When to buy Apple stock after tariff concern drives share price lower
Apple (AAPL) shares have been under pressure lately as the trade war between the U.S. and China escalates. The tech giant faces the risk of higher tariffs on its products imported from China, which could hurt its margins or sales. Analysts have been cutting their price targets on Apple stock amid the uncertainty, and some investors are wondering if it's time to buy the dip.
Apple stock is down about 15% from its highs earlier this month, when optimism over a trade deal was high. Since then, President Trump has threatened to increase tariffs on $200 billion worth of Chinese goods from 10% to 25%, and to impose new tariffs on another $300 billion worth of goods, which would cover almost all of China's exports to the U.S. China has retaliated with its own tariffs and other measures, such as restricting rare earth exports and blacklisting some U.S. companies.
Apple is one of the most exposed U.S. companies to the trade dispute, as it relies on China for about 20% of its revenue and for most of its manufacturing and assembly. According to Morgan Stanley analyst Katy Huberty, a further round of tariffs could boost the price of an iPhone by $160, forcing Apple to either pass on the cost to consumers or absorb it and slash its 2020 earnings forecast.
However, not all is gloomy for Apple stock. The company has some advantages that could help it weather the storm, such as its loyal customer base, its diversified product portfolio, its fast-growing services segment, and its strong balance sheet. Apple also has some leverage in negotiating with the U.S. and Chinese governments, as it employs millions of workers and contributes billions of dollars to both economies.
Moreover, Apple stock is not expensive compared to its peers and historical averages. The stock trades at about 16 times forward earnings, below the S&P 500 average of 17 times and its own five-year average of 18 times. The stock also offers a dividend yield of 1.6% and a share buyback program that could boost earnings per share.
So when is a good time to buy Apple stock The answer depends on one's risk tolerance and time horizon. For long-term investors who believe in Apple's fundamentals and innovation potential, any pullback could be an opportunity to accumulate shares at a lower valuation. For short-term traders who are looking for a quick rebound, it may be better to wait for some signs of stabilization or resolution in the trade war, such as a break above the downward channel or a positive tweet from Trump.
What's next for Apple in 2023
Apple is not a company that rests on its laurels. It is constantly innovating and developing new products and services to delight its customers and grow its revenue streams. Here are some of the potential catalysts that could boost Apple stock in 2023.
A new product category: Apple is rumored to be working on a new augmented reality (AR) and virtual reality (VR) headset that could launch as early as 2023. The device, codenamed N301, is expected to be a high-end product that combines both AR and VR capabilities, allowing users to interact with digital content in immersive ways. The headset could also leverage Apple's existing ecosystem of devices and services, such as the iPhone, Apple Watch, AirPods, Apple Music, and Apple TV+. Analysts estimate that the AR/VR market could be worth $160 billion by 2025, giving Apple a huge opportunity to tap into a new growth area.
A stronger services segment: Apple's services segment has been one of its fastest-growing and most profitable businesses in recent years. The segment includes revenue from the App Store, Apple Music, Apple TV+, iCloud, Apple Pay, Apple Arcade, Apple Fitness+, and more. In fiscal 2022, services revenue grew 18% year over year to $69.8 billion, accounting for 18% of Apple's total sales. The segment also boasts a gross margin of 69%, much higher than the company's overall gross margin of 41%. Apple has been investing heavily in expanding its services offerings, adding new features, content, and markets. For instance, the company recently launched Apple Music Voice Plan, a cheaper subscription option that lets users access music via Siri voice commands. The company also announced plans to launch its streaming video service Apple TV+ in 21 more countries in early 2023.
A comeback for wearables: Another bright spot for Apple has been its wearables, home, and accessories segment, which includes products such as the Apple Watch, AirPods, HomePod, and Beats headphones. The segment grew 24% year over year in fiscal 2022 to $40.9 billion, representing 10% of Apple's total sales. The segment also has a gross margin of 45%, above the company's average. Apple has been dominating the smartwatch and wireless earbuds markets with its popular products that offer seamless integration with other Apple devices and services. The company is expected to launch new versions of its wearables products in 2023, such as the Apple Watch Series 8 and the AirPods Pro 2.
Apple stock may have had a rough year in 2022, but that doesn't mean it's time to give up on the tech giant. The company still has many strengths that could help it overcome the challenges posed by the trade war and the pandemic. Apple has a loyal customer base, a diversified product portfolio, a fast-growing services segment, a strong balance sheet, and a track record of innovation. The company also trades at a reasonable valuation compared to its peers and historical averages. For investors who are looking for a long-term winner in the tech space, Apple stock is still a must-buy for 2023. ec8f644aee