Renewed trade tensions are taking an effect on Apple Inc. (AAPL) stock on Tuesday.
Shares of Cupertino, California-based Apple faded about 1% in trading before Tuesday's opening bell following the imposition of new 15% tariffs that will tag Apple products such as desktop computers, watches AirPods, headphones and home devices.
"This new tariff list taxes consumers on $52 billion worth of their favorite tech products, including TVs, digital cameras, Bluetooth earbuds, smartwatches and fitness trackers," Consumer Technology Association CEO Gary Shapiro said. "The president's decision to hike tariffs even higher means even more pain for American businesses, workers and families."
Shapiro said while the administration's aims regarding intellectual property theft and technology transfers are noble, the method by which President Trump is waging his war is hurting some of America's largest companies, including Apple.
"Continuous threats of more tariffs and occasional promises that trade talks are progressing mean whiplash for global stock markets,"Shapiro said. "That uncertainty hurts every American with a pension, retirement fund or college savings plan."
Notably absent from the new tariff list is Apple's iPhone, which has received a reprieve for now. The tariff on iPhones is currently delayed until Dec. 15, possibly aided by what President Trump called a "compelling argument" from Apple CEO Tim Cook about tariffs' competitive ramifications in the industry, particularly with regard to Apple's race with Samsung (SSNLF) for smartphone and 5G supremacy.
At the very least, the delay shows some flexibility on the trade front if consumer pain and stock market shocks do prove increasingly problematic.
Margin Mitigation
With time for the company to prepare for the iPhone tariff ahead of December, analysts have noted that Apple may be able to absorb the tariff rate on its flagship product because of declining memory prices, negating much of the necessity to either raise its prices or absorb the cost of trade taxes, which would hurt margins.
Faith in the company's ability to navigate the current environment is keeping investors on the side of Jim Cramer's oft-repeated "own, don't trade" thesis on the stock.
"All in all, this potential offset to tariffs represents another reason why we think investors should own this stock instead of trying to trade it on trade headlines," Cramer's Action Alerts PLUS team advised. Apple is a holding of Cramer's Action Alerts PLUS charitable trust.
Excitement Over iPhone 11
With the trade war tempering optimism, investors may be wise to watch stock movements ahead of some major announcements due next week.
On Sept. 10 Apple is set to unveil its iPhone 11 line, an important step in the ever-extended upgrade cycle ahead of the much-anticipated 5G shift.
"With Apple caught in the crossfire on the US/China trade battle over the last six months the company (and its investors) are highly anticipating this iPhone 11 slate of smartphones to stimulate demand especially in the key China region," Wedbush analyst Dan Ives said. "The main event of next week's launch will be the flagship iPhone 11 Pro and the iPhone 11 Pro Max as these smartphones represent the crux of improvements coming in this year's releases."
Ives added that traction in China will be crucial, as his firm estimates 60 million to 70 million Chinese consumers are due for an upgrade.
"With the US/China UFC battle and Huawei potential backlash making Apple the poster child for the trade war, this is a key hand holding time for the Street on the name," Ives said. "The installed base of Apple remains the golden jewel and key to the valuation and our bullish thesis with iPhone 11 representing a key opportunity to catalyze these consumers into their next iPhone."
An increasingly prominent services segment that includes likely large-scale spending on streaming services is set to dovetail off the upgrade cycle, with Ives suggesting the future is bright regardless of persistent headline risks.
"While China remains a wild card, we are bullish into Apple's future heading into FY20 and beyond," he concluded. "We maintain our OUTPERFORM rating and $245 price target."
