Just over a month ago, Apple (AAPL) stock seemed to be the last pillar of stability that could save this market from a painful decline. When shares sunk into a bear market last week, it seemed like all bets of the S&P 500 holding up were taken off the table.
Michael Burry’s recently revealed bet against the iPhone maker caused quite a stir this week. The man’s bearish bets were made during the same quarter that another investment legend — Warren Buffett — was an active buyer of AAPL shares.
Burry’s bearish bet against Apple may have been more of a hedging move than a longer-term “big short” type of bet, as Burry purchased other securities for the first quarter.
Further, Burry has been known to book quick profits from timely trades. He may have thought Apple stock was likely to be the last domino of the FAANG cohort to fall amid the broader market sell-off.
Off around 22% from peak to trough, it’s now clear that Apple stock didn’t have what it took to keep broader markets propelled. Though the company clocked in a solid second quarter, its cautious guidance was enough for investors to treat the earnings results as a dud.
At 23.9 times trailing earnings, Apple stock finally looks like a decent value, and I would not be shocked if Buffett was interested in taking yet another big bite out of the firm. I remain incredibly bullish on AAPL stock.
More Supply Chain Headwinds
The COVID-19 pandemic has been a supply-chain nightmare for many companies. Apple has been one of the few firms that have been able to navigate through such challenges, and that’s thanks to the operational expertise of its CEO Tim Cook.
Supple-chain problems are precisely what many firms must tackle as we close off another brutal year.
For the second quarter, Apple didn’t just see good results; it saw record iPhone and Mac revenues. The numbers were incredible, surpassing the estimates of many.
Still, investors were quick to ditch the stock at the first signs of trouble. With even more COVID-induced supply constraints on the horizon, as a result of China’s zero-COVID policy and halted sales in Russia, it seems like Apple’s best days are behind it.
Though the coming quarter could see between $4 billion to $8 billion shaved off because of said headwinds, I think there are reasons to give Apple the benefit of the doubt.
The company has been known to err on the side of caution when it comes to guidance. Further, few firms are better positioned to dodge and weave through another round of COVID-induced supply chain disruptions.
Apple Stock: The Bar Has Been Lowered
Apple stock seems like a great value. It’s not a mystery why Buffett’s Berkshire Hathaway (BRK.A) bought even more shares of the cherished company. If the Oracle of Omaha sees a wonderful business at a fair or wonderful price, he will not hesitate to be a buyer.
For now, investors have the jitters when it comes to Apple. It’s as though the record results for the second quarter mean next to nothing. With management holding back on specifics on what to expect on the revenue front from the coming quarter, investors seem to be bracing themselves for the worst.
With so much in the way of uncertainties, it’s entirely possible that Apple could stumble in its next quarter. The market has been unforgiving to firms that fail to serve up a larger-than-expected beat alongside a surprising guidance raise.
Wall Street’s Take
According to TipRanks, AAPL stock comes in as a Strong Buy. Out of 26 analyst ratings, there are 20 Buy recommendations and six Hold recommendations.
The average Apple price target is $189.40, implying 30.1% upside potential. Analyst price targets range from a low of $160 per share to a high of $215 per share.
Bottom Line on Apple Stock
Though it’s difficult to gauge when Apple will be able to get production at full speed again, the robust demand we witnessed in the last quarter should not go ignored just because of meager guidance. Looking ahead, growth in the high-margin Services segment and Mac could continue to act as bright spots for the firm.
The M1 series of chips has been a game-changer for the Mac, helping power the segment to 15% growth. With the next iteration of the SoC (System on a Chip) likely to be unveiled this year, it’s hard to imagine Mac sales growth retreating anytime soon. If anything, an M2 line of chips could hold upgrades that pave the way for further off-the-charts demand.
Once supply-chain bottlenecks gradually ease with time, we’ll gain a glimpse of just how resilient the consumer is. For now, expect Apple to move hand-in-hand with the rest of the market. It may have been the last domino to fall, but it could be among the first to get back on its feet again when the time comes.
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