Although Apple (NASDAQ:AAPL) has suffered over the past few weeks, Apple stock jumped after Trump admitted CEO Tim Cook has a point about being hurt by the China trade war.
Reuters reported that Cook had told Trump tariffs would benefit rival Samsung (OTCMKTS:SSNLF). He “made a very compelling argument,” according to the President, who said he was “thinking about it.” China is moving production of its Mac Pro line to China from Texas.
That statement, and a three-month delay in higher tariffs, was all that was needed to send AAPL stock up $3 in overnight trade, before losing $1 on Aug. 19. Apple was due to open Aug. 20 at $210.10, a market cap of $960.5 billion.
Apple is now trading close to where it was when it announced earnings July 30. Apple stock had risen slightly because the earnings beat analyst estimates, but have since been hammered by the tariff news.
Apple Stock and the Summer of Tweet
With little actual news hitting the market, trading on tweets has become a parlor game among traders and the machines they feed. Apple stock has now been through a round trip of $90 billion in market cap this month, money first lost, then regained, solely on Trump tweets.
While crying children and angry Congressmen can’t move the President, apparently Wall Street is one constituency he will change for. The tariff delay came after JPMorgan Chase (NYSE:JPM) issued a report estimating the average American family could lose $1,000 to the tariffs if they are fully implemented.
The waffling over AAPL has some analysts saying the trade war is now over, and that China won. While some former Trump Administration insiders are demanding he stay the course, saying it’s a battle between democracy and authoritarians, the fact is trade wars are unhealthy for economies and other living things.
AAPL Needs a Hit
With interest rates falling to their lowest levels in years, investors have become more forgiving of AAPL stock. It currently trades at a price-to-earnings ratio of nearly 18, even though its 77 cent per share dividend yields just 1.49%. Apple has become a no-growth company. Sales for fiscal 2019, which ends in September, may not exceed last year’s $265 billion.
Apple iPhone sales are slowing. While high-profit service revenue continues to rise, and it still has money in the bank, operating cash flow is falling and earnings are also behind last year’s pace.
AAPL needs another big revenue stream. The Apple Watch dominates its category but remains too closely tied to the iPhone to reach the broader market. An Apple Watch 5 is now being anticipated, with rumors it will offer sleep tracking, but only untethering from the iPhone would move the needle on sales.
Apple has about half the smartphone market, but the Watch could still use access to the other half. Apple has 35% of the smartwatch market, with China’s iMoo now second, Samsung third and dozens of other companies, including Fitbit (NYSE:FIT), fighting for the rest.
The Bottom Line on AAPL Stock
Apple stock is vulnerable to the tariff war because its growth is stalling. It badly needs a new fast-growing revenue streams.
Apple is now getting half its revenue from the slow-growth iPhone. Wearables and accessories are now the fastest-growing part of the company, services its most profitable segment. Almost 20% of revenue comes from China, even more from Europe, making AAPL stock vulnerable on both the cost and income side to the trade war.
AAPL is fully valued. Investors should ask themselves whether Tim Cook has any more tricks up his sleeve before putting new money to work in AAPL stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL and JPM.
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