Apple (NASDAQ:AAPL) closed at $323.62 on Wednesday, up 1.45% on the day. The stock’s total gain so far in 2020 is 8%. Over the past year, it’s up 84%. Apple stock seems invincible, even shrugging off slumping iPhone sales.
The coronavirus from China? A warning that it would miss revenue guidance because of the outbreak shaved 3% off AAPL, but it quickly bounced back.
Many analysts remain bullish on Apple going into 2020, but there are those who feel Apple stock is due for a correction.
Apple Stock Just Keeps on Increasing
When you look at the news and trends in the world of consumer technology, it seems as though Apple should be feeling some pain. However, Apple’s stock performance certainly doesn’t reflect that.
Sales of the iPhone — the product that dominates the company’s revenue and almost single-handedly drove over a decade of record stock growth — are slowing. They peaked in 2017 and smartphone sales are declining worldwide.
The new Apple TV+ subscription video streaming service hasn’t been getting a warm reception. The U.S. and China have spent much of the past two years engaged in a trade war. Developers sued Apple over the company’s cut from lucrative App Store sales, and then last fall the App Store faced the prospect of antitrust investigations.
Despite all of those issues, Apple has increased in value by 84% over the past year. In comparison, both Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) are up about 30% over the past 12 months.
Is It Time for a Correction?
While the overall performance of Apple stock shows surging growth over the past 12 years (since the iPhone was released), Apple has experienced significant corrections. There have been two of note in the past five years.
In the fall of 2018, with global smartphone sales slumping, the new iPhone XS series was not selling in numbers the company was expecting for. That kicked off a correction that gained speed when Apple announced it would no longer break out unit sales for iPhones. By the time the panic was over Apple had lost one third of its value in three months.
The most recent example took place last May. When tensions ramped up between the U.S. and China, there was concern that Apple products (most of which are made in China) would be slapped with tariffs. Apple’s sales in the Chinese market could also take a hit. That correction knocked 17% off Apple’s value during May. It has been on a run since then, and some analysts are worried that it’s due for another correction.
In an e-mail to InvestorPlace, Craig M. Thompson, ChFC and President of Asset Solutions had this to say:
From a technical perspective, APPL stock is in a strong uptrend. However, it is because the advance has been so strong that the stock looks to not posses a good risk/reward tradeoff. The stock is overbought and at a level that has historically signalled an imminent correction.
While the investment analysts surveyed by The Wall Street Journal have Apple as a consensus “buy,” the optimism isn’t unanimous. Of the 41 analysts on record, 14 have AAPL as a “hold,” with a “sell” and two “underweight” ratings in the mix. The average 12-month price target of $329.58 has under 2% upside. Even the most bullish price target of the group is $400 — for 24% upside.
The Bottom Line on Apple Stock
If you were considering an AAPL purchase, now doesn’t look like the time to do it. If nothing else, the company may have shaken off the effect of a warning about the impact of the coronavirus outbreak on its business, but in May it will have to deliver the actual numbers. And that could be the trigger to what some see as an overdue correction.
What does Mr. Thompson recommend?
If you are a current investor, it would be advisable to set a logical stop to lock in profits should the stock fall. If considering investing in AAPL as a new position, you may be better served by either waiting for the stock to correct or, better yet, look for other stocks that are not overextended.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
