I quite simply view Apple (AAPL) stock as an undesirable play for the time being. On the one hand, you have a strong finish to their fiscal 2018. On the other hand, there is a lot of chatter going on right now around tariffs and sales.
Buying a company that has already achieved the status of "biggest company in the United States" (Though that title is gained or lost day to day) usually means you've hopped on the bandwagon long after you should have. Apple is one of those situations. The smartphone story has been running for a long time. It's not surprising to hear that sales for the hyper expensive smartphones might be waning. The stock is taking further pressure right now after markets have heard the unsettling tariff remarks from President Trump.
One has to wonder what kind of maneuvering was performed by CEO Tim Cook to avoid the tariffs in the first place. Apple does kind of sum up the outsourced mindset. They've taken criticism for avoiding taxes. They've taken criticism for building everything overseas and then charging $1,000 for a phone here. Talk about margins. With so many outliers, the company does kind of have it coming if it faced tariffs.
Whether Trump actually follows through with his comments on Apple is highly questionable. He says a lot of things. Then again, he does a lot of things as well. He's a hard man to predict. You never want to bet against a man that is unpredictable. I view Apple as an unnecessary stock to own right now. It's becoming part of a battle that is far grander in design than phones and laptops. This is about global economic control.
They're getting caught up in a bigger game
It's more about China than it is about Apple. We're in a competition between the two biggest economies to see who stays the top dog. Apple's overseas manufacturing is incredibly useful for China. It also bolsters the desire of suppliers to keep their facilities close to Apple. The ironically capitalist inflows of capital are very useful for the Chinese economy. I view the tariff threat as a means to pressure the country even more in terms of its economic stances. If the U.S. starts dragging down Apple's ability to operate in China, it will damage a lot of Chinese jobs that go with it. Whether you care more about stopping the Chinese alienation of U.S. manufacturing and theft of IT, or if you simply want Apple's stock to run as high as possible, is entirely subjective. The point is that the uncertainty surrounding the situation makes the stock undesirable. This is especially true in the current market environment. Wall Street is looking for reasons to get nervous on tech.
Sales were a little worrisome prior to this tariff talk
Looking past tariffs altogether, Apple was already becoming a questionable play. It's simple math. If Apple is curbing production of its newest phones, it implies they aren't going to sell as many as they had hoped. Cutting iPhone XR production by up to a third of 70 million units originally expected means a large difference in expected sales. I think the issue is even more complicated by Apple deciding not to report phone sales anymore. The only reason to not report sales is that you don't want people to see them decline. At the very least, this is will have investors thinking. When 60% of your profits come from phones, it's rather suspect to not report their sales results anymore. Analysts aren't leaving this one alone, and I think they're right. The iPhone doesn't exactly have a huge moat around its utility anymore. There are other options. Furthermore, the pricing is simply getting too high.
The olive branch...
The stock is cheap. Revenues grew 20% to nearly $63 billion in the fiscal fourth quarter; and earnings are great. There's really no getting around these three points. Moreover, servicing of their offerings is bringing in ever more revenue to the mix. Apple's services segment brought in $10 billion in the fourth quarter. Of course that pales in comparison to overall sales, but it's still a positive note. The financials are what make it difficult to get defensive. Diluted earnings per share are up 29% for the year to $11.91. By all accounts, the company has delivered. On a price basis, the stock is trading at a very reasonable P/E ratio to next year's estimates of $14.87. Even if they fell short, the stock isn't expensive. For those who had owned it forever, I can understand a neutral stance. For prospective buyers, I think now is a bad time.
The problem lies within its industry. Tech is taking heat right now. It is at the forefront of trade disputes since so much tech is produced overseas. It also holds a place of concern for U.S. national security and interests. A 10% tariff on Apple phones and computers would be devastating in terms of morale. If it were to occur in conjunction with a weaker-than-hoped-for holiday season in terms of sales, Apple could face some serious bearish pressure. I don't think there's any chance that they'll move production back to the United States, but the costs that could be associated with moving production to another cheap manufacturing base would be a nightmare. I view Apple as "hold" until it becomes clearer how iPhone sales and tariff threats will play out. If they avoid getting roped into the Chinese trade discussion going into the New Year, I think they'll be safe. If they don't, look out.
