For many years, one of the great truths of the stock markets has been to buy and forget Apple stock in portfolios. That mantra has certainly paid off, as Apple has earned an astonishing 38,187% over the last twenty years.
Still, a “set it and forget it” approach to owning Apple stock is being tested in 2024.
Apple stock rose 21% from last October's low to its mid-December high, but since then it's been nothing but falls… falls… falls, falling 9% this year alone. This is in stark (and disappointing) contrast to the S&P 500's 8% gain.
Apple investors have become displeased with the stock for several reasons. Sales in China are lackluster amid the technological standoff between the United States and China, and the absence of a clear strategy for the company to benefit from artificial intelligence has also dented optimism.
Still, the unexpected underperformance of one of the world's most widely held stocks has probably surprised many.
One analyst who wasn't surprised by Apple's decline is Bruce Kamich of TheStreet Pro. Kamich, an analyst who has evaluated markets and stocks for more than 50 years, told investors in January to “avoid the long side of stocks.” .
Kamich recently updated his analysis of Apple stock, and given his previous prescient advice, investors may want to pay attention to what he thinks will happen next.
Apple iPhones lose their shine
Apple revolutionized the way we communicate and consume information when co-founder Steve Jobs introduced the iPhone in 2007, arguably ushering in the era of the smartphone.
Related: Apple teases transformative new iPhone experience
The iPhone became Apple's (AAPL) most important product, with 2.3 billion sold over the years and approximately 1.4 billion currently active worldwide.
The global adoption of the iPhone has been a boon to Apple's revenue and profits. In Apple's fiscal first quarter ending in December, total iPhone revenue was $69.7 billion, or 58%, of Apple's $120 billion in sales. Revenue from services, including the App Store, was $23.1 billion.
That's a lot of money, but contrary to the “law of large numbers,” it has become increasingly difficult for the company to achieve year-over-year growth. In the December quarter, revenue only rose 2% more than a year earlier, its best growth in five quarters.
Worse, that growth was largely due to easy comparison caused by supply shortages, which reduced sales the previous year. For the quarter ending in March, Apple's forecasts are mediocre.
“In the March quarter a year ago, we were able to replenish channel inventory and meet significant pent-up demand due to constraints. We estimate this impact added nearly $5 billion to total revenues in the March quarter last year.” said CFO Luca. Maestri during the last quarter earnings conference call. “When we remove this impact from last year's revenue, we expect both the company's total revenue and iPhone revenue in the March quarter to be similar to a year ago.”
That's not enough of a move to keep growth investors happy, and it hardly justifies a rich valuation premium like in the past.
Apple faces challenges from China and ai
The smartphone market is huge, but competition is fierce, especially in China, where the government has reportedly encouraged state workers and workers in sensitive industries to buy Chinese phones, such as those made by Huawei and Xiaomi.
Related: Report: Apple Macs are about to get a major update
The combination of a Chinese economy still struggling to emerge from the Covid fog and the back-and-forth between officials there and in the United States over access to technology has caught the attention of Wall Street.
In January, Barclays analyst Tim Long raised eyebrows by downgrading Apple to “underperform.”
“We're still seeing weakness in iPhone volumes and mix, as well as a lack of recovery in Macs, iPads and wearables,” Long said.
But it's not just China that has investors nervous. There has also been a lack of awareness about Apple's artificial intelligence plans.
OpenAI's launch of ChatGPT in December 2022 unleashed an avalanche of ai research and development. This led many companies to respond with ai strategies to benefit from the growing adoption of generative ai applications.
Microsoft quickly incorporated ChatGPT into its search engine, Bing, and after acquiring a stake in OpenAI, created a series of ChatGPT-powered solutions available to businesses and consumers through its Copilot service. Google parent company Alphabet, known for its Android smartphones, launched its big-language ai model, Gemini, cementing its territory in the burgeoning space. The parent meta-platform of facebook and instagram is also pursuing ai with its LLM, Llama. They're far from the only companies diving into ai, but you get the gist. It seems like everyone has an ai plan.
Apple is absent from the discussion, at least beyond the rumors.
Apple is reportedly working on artificial intelligence and CEO Tim Cook is known for keeping research efforts secret. Recently, word spread that Apple is working with Google to access Gemini and Baidu to access its LLM, Ernie, to power the next-generation iPhones that will be announced later this year at its annual event, which is usually celebrates in September.
Still, with nothing officially decided, investors wonder if Apple will miss an opportunity to establish itself early in an industry that thought leaders believe could transform almost everything.
Apple stock charts offer insight into what's next
Kamich is a technical analyst who has used price activity, volume, and momentum to gain insight into what could happen to stocks for more than 50 years. His interpretation of technical indicators was behind his correct forecast in January that Apple shares would likely fall.
Following Apple's sell-off, Kamich updated his analysis of Apple's charts on April 11. Unfortunately for shareholders, Kamich remains concerned.
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“I can see a double top pattern around the $200 area. The stock has dropped and is trading below the falling line of the 40-week moving average,” Kamich said. “The weekly OBV (on-balance volume) line has weakened over the past three months. The MACD oscillator fell below the zero line in March for a direct sell signal. Red (bearish) candles and upper shadows dot the chart during the last three months.”
For Kamich to be bullish, he would like to see on-balance volume (essentially a measure of bullish minus bearish daily volume) increase and the MACD to be positive, suggesting that buyers have regained control.
Kamich also used point-and-figure charts to calculate Apple's stock price targets. Those aren't very reassuring either. Using a daily and weekly P&F chart, he estimates that Apple's share price could reach $149 and $116, respectively.
Of course, point-and-figure chart targets are not guaranteed and do not suggest when a target price might be reached. However, Kamich's bearish analysis suggests that the risk-reward ratio is unfavorable.
As a result, investors may want to approach Apple with caution until greater understanding of its ai plans and investor confidence improve.
Related: A veteran fund manager picks his favorite stocks for 2024
