Sometimes a true statement does not tell the truth of a situation. Frequently a meme arises that does not accurately reflect the real state of affairs. This is the current case with Apple (AAPL). The most commonly mentioned meme today about the stock is basically misleading. Yet everyone repeats it over and over again and thinks of it as a proper description of the state of the stock.
A meme is an idea, behavior, or style that spreads by means of imitation from person to person within a culture—often with the aim of conveying a particular phenomenon, theme, or meaning represented by the meme.
In this case, the meme in question is the idea that Apple has doubled in price since a year ago. One sees headlines such as these.
Yahoo Finance Apple stock news 31 Jan, 2020
The second is, in my mind, false in its very premise (5G).
What drives this meme is that technically it’s accurate. Here are some prices:
- 1/2/19: $ 157.92
- 12/31/19: $ 293.65 +86%
- 1/29/19: $ 324.34 +105%
So what’s my problem? While the statements are true they lead you to believe that it is whole story, but it is not. Because of its limited time frame, it is a total misrepresentation of the history of the stock price.
Let’s face it, one year is time frame that is convenient for us people, but there is little to recommend it as having some absolute importance.
To see the real story, you just have to go a few months further back. On October 3, 2018, Apple hit an all-time high of $232.07. After that there was a precipitous drop that bottomed in January at $142.19, a drop of 39%.
Look at the chart from this time period (Sep. 2018 – Mar 2019).
While part of the drop was driven by Apple’s performance, most notably with drops in iPhone revenue, one important driving factor was overall uncertainty of the U.S./China trade problems. This overall insecurity hit the market as a whole. Apple followed the market trends closely – though magnified, due to its complex involvement in China. A tariff on cell phones would have affected them dramatically while giving chief rival Samsung (OTC:SSNLF) a price advantage.
A November 21, 2018 article on BBC News wrote:
China, in particular, is a risk some are watching for Apple, since the Greater China region – which includes Hong Kong and Taiwan – is the source of about 20% of the firm’s revenue.
The next chart shows how Apple price moves reflected leading indicators Dow and S&P 500, though, as noted, magnified.
What if we go back even further?
Seeking Alpha eschews technical analysis, and I am not trying to go into that. Still, to look at existing price movements is an essential part of an investor’s toolkit. In this case it shows that the current “100% + in one year” meme is deceptive.
In the next chart I show that the current price is in line (literally) with Apple’s long term trend, and as such is not as remarkable as those who isolate 2019 would have you believe.
Simply put, if you just go back 3 months you have a rise of only $92, 40%, or just 32% annualized. (Oct. 3, 2018, closing price $232 to Jan. 29) This is a great return for any stock, but a completely different story from more than 100%!
One might ask…
But, which is the anomaly, the low Jan 2019 price, or the high Oct 2018 price?
Here is Apple’s chart going back to January 2017. If you draw a trend line from Jan 3 through the high points of Apple’s various dips, you will see that the current price is really very much in line with this long term trend. In fact, it’s actually a bit surprising that it fits so well. According to the line drawn, Apple is precisely where one would expect it to be.
(Note: minor differences in how you draw the trend lie produce differences in target price that are significant. For this reason I have drawn a second, more conservative trend line as well.)
Yes, the recent high is above this line, but that is entirely normal. The stock tends to rise above the trend line and then correct back below it for some time before initiating a new run. The depth of correction and the length of time it proceeds sideways are typically determined by strength of Apple’s earnings, as well as by macro/global issues.
To say “100+ % rise” is true, but it does not tell the real story. The statement is true, but the implications are not. If we just go back to the previous October we will get a much more accurate picture of Apple’s overall trend, excluding the temporary, global forces.
On a positive, bullish note, Apple has been struggling for several years against a slowdown in its core, iPhone sales, due to market saturation. The current quarter indicates that there is still room for growth, not only in services and wearables, but even in iPhones. If Apple continues to deliver higher than expected revenue and earnings, then we can look forward to a continued price rise, perhaps even at an accelerated rate.
In the short term, however, I am expecting a correction to below the trend line. This will likely be accelerated and deepened by the uncertainty of the Novel Coronavirus epidemic. Until this is brought under control, we will see real pressure on all stocks, but particularly on Apple. The company is:
- dependent on a workforce of tens of thousands to build its products, and
- on a long and complex supply chain, and
- also on a significant percentage of its sales.
The upper trend line crosses the present day at roughly $302. It is likely that Apple’s price will go below this. The lower trend line shows a target of roughly $260 today. If this virus epidemic spreads seriously (and I believe it will) then there is a chance that Apple will retract to this level.
Your comments are appreciated.
Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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