Apple’s Safe-Haven Status at Risk

There is a growing concern that the status of Apple (AAPL) as a safe-haven stock may be at risk.  On Sunday, Apple warned that Covid lockdowns in China would cause shipments of its newest iPhone to be lower than expected. Bloomberg news then reported that due to weaker demand, Apple expects to produce at least 3 million fewer iPhones this year than previously estimated.

Apple stock has been a relative haven this year compared to other mega-cap technology stocks.  Apple has fallen -22% this year, less than the -33% decline in the Nasdaq 100 Stock Index ($IUXX) (QQQ).  Other mega-cap technology stocks, including Microsoft (MSFT), Amazon.com (AMZN), and Alphabet (GOOGL), are down between -32% and -46%.

Of all the mega-cap technology stocks, Apple was the only one to rally in the wake of this quarter’s earnings results, which prevented most analysts from dramatically cutting their earnings estimates for Apple.  However, according to UBS Group AG, the consensus for Apple is too optimistic, which represents a risk to its stock price at a time when it already trades at a premium to the Nasdaq 100. 

Analysts expect earnings of $6.29 per share for Apple in 2023, an estimate that has declined by -2.6% over the past quarter.  In comparison, 2023 estimates have fallen -5.8% for Microsoft in the same period, -5.6% for Alphabet, and -14% for Amazon.com.  Also, Apple suppliers have seen their earnings estimates slashed, with 2023 earnings for Skyworks Solutions (SWKS) cut by -11% over the past month and earnings estimates for Qorvo (QRVO) cut by more than -20%.  Frank Funds calls the lack of a cut to Apple’s earnings estimates “a flashing red light” for investors. 

Apple trades at about 22 times estimated earnings, above its 10-year average of 17 and the 19.7 multiple of the Nasdaq 100.  Wealth Consulting Group states, “Apple is overvalued relative to the rest of tech, even if there is something to be said for its cash flow and brand.” Wealth Consulting Group likes Apple as a long-term play but said, “the big question is how much growth could slow and thinks that a recession will hurt Apple more than analysts are projecting.”

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