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Buy Apple Stock as Its Biggest Headwind Falls Off of the Trade-War Radar

Luke Lango

There a lot of reasons to like Apple (NASDAQ:AAPL) stock here and now.

The Services business is ramping at an impressive pace. The new slate of iPhones — particularly the lower priced XR — has potential to spark a massive upgrade cycle. The company’s newer hardware products, like headphones and smartwatches, are flying off shelves. Revenue growth is, has been, and will remain impressive. Same with margins. Meanwhile, AAPL stock is the cheapest in the FAANG group.

But, there was also one big reason not to like AAPL stock at the current moment: tariffs.

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The trade war between the U.S. and China isn’t getting better. If anything, it’s getting worse. Now that tariffs are being implemented on both sides, global hardware companies like Apple are caught in the fray. Apple makes a lot of products in China. They also sell a lot of products to Chinese consumers. As such, the natural belief was that as more and more tariffs are implemented between the U.S. and China, the more and more AAPL stock gets hit.

From this perspective, the prospect of tariff-related damage is the key headwind that has kept AAPL stock from heading higher.

Investors can kiss those headwinds goodbye. For now. In the latest round of tariffs from U.S. President Donald Trump, key Apple products like the Apple Watch and Airpods were spared.

That is big news. It means this stock’s strongest headwind has at worst been delayed, and at best been permanently mitigated. With this headwind no longer the focus of the market, AAPL stock is free to head higher. And, that is exactly what this stock will do ahead of what should be a busy iPhone selling season.

Fear of Lower Sales and Lower Margins

At the beginning of September, Apple warned that the Trump administration’s proposed $200 billion tariffs on products imported from China would affect certain Apple products, most notably the Apple Watch and Airpods. Although Apple would presumably absorb some of those costs, the result would be higher prices for consumers, Apple said in a letter. Financially speaking, that translates to potentially lower sales and lower margins, two things that investors hate to see.

This was a sharp change in attitude for Apple. So far in the U.S.-China trade war, Apple CEO Tim Cook has struck a largely unworried stance. His belief was always that it was in the best interest of both parties to resolve any issues, and that the global economy would get back to coordination and cooperation in no time.

That isn’t happening. Apple is now saying that tariffs will force it to raise prices. Investors don’t like that, because higher prices usually mean lower sales. And, if Apple doesn’t raise prices, that means lower margins. Either way, Apple loses.

To investor relief, Apple’s important products that investors were worried about — the watch and the Airpods — were left out of recent tariffs. This is unequivocally a near-term positive for AAPL stock. But, it is also potentially a long-term positive, because it shows that Trump and company have a favorable view of Apple, and don’t want trade war tensions to negatively affect the tech giant.

Thus, no matter which way you look at it, Apple is moving past its biggest headwind. At worst, the headwind has been delayed. At best, it has been permanently mitigated.

Apple Stock Is Ready To Bounce

With that immediate tariff headwind now in the rear-view mirror, investors can focus on the fundamentals supporting AAPL stock. Those fundamentals are quite good, and re-focusing on strong them should provide a lift to the stock price.

Apple’s Services business continues to grow at an impressive 30%-plus rate, and its high-margin profile is helping improve profitability across the whole company. This robust growth should continue because Apple’s ecosystem is huge, and the Services business is penetrating only a fraction of that base.

Meanwhile, this new slate of iPhones, particularly the lower-priced iPhone XR, could spark an upgrade super-cycle because there is pent-up demand for an edge-to-edge smartphone at a reasonable price point (which is the XR), and this pent-up demand is being unleashed at a time when the economy and consumer are very strong.

Also, one of the more attractive things about AAPL stock is the valuation. At under 20X forward earnings, this stock is cheap relative to peers (other FAANGs trade at 20X and up forward earnings), relative to growth (15% revenue growth projected this year), and relative to other growth stocks (average growth multiple is 20X forward earnings). So long as the aforementioned tailwinds persist, and the tariff headwind remains muted, AAPL stock should continue to head higher due to its attractive valuation.

From a technical standpoint, you may want to wait for a little more weakness before buying in. AAPL stock still trades noticeably above its 200-day and 50-day moving averages. The chart makes this stock seem near-term overextended. But, if it does drop, there should be support just below $210, and that would be a great time to add more or buy the dip.

Bottom Line on AAPL Stock

The stock’s biggest headwind, tariffs, is now delayed, and potentially permanently mitigated. With that headwind now less potent than it was before, AAPL stock should be able to head higher without much friction.

If this stock does continue to drop, it is simply part of a natural and healthy reset after a red-hot run. In that scenario, AAPL stock should find support just below $210, and that would be a great time to add more or buy the dip.

As of this writing, Luke Lango was long AAPL. 

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