FAANG stocks have been battered in the past month and with Apple the last to report, the market's attention seems transfixed on the smartphone and tech giant as it looks to turn the tide.
Amazon (AMZN) has lost nearly 25% of its value after earnings, Facebook (FB) dropped from $215 and went down to $138, and Alphabet (GOOGL) was stung by weak revenue reports to lose steam as well. Only Netflix (NFLX) was able to buck the gloomy earnings trend.
"That history does not make Apple great, but Apple's cheap still, and Apple has a good service revenue stream," Action Alerts Plus portfolio manager and The Street's founder Jim Cramer explained. "It is over-owned. All of these things coalesce for me to say, if you haven't bought it yet, wait."
Trust but verify and Apple, in a miss, can wipe out the whole rally. One stock! https://t.co/uO0ckgjNkp— Jim Cramer (@jimcramer) November 1, 2018
Optimism on Expectations
Heading into the earnings report, the market is picking up Apple as it higher as the market opened on Thursday.
In order to be the savior that the FAANG stocks need, the company will have to beat analyst revenue estimates of $61.6 billion and earnings per share of $2.78.
Strong earnings would likely help stem the slide that even Apple felt in October, registering a slide of about 3.7% after over 30% growth in the year to date previously.
If CEO Tim Cook can deliver it would solidify Apple as one of the most, if not the most, reliable tech stock in the market and could make it an attractive place to park some money in an uncertain market and might provoke those still waiting to jump in from the sidelines.
Wall Street is expecting a rise in sales in the quarter that will be bolstered by the company's more expensive products.
The Street is forecasting sales of 47.5 million iPhones, 4.9 million Macs, 10.5 million iPads to have been sold in the quarter and to pick up from there into the key holiday sales season.
Higher prices is what might be the key to unlocking value from sales.
"We are forecasting average iPhone average selling price of $801 in the fourth quarter, led by sales of the recently launched iPhone XS Max and iPhone XS," JP Morgan analyst Samik Chatterjee said in his preview. "We believe investors are underappreciating demand for the higher-priced iPhone XS Max, which we expect to outsell the iPhone XS and drive average selling prices higher given its base price of $1,099."
Chatterjee's analysis of the supply chain suggests the increased price point has not soured demand and should lead only to more impressive results from the company.
"We rate AAPL shares Overweight given our favorable outlook on iPhone and Services revenues relative to investor expectations," he explained.
Chatterjee added that he and his team see upside on several aspects of the business "that remain underappreciated by investors", including growth in the existing customer base, technology leadership, and capital deployment.
"We expect Apple Music and Cloud Services to continue to demonstrate growth close to 50% year over year," he said. "We estimate Services will account for 14% of total revenue in 2018, led by strong 25% year over year revenue growth."
Chatterjee said that the overall story combining these aspects "leads [JPMorgan] to expect double digit earnings growth and a modest re-rating for the shares." He set a price target of $272.
That said, the company's outsized exposure to China is stoking concerns.
As TheStreet's Martin Baccardax pointed out, China accounted for around 10% of global revenues for the last reported quarter, down from around 18% at the close of 2017.
Analysts have keyed in on discounted rivals like Samsung Electronics (SSNLF) , which are poised to capitalize on a downturn in the Chinese market. Domestic rivals have likewise come in to undercut Apple's competitiveness.
Tariffs being bandied about by both the United States and China likewise does not aid the company in its China growth.
An increase in the already inflated price of iPhones in China might well make them prohibitive for Chinese consumers. Meanwhile, it would inevitably increase production costs for Apple's imports as well.
One bright spot that might clear some clouds around China outlook was the performance of its chip-supplier Qorvo (QRVO) , which outperformed estimates in the third quarter despite China concerns dampening outlook on the semiconductor sector.
"Does Qorvo's outperformance for their third quarter move the needle for Apple?" Real Money's Stephen Guilfoyle wondered. "Well, it certainly is a positive that for QRVO, revenue derived from mobile products increased by 37% and now makes up more than 75% of the firm's entire sales for the quarter."
Apple will look to show it can grow in the same fashion despite the concerns that hang over its largest Asian market. It could make a big difference for the entire market.