Market Ignores Apple's Earnings Pessimism - Bears Be Warned (Rating Upgrade)

Nov. 04, 2023 12:30 PM ET Apple Inc. (AAPL)

Summary

• Apple stock is still up over 22% in the past year, outperforming the S&P 500, despite Apple Bears saying it's too expensive.
• Despite that, the company's expensive valuation is increasingly more challenging to justify due to a slowdown in iPhone growth cadence. The question is whether the market has priced in these challenges.
• Apple's execution is still formidable, outperforming peers in critical markets such as China and the US. As such, it's hard to bet against Apple's ability to outperform expectations.
• I argue why AAPL has a tactical buy signal, although the long-term backdrop is still bearish. Therefore, investors with little or no exposure can consider capitalizing on its recent bottom to buy AAPL.

The article discusses the performance of Apple Inc. (AAPL) in the stock market, addressing the concerns of Apple Bears who believe the company's stock is overvalued. Despite these concerns, AAPL has shown impressive performance over the past year, outperforming the S&P 500.

The article highlights that Apple's expensive valuation has become increasingly challenging to justify due to a slowdown in iPhone growth, especially in China. The company's fiscal fourth quarter earnings revealed mixed results, with revenue falling in China while still outperforming its peers. The article suggests that AAPL's growth premium demands a faster growth cadence to justify its valuation.

The significant slowdown in Mac revenue is also discussed, attributed to challenging market conditions and a tough comparison with the previous year's strong performance. Apple's recent launch of the M3 chips for Mac is expected to drive a recovery in 2024, potentially appealing to M1 chip users.

The article anticipates that investors are closely watching Apple's performance in its December quarter, as the iPhone upgrade cycle is crucial. The company's guidance for flat sales in the December quarter was seen as disappointing, and the challenges in the iPhone category continue to raise questions about AAPL's growth premium.

Despite these concerns, the article suggests that investors have already factored in these headwinds, and AAPL buyers have attempted to find support at its October lows. The author sees a tactical opportunity to invest in AAPL, given the company's strong execution and market confidence. However, investors are advised to be cautious and not add to their positions close to the $200 zone, and there is a potential downside risk if AAPL fails to hold its October lows.

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