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Last year’s -27% decline in shares of Apple (AAPL) was the stock’s worst year since 2008. With delays in the production of iPhones and demand concerns still weighing on the stock, Apple’s designation as a safe-haven stock may be tested. There is still plenty of room for Apple to fall on any additional negative news since its valuation is still above its 10-year average.
According to Bloomberg data, Apple shares are priced at about 20 times profits expected over the next 12 months. That is down sharply from recent peaks above 30, but is still above the 10-year average of 17. Apple’s shares dropped -12% in December, worse than the -5.9% drop in the S&P 500 ($SPX) (SPY) and -9.1% drop in the Nasdaq 100 ($IUXX) (QQQ). It was Apple's biggest monthly decline since May 2019.
Sentiment toward Apple has fallen sharply over the past couple of months. As recently as November, Apple was outperforming the S&P 500. Apple’s strength was its massive capital returns to shareholders through buybacks and dividends and the belief that its loyal customer base would insulate the company during any potential recession.
Nevertheless, the slump in Apple continued on Tuesday after Nikkei reported that Apple told several suppliers to make fewer components for some of its products due to weakening demand. Also, Exane BNP Paribas on Tuesday downgraded Apple to neutral from outperform, saying the company’s growth outlook “seems insufficient to justify a valuation premium to platform peers.”
Due to Covid-related production snarls in China, analysts have been cutting Apple’s iPhone sales estimates for the company’s first quarter, which ended December 31. JPMorgan Chase cut its projection for a second time since November, calling for 70 million units sold, down from a prior estimate of 82 million. However, many of the lost sales may have just been pushed back to the second quarter as supply constraints ease. Analysts are still wary as the average target price for Apple over the next 12 months has dropped to about $173 from $193 back in March.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
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