With the coronavirus from China making some investors nervous, it’s understandable that owners of Apple (NASDAQ:AAPL) might consider taking profits at this juncture. Indeed, the company’s recent announcement that it would temporarily close its 42 Apple store locations in China due to an “abundance of caution and based on the latest advice from leading health experts” could be enough to scare some skittish investors away from Apple stock.
Apple’s reported extension of the Chinese store closures until Feb. 15 continues the overall uncertainty regarding the company’s prospects in China. It also forces us to question what the virus’s economic impact will be. As such, Apple investors have every right to ask hard questions and be extremely cautious.
But all of this mayhem is setting a buying opportunity up in Apple stock.
Bracing for Impact
It’s hard to blame Apple for its cautionary stance as there’s really no way to predict the extent of the coronavirus’ impact, fiscal or otherwise. Apple did claim to be “making preparations” to reopen its Chinese store locations, but no exact dates or timelines were announced.
At the very least, we can rest assured that Apple’s public-relations team is working around the clock to quell investors’ fears:
“The entire Apple family is committed to helping our colleagues, communities, suppliers, partners and customers in China … As we gradually return to work, our first priority is the well-being of our teams, supplier partners and customers across China. Our thoughts continue to be with those affected by the coronavirus and those working around the clock to treat, study and contain its spread.”
That’s heartwarming and all, but I’m pretty sure that selling gadgets to Chinese consumers is also high on Apple’s list of priorities. It’s also a high priority for shareholders. According to analyst estimates, Apple generates between $651 million and $802 million per week from Chinese sales of iPhones, services and other hardware. This translates to earnings of around 5 cents per share every week.
A Clouded Outlook
Analysts seem to be giving concerned stockholders a mixed message as uncertainty remains the overriding sentiment. Wedbush Securities analyst Brad Gastwirth summed up the general consensus, writing, “[t]here clearly will be manufacturing disruption, but again it is too early to make any predictions.” This led him to ask the following question: “Will consumer demand be pushed forward, or erased entirely?”
Jefferies analysts Kyle McNealy and George Notter also contributed to the overriding sentiment of uncertainty, citing concerns both specific and general: “The Coronavirus outbreak in China remains a risk to the Wearables business and the company as a whole.”
Furthermore, analysts at Cowen, including Krish Sankar, painted a daunting picture of the financial impact metastasizing beyond China:
“Apple’s supply chain typically has about a week or two of buffer inventory during the Lunar New Year holiday and as such any major extensions of the quarantine beyond Feb. 10 increase the risks of impacting the supply chain … This could effectively limit or push out near-term demand even in other geographies.”
As the experts present current and prospective shareholders with a potpourri of what “could” or “might” happen, it’s left to you to decide whether Apple stock remains a strong value. But I’ll just say what analysts secretly wish they could — no one knows.
In situations like this, if you’re a long-term investor, I suggest holding on to your shares. For short-term swing traders, I feel that it’s an ideal time to take profits. The price of Apple stock is still near the top and it’s certainly possible that the virus will lead to a dip soon.
The Takeaway on Apple Stock
The extent of the coronavirus’ impact remains a “known unknown.” The extent of its damage cannot be fathomed or calculated at the moment. Depending on your time horizon as an investor, an abundance of caution might be the best course of action. Or inaction might be the solution here, since staying profitable sometimes means knowing the limitations of what you know.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.