Source: PaxForex Premium Analytics Portal, Fundamental Insight
The ensemble of stocks famously referred to as the "Magnificent Seven" has experienced a varied start to the year. Comprising esteemed tech giants that have delivered exceptional returns over the last decade -Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla - the group exhibits a mix of performances since the beginning of the year.
While some, notably Meta Platforms and Nvidia, have demonstrated stellar performance, others, like Apple, haven't fared as well. Apple's stock, registering a decline of nearly 5% year to date, positions it as the second-worst performer in the group.
However, overlooking Apple stock solely based on recent performance may not be warranted. Let's delve into why Apple remains an attractive choice for long-term investors.
The decline in Apple's shares followed the release of its financial results for the first quarter of 2024, concluding on December 30, 2023. Despite the tech giant's overall modest results, particularly on the top line with net sales increasing by approximately 2% year over year to $119.6 billion, Apple's earnings per share displayed a robust 16% year-over-year increase to $2.18. The cause for investor dissatisfaction stems from the company's concerning performance in a critical region - China.
Apple's sales in China experienced a 13% year-over-year decline, amounting to $20.8 billion, constituting roughly 17.4% of Apple's revenue for the first quarter of 2024. The decline was attributed to lower sales of the iPhone and other devices. Despite this, the setback in China is viewed as a transient issue. Smartphone sales faced challenges in China throughout the previous year, partly due to economic factors affecting various companies, not exclusive to Apple. Notably, Apple continues to be the leading smartphone brand in China and other markets, as affirmed by CEO Tim Cook, who highlighted, "iPhones were four out of the top five models in the US and Japan, four out of the top six models in urban China and the UK, and all top five models in Australia," according to a Kantar survey.
Examining Apple's first-quarter results reveals two optimistic factors, especially concerning its performance in China. Firstly, this period encompassed 13 weeks compared to the previous fiscal year's parallel quarter, which had 14 weeks. Secondly, fluctuations in currency exchange rates adversely impacted Apple's sales growth metrics in China.
While the economic slowdown in China may persist for a time, Apple's long-term growth prospects remain abundant. The company's resilience, coupled with the anticipation of a rebound in economic conditions, positions Apple as a promising investment choice over the extended horizon.
Apple's iPhone category continues to dominate the revenue landscape, exhibiting a notable 6% increase to $69.7 billion in Q1 2024. Among Apple's various segments, only the services unit surpassed this revenue growth, boasting an 11.3% year-over-year increase to $23.1 billion. While services currently contribute around 19% to Apple's overall revenue, this segment is increasingly perceived as pivotal for the company's future trajectory.
With an impressive installed base of 2.2 billion devices and a remarkably high level of customer loyalty, Apple is strategically positioned to harness substantial, high-margin, recurring revenue through its diverse array of services. Ranging from health-related apps to video and music streaming, the services unit plays a crucial role in Apple's ongoing success.
A notable frontier Apple is actively exploring is artificial intelligence (AI). Although Apple's CEO, Tim Cook, remained discreet about specific details during the recent earnings conference call, he alluded to the company's sustained investment in AI and hinted at forthcoming revelations later in the year.
While Apple acknowledges that it currently trails behind industry giants like Microsoft and Alphabet in the competitive AI market, counting Apple out would be imprudent. The company has a track record of redefining existing technologies to its advantage, turning them into highly successful ventures. Bolstered by a robust financial position, with $106.9 billion in free cash flow, Apple is well-equipped to channel resources into research and development (R&D) to carve its niche in the AI domain.
Despite recent challenges faced by Apple in the Chinese market, particularly in smartphone sales, this setback should not be viewed as a decisive factor. Long-term investors are presented with an opportune moment to acquire Apple shares, considering its comparative lag behind some Magnificent Seven peers year to date. Apple's diverse growth paths, whether in AI, healthcare, fintech, or other areas, position the company for sustained success in the long run.
As long as the price is above 180.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 180.79
- Take Profit 1: 185.00
- Take Profit 2: 190.00
Alternative scenario:
If the level of 180.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 180.00
- Take Profit 1: 175.00
- Take Profit 2: 170.00
