Apple (NASDAQ:AAPL) is finishing out 2019 strong — AAPL stock is currently delivering the best performance on the Dow Jones Industrial Average.
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Up 78.6% year-to-date and trading within $20 of $300, it’s hard to imagine Apple stock taking a tumble in 2020. And yet, six analysts have a sell or underweight rating on AAPL. The lowest 12-month target price is $150, a shocking number for arguably one of America’s best-run companies.
Is it possible for Apple to fall to $150 in 2020? I’ve learned the hard way in life that you never say never. It sure is possible. That doesn’t mean it’s likely.
AAPL Stock Is Moving Higher for a Reason
Consider that of the Dow components, Apple’s year-to-date performance is 24 percentage points ahead of the second-best performance, which is Microsoft (NASDAQ:MSFT), up 55.3%.
Microsoft is currently firing on all cylinders, almost six years into CEO Satya Nadella’s complete makeover of Bill Gates’ former company. He’s done a masterful job.
But Apple is kicking Microsoft’s butt where it counts — in the pocketbooks of its shareholders. Sure, these are unrealized profits, but it’s one of the best ways I know how to keep a score of public companies.
Don’t feel bad if you’ve owned MSFT the last five years. It’s outperforming Apple with a total annualized return of 27.9%, 670 basis points ahead of Apple. The game is still afoot.
Apple is up 77% year-to-date because it’s delivering on a lot of fronts including getting Apple users to gobble up a lot of its services — iCloud, the App Store, Apple TV+, Apple Music, Apple Arcade, Apple News+ (I’m a subscriber) — leading to tons of sticky recurring revenue.
In the fourth quarter, Apple’s services revenues grew 18% to $12.5 billion. Those services revenues now account for slightly less than 20% of Apple’s overall revenues. In a record fourth quarter, the fact that Apple’s services revenues are accelerating, not decelerating, suggests the company’s growth is far from over.
Not only is the services business doing well, so too are newer product launches such as the Apple Watch and AirPods. Even Apple Pay is gaining traction. Excluding iPhone sales, Apple’s Q4 2019 results grew 17% year-over-year.
Not bad for a $64-billion baseline.
And even though iPhone sales were off 9% in the final quarter of the year, the expectation is that holiday sales will be strong, helping the company step into 2020 in style.
What’s Up in 2020?
I think it’s safe to say that all eyes are on the iPhone in the year ahead. Not only is it Apple’s biggest revenue generator, but the company is expected to launch four 5G iPhone models in September, which will boost sales for a product that’s already incredibly popular.
“The 2H20 lineup will include all OLED phones, with screen sizes of 5.4″ (one model), 6.1″ (two), and 6.7″ (one), broadening the screen size range from 5.8″ to 6.5″ in 2019,” JPMorgan analyst Samik Chatterjee wrote in early December. “We expect the two higher-end models (one 6.1″, one 6.7″) to include mmWave support, triple camera and World facing 3D sensing, while the lower-end models (one 6.1″, one 5.4″) will include support for only sub-6 GHz and dual camera (no World-facing 3D sensing).”
All four of the models will support 5G. Given that the screen sizes will be larger than those available in 2019, many Apple iPhone users will likely upgrade their phones.
Demand for the iPhone 12 is expected to be so high in 2020 that Apple has told its supplier partners to prepare for more than 100 million orders.
That’s a lot of phones.
The Bottom Line on Apple Stock
It’s hard to imagine that any analyst would have a negative view of Apple. I guess beauty is in the eye of the beholder.
The analyst behind the $150 target price is Jun Zhang of Rosenblatt Securities. In July, Zhang downgraded Apple from “neutral” to “sell” while maintaining his $150 target.
“We believe there is less reward for owning Apple stock after the recent stock rebound from stock buybacks and stable second quarter guidance,” Zhang told investors in his July note. “We believe Apple will face fundamental deterioration over the next 6-12 months.”
While we all make mistakes when predicting the future direction of a stock, if you listened to Zhang’s words and either sold or failed to buy Apple stock, you’re out gains of 40% in the six months since.
The analyst believes Apple stock will experience significant deterioration over the next six months. I don’t see it.
I especially don’t see $150 anytime soon.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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