Apple (AAPL) , one of the companies that has shown itself most sensitive to the ongoing China trade war, has steadily slid since President Trump trumped up his tariff talk on Twitter (TWTR) .
Shares of the Cupertino, California-based smartphone manufacturer and technology company slid nearly 4% at pre-market lows, reaching a nearly 10% slide since its peak prior to Trump's tweeting spree.
We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate. We will be taking in Tens of Billions of Dollars in Tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-Tariffed countries...
— Donald J. Trump (@realDonaldTrump) May 12, 2019
....We will then spend (match or better) the money that China may no longer be spending with our Great Patriot Farmers (Agriculture), which is a small percentage of total Tariffs received, and distribute the food to starving people in nations around the world! GREAT! #MAGA
— Donald J. Trump (@realDonaldTrump) May 12, 2019
Meanwhile $AAPL sinking by the minute....
— Jim Cramer (@jimcramer) May 10, 2019
"Apple has one of the most significant exposures to Chinese exports to the U.S, given final assembly for many of its consumer devices is located in China," Morgan Stanley analyst Katy Huberty wrote in a note last week. "Given the reliance on China's established, low-cost labor force and expertise in manufacturing/tooling, a large-scale move out of the country would not only be costly, but could take multiple years to complete, potentially raising the odds of execution risk."
Essentially, Apple is caught between a rock and a hard place.
"If Apple passes the entire tariff cost on to U.S. consumers, consumers would spend roughly $160 more per iPhone XS, which likely would dampen iPhone demand, and lead to further lengthening of the iPhone replacement cycle," she surmised. "In the opposite scenario, where Apple absorbs the entirety of the tariff cost - which we view as a more likely, worst case scenario - FY20 EPS (of $12.67) would be impacted by nearly $3, or ~23%."
Data from the International Trade Center shows that $45 billion worth of mobile phones were imported from China into the United States last year, and Trump himself raised the issue of Apple-focused tariffs back in September, bringing the stock firmly into the market anxiety's crosshairs.
As many will recall, Apple blamed China for its bearish pre-forecasted earnings in January, causing shares to trade in the low $140 range as worries came to a fever pitch.
"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," CEO Tim Cook said in a letter to shareholders at the time. "In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad."
The renewal of tensions bringing that impact to the fore again bodes poorly for the near-term stock reaction, as tariffs threaten to weaken not only supply lines but Chinese consumers that Apple relies on to purchase its pricey smartphones.
The question that remains is how much downside for the stock is left after a rapid run into May as trade tensions looked to be loosening.
Still, some see the recent correction as a strong opportunity to pick up shares as anxiety overtakes the market, especially given Apple's efforts to diversify its supply chain after taking such a massive hit in late 2018.
The forward PE ratio for Apple is ticking just below 16 in morning hours, a comparatively low multiple for a technology name involved in numerous aspects of the tech economy.
Huberty pointed to services, which are largely insulated from the tariff impact, as the key thesis moving forward, which has held her price target at $240 per share.
As such, some may want to look at rebuying the stock if it continues to fall back into the $180 per share range.
"Some loyal AAPL owners may not worry about a decline to the $180-$170 area, but I do," Real Money technical analyst Bruce Kamich said. "In a weak market, a bearish price target could be overrun and chart support can disappear. AAPL looks like it is going to pull back. And if I find it attractive at a lower level, I'll have no problem re-buying it."
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