Trade war fears are back, and Apple (AAPL) investors are questioning whether the stock is still a wise choice under the circumstances.
Apple stock has tumbled nearly 9% over the course of two weeks, as tension between the US and China are resuming. The US’ tariff on $200 billion of Chinese products was put into effect, with the Chinese responding by imposing tariffs on $60 billion of American products. Apple is heavily invested in China, and relies on Chinese consumers more than any other international group, meaning continued tensions could spell trouble for the company.
However, Wedbush analyst Daniel Ives “strongly encourage[s] investors to stay the course on Apple despite the current US/China trade situation,” as he maintains his Outperform rating and $235 price target. If the price target is reached within 12 months, that would provide a 12-month return of nearly 50%. (To watch Ives’ track record, click here)
Ives says that Apple is “seeing pressure on both ends of the spectrum from a supply and demand perspective…” as Apple supplier Foxconn is based in China, while “China represents a growth linchpin region for the company thus representing 20% of all iPhone upgrades over the next 12 to 18 months.”
But what is more important to Ives is not the situation right now, but what happens in the next few months. The iPhone is exempt from the latest tariffs, but Ives says this could change if “the Trump administration decides to levy a tariff on the additional $325 billion of Chinese goods over the coming weeks/months [as] this would be more of a potential game changer from the perspective of the incremental costs to Apple,” as expenses could rise by 10%.
Demand in China is also enormous. Apple is already facing challenges with selling the iPhone in China, and Ives estimates that “roughly 60 million to 70 million iPhones in China are in the window for an upgrade opportunity over the next 12 to 18 months,” which represents about 20% “of all expected iPhones upgrades globally heading into FY20.” Investors are already nervous about the latest iPhone sales data, and a continued trade battle between the two countries will only heighten this anxiety.
Ives believes that “uncertainty will pressure Apple’s stock/multiple” as many investors remain unclear how the macro climate will sort out. Ives says investors look at it as a “‘guilty until proven innocent’ situation” for Apple, but is optimistic that once this flare up passes, Apple will regain the confidence of many.
All in all, many investors are nervous about Apple without any noise — the renewed tensions between US and China are only making this worse. But TipRanks analysis of 36 analysts shows a consensus Moderate Buy rating, with 17 analysts recommending Buy, 17 on the sides and two selling. The 12-month average price target of $215.77 reflects a 13% upside from its current price. (See AAPL’s price targets and analyst ratings on TipRanks)
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