Apple Inc (NASDAQ:AAPL) hasn’t had a great year. At this point, Apple stock is trading at about the same spot it was at in August and analysts are starting to cool their short-term enthusiasm. And recently, two of Apple’s suppliers — companies where Apple is their chief customer — have cut guidance, stating that demand from one of their top customers has been reduced.
These are the kinds of sideways stories that get analysts and traders excited since Apple isn’t talking but people are inferring that business for the major consumer electronics retailer isn’t rebounding yet.
However, some of this news comes as no surprise. There has been talk for quite a while now that Apple’s phone sales aren’t going to continue to expand at the rates they once did. And Apple has already begun to transition its revenue engine into other divisions, like its music and entertainment division.
A couple of weeks ago, there was even a story that Apple is beginning to restructure its phones and computer brands, so that they were more focused on the high-end market. It wasn’t about selling more phones, but selling more expensive phones with better margins.
This would also take Apple on a new trajectory when it comes to innovation. It may signal that with everyone in the industry able to compete on a relatively similar playing field when it comes to features, it’s time to start to curate its audience.
And there may be something to be said for doing this in the long run. But right now, the company with the first $1 trillion market cap is having to adjust expectations and open new revenue channels.
Apple’s Major Hurdles
Too often, these challenges get blown out of proportion as well. Last year, there was all sorts of hand-wringing about the launch of the iPhone X.
The challenge this year is that the U.S.-China trade war is helping push China toward a recession, which isn’t good for sales in China.
First of all, the Chinese government can use the trade war to stoke national pride and encourage people to buy Chinese made phones, which have become very good. Second, with less spending power, Chinese consumers are less likely to upgrade as regularly as they once did.
The other challenge AAPL has to contend with now is the fact that AAPL stock is so widely held. It’s one of the top holdings by mutual fund managers and Warren Buffett’s Berkshire Hathaway Inc (NYSE:BRK.A, NYSE:BRK.B) is the third-largest shareholder of AAPL shares.
While fund managers have to buy and sell stocks in their portfolios to keep in line with their benchmarks and indices, Buffett is a long-term investor that rarely trades on his positions.
AAPL rates a B in my Portfolio Grader right now. And it’s still up 11.6% year-to-date. Also, the fourth quarter could very well deliver a nice surprise.
Productive talks between Washington and Beijing and a strong finish in 2018 could get Apple stock quickly back on track and make today’s prices look like a bargain.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, 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.