalate.

China’s Importance to Apple Can’t Be Underestimated

To be sure, China is a big deal for Apple. It stands to reason that since the vast majority of  Apple’s products are assembled in China, heightened trade tensions between the U.S. and the most populous country isn’t good news for Apple.

China is hugely important to Apple, accounting for roughly one-fifth of its annual sales.

The timing of any trade wars also couldn’t have come at a worse time for AAPL as it gears up for the holiday season and the launch of new iPhones and Apple Watch models.

How Far Will President Trump Push The Trade War?

President Trump, who has said trade wars are easy to win,  appears willing to take his game of fiscal chicken to the limits of sanity ahead of the midterm elections. 

Earlier this week, he announced 10 percent tariffs on $200 billion worth of Chinese goods effective Sept. 24 that will rise to 25 percent on Jan. 1, 2019. China, not surprisingly, has retaliated. That’s on top of the $50 billion in tariffs that China and the U.S. have already levied on each other’s goods. 

Though the potential impact of these tariffs may be scary, the impact of the trade tensions on Apple has been muted. According to veteran tech analyst Gene Munster, the new $200 billion in tariffs could lower the profitability of the Apple Watch and Air Pods by 10 percent to 20 percent. The overall hit to Apple profits in 2019 will be 1 percent. You read that right.

Apple is in a position to easily absorb any additional costs from the tariffs and also has got loads of upside potential from its services business, which surged 26 percent to $27.2 billion in the most recent quarter, among others.  

The company also is still swimming in cash. According to AAPL’s latest 10-Q filing,  it has more than $349 billion in current assets including $172.8 billion in long-term marketable securities and $31.9 billion in cash and cash equivalents.

The company has already bought a boatload of Apple stock, some $43.5 billion in the first six months of the year and could easily afford to buy plenty more.

The Bottom Line on Apple Stock

I am bullish on AAPL shares even though they have been on a tear this year, gaining nearly 30 percent since the start of the year as it joined the $1 trillion market capitalization club.

Yes, I realize that the company’s 20 price-to-earnings ratio isn’t cheap by historical standards for AAPL stock.  

However, Apple is a bargain compared with Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX).  Analysts are expecting AAPL revenue to grow 15 percent this year, which may not be as high as some tech high-fliers but still is pretty impressive for a company of its size.

As of this writing, Jonathan Berr has a small position in Apple.

Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/buy-apple-stock-trade-war/.

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