Apple (NASDAQ:AAPL) has been a consistent performer over the past year as the tech firm made its way back into investors’ good graces. Apple stock delivered gains north of 50% in 2019, but that impressive run has led to a fierce debate over whether or not “The Fruit” can do it again this year.
To be sure, Apple is by no means a cheap buy. But bulls argue that the best is yet to come for the iPhone maker. Others say it’s time to abandon Tim Cook and his team to look for better value options because the firm’s newest round of iPhones won’t deliver the tailwind investors are expecting.
Apple Stock Bulls
There are plenty analysts out there who are still bullish on Apple according to the Wall Street Journal. Daniel Ives of Wedbush has a $400 price target for Apple, a 23% upside from where the stock was trading on Thursday.
Ives also said he believes Apple will beat out Microsoft (NASDAQ:MSFT) to become the first company to have a valuation of $2 trillion. He believes Cook will be able to achieve that feat in just two years.
Apple’s services business is one bright light for the firm— especially as the company recently launched its own streaming service complete with original programming. Ives says that arm of Apple’s business could be worth somewhere between $500 billion and $650 billion.
He points to the new cycle of iPhones as 5G connectivity becomes a reality this year. Most are expecting to see a new generation of 5G compatible iPhones later this year, a product cycle that has received a lot of hype so far.
Bears Have Other Ideas
Others aren’t convinced. Atlantic Equities’ James Cordwell is only expecting Apple stock to make it to $275 and cut his rating to “underweight” earlier this week. Cordwell says that 5G isn’t going to be the boon Apple investors expect because its benefits have already been priced in. He believes there’s a better chance that investors will be disappointed with the impact of 5G.
Cordwell also contends that the firm’s newest services don’t make up much of its services revenue. He cautioned that a significant increase in services revenue is unlikely because the revenue streams that drive that segment are maturing.
He also expressed concern about pricing pressure on iPhone 11 as well as competition in China as 5G phones hit the market.
Apple in a Precarious Position
Cordwell is right about disappointment— expectations for Apple stock are high and that will magnify any missteps no matter how small. Even if Apple is able to live up to expectations and nail its next iPhone release, investors will be looking to be blown away, not just satisfied.
Plus, the wider market is trading at all-time highs, which makes buying right now even riskier. With the Dow Jones approaching 30,000, the chances of a pullback are getting higher and higher.
There are plenty of catalysts on the horizon to trigger a sell-off as well. Trump’s impeachment trial, worse than expected earnings and escalating tension in the Middle East are all potential disruptors in today’s inflated market.
Apple a Buy and Hold Stock
While I don’t think now is a great time to take a position in Apple stock, I also wouldn’t rush out to sell it. If there’s one thing you can count on when it comes to Apple, it’s shareholder friendliness.
The firm has consistently rewarded shareholders with dividend payments and share buyback programs. Plus, Apple’s cash-rich business makes the probability of those dividends suffering very low.
The firm currently pays out about 25% of its earnings. That means if Apple’s share price doesn’t deliver, management has the option of raising dividend payments. Apple’s huge cash hoard all means the company is likely to thrive in the event of an economic downturn.
The Bottom Line
For those who believe in Apple’s potential in a 5G world, starting to build a small position could be a good move. But with valuations stretched to their absolute limit right now, buying ahead of what could be an immensely disappointing earnings season isn’t my recommendation. Instead, I’d wait for a pullback to get a better deal on Apple shares.
As of this writing, Laura Hoy was long AAPL.