One of the trade war’s big victims could be Apple. While much of the trade war panic has been focused on other products, Apple could be the biggest victim to suffer. The the reason why may have more to do with sentiment than with tariffs. While there is much talk of Chinese “national champions”, Apple is undoubtedly an American national champion in China, and with sentiment souring against the US in the face of the trade war, it is likely that Chinese consumers will move towards purchasing domestic smart phones. Apple will be forced to raise prices because of tariffs, which would accelerate the trade. China accounts for about 18% of Apple’s revenue and a higher percentage of its profits.
FINSUM: There could be a big hit to Apple’s top and bottom lines here. China could also take measures to specifically wound Apple the way Washington has done to Huawei. Anything seems to be fair game right now.
Want to forecast at where Apple’s stock price is headed? There is a good trick for doing so. The method is to look at the earnings and share price moves of Apple’s suppliers. About a third of suppliers report earnings before Apple does, and many of them derive a high portion of their sales from the company. Therefore, one can fairly well predict Apple’s earnings and likely moves. For instance, Apple has been on a tear since its earnings on Tuesday, and it would have been easy to see from the previously released supplier earnings.
FINSUM: This will not always work and some of the value is probably eaten up by algorithmic traders, but still, it seems a good predictive indicator.
So what are the most popular funds held by mutual fund managers right now? This is always an interesting question, not only because it can give one ideas, but also because it can serve as a counter-indicator. Stocks that are very widely held tend to be over-bought and the most at-risk of falling sharply. The most popular stocks right now are Alphabet, Microsoft, Visa, Apple, Nestle, and Exxon-Mobil. Speaking about the outlook for these stocks, UBS, who made this report, says “Once these trades reach their critical value, or an exogenous shock occurs, we expect a sharp price reversal as investors unwind their exposure in tandem”.
FINSUM: Nothing particularly interesting in those top holdings, so the downside risk of them being there seems the most relevant.
HSBC just put out a big warning to investors—it is time to sell Apple stock. The news comes as a bit of a surprise because the iPhone maker has been performing well this year and there have been rumors of a big new push into healthcare. However, HSBC says investors should get out of the stock because Apple’s new services business will disappoint. The bank summarized its view this way, saying “Services makes ecosystem more sticky but won’t necessarily enable Apple to recruit more consumers to iPhone … All in, we remain far more cautious on services than some of the numbers in the street might suggest”.
FINSUM: Not only does HSBC think the new services offerings will disappoint on the top line, but they think they will be lower margin too! It is hard to speculate how this might go, but we do think this transition to services will be harder than many expect.
You certainly won’t think of it this way, but Morgan Stanley is arguing that Apple is now a great healthcare play. The bank’s research team says Apple is on the verge of a major new product that will transform the healthcare space, meaning there could be a lot of value in the stock that is not being priced in. Katy Hubert of MS says “Apple is building a healthcare ecosystem and is poised to emerge as a leader in consumer-centric healthcare … Healthcare is a large, greenfield services opportunity for Apple”. She continued, saying “Unlike recent announcements on news, gaming, video, and payments, where Apple is joining existing competitors, healthcare is a market where Apple has the potential to lead digital disruption”. The stock is up strongly this year because investors are happy with its shift to a more services-oriented business model.
FINSUM: It is hard to speculate on the potential impact without know the product, but we must say Apple does seem to have a major opportunity if it can map a healthcare product onto the hundreds of millions of users of its products in the US alone.