Apple Stock Is Vulnerable to Tensions With China, so Tread Lightly

As political tensions have risen, Apple (NASDAQ:AAPL) stock crashed.

Apple Stock Looks Too Cheap Here for Investors to Pass Up
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Apple had sales of $378 billion for 2021. That’s a little less than South Africa, a little more than Denmark. Those countries didn’t list one-quarter of their revenue as net income, either. Apple did.

But as Apple has achieved the GDP of some countries, its problems have become country-sized. Since the start of 2022 it’s down by 8%. 

Should you “buy the dip,” as Morgan Stanley (NYSE:MS) recommends? It’s their top pick for 2022.  Or should you take some off the table, as I did last year?

A Closer Look at AAPL Stock

The iPhone is once again the best-selling phone in China, according to CounterPoint Research.

Its market share in the fourth quarter was 23%, with sales in “Greater China” rising 83% year-over-year.

That phrase “Greater China” holds an ominous warning. As tensions in Europe have become war, China’s Xi Jinping has become increasingly aggressive toward Taiwan.

It has an independent government, but it’s part of “Greater China” and, as it did with Hong Kong, China wants to make Taiwan into China proper.

This is an threat AAPL stock has to contend with. China is more than a market for Apple, it’s also its supply chain.

I am old enough to remember how enterprises waited five years for a Microsoft (NASDAQ:MSFT) Windows that worked in the 1980s because Apple couldn’t supply the market at a competitive price.

China changed that equation, starting with the iPod in the late 1990s. Cut off China and you cut off Apple’s right arm.

Tensions and AAPL

Absent a second war, Apple stock looks golden.  It could deliver devices that support Virtual Reality as early as this year.

Lower-cost iPhones and iPads are due to be launched next month. There’s still an Apple car in a garage somewhere.

Apple also has ungodly amounts of good management, in the words of Berkshire Hathaway (NYSE:BRK-B) vice-chairman Charlie Munger.

Half of Berkshire’s stock portfolio is now in Apple, which has been a 10-bagger under CEO Tim Cook.  It’s also on Bank of America’s (NYSE:BAC) list of top buys.

Apple was powerful enough to crush Meta Platforms (NASDAQ:FB) simply by changing its privacy algorithms. The change made it harder for Meta to track its users’ behavior and deliver customized ad or content pitches.

AAPL stock may also be the perfect metaverse play. No tech company knows consumers as well as Apple.

More important, no company has as much cash to invest in them. Apple had almost $64 billion in cash and securities on the books at the end of December.

Operating cash flow in the December quarter alone came to almost $47 billion. Apple’s capital budget was almost $10.4 billion in fiscal 2021. In the December quarter, it spent another $2.8 billion. 

The Bottom Line

If China invades Taiwan everything’s going to hell. Apple stock will be the least of your worries.

But because it’s now as big as many countries, Apple is now subject to geopolitical shocks. War is unhealthy for economies and other living things. Small wars may benefit defense contractors, but big ones destroy fortunes on a global scale.

Global tensions have made Apple volatile, and rightly so. But its latest fall only brought it back to levels from early December. Over the last two years, it’s up 138%.

On the date of publication, Dana Blankenhorn held long positions in AAPL, BAC, and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2022/02/aapl-stock-is-vulnerable-to-tensions-with-china-so-tread-lightly/.

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