Apple Stock: Time to Buy the Dip?
The value of Apple shares has drastically decreased in the past few weeks, dropping by approximately 9% since August 1st. This occurrence is likely due to various reasons, such as the shares taking a pause after a significant rise in value throughout the year and unease regarding China's decision to prohibit iPhones at certain government departments.
Is the reduction in stocks an opportunity to purchase or a warning sign indicating some issues that could turn out to be bad news for investors? An analyst has advised investors this week that the decrease in stocks has gone way too far and is now a great chance for buying.
Achieving $215: The Road Ahead
Last week, Erik Woodring, an analyst at Morgan Stanley, was brave enough to go against the market's trend. As Apple's stocks fell by 6% within two days due to concerns among investors that governmental agencies might expand the ban on iPhones, the analyst reaffirmed that the stock had a value of $215 and that its decline was a result of worries about China which were exaggerated.
The message sent to investors at the right time is impressive because it goes against popular belief and suggests a large increase in the value of the technology company's stock. The price target of $215 for the next year means that if it is achieved, shareholders could see a 20% increase in their investment, in addition to the 38% rise already seen this year.
Supporting his unique opinion, Woodring stressed that the possibility of China becoming increasingly patriotic towards Apple is not a recent development. Additionally, the expert believes that prohibiting the iPhone would not be a sensible decision for China, given that Apple's contributions to the economy of the country are vital.
The biggest supplier of iPhones for Apple, which goes by the name Foxconn, makes most of its money from things it owns inside the borders of China, and has given employment to a massive number of people there. As an added bonus, China comes with around 50 Apple shops situated in areas where many people pass by.
These details just barely touch on how significant Apple is in China. Take, for instance, their app store that caters to small businesses across the globe, even supporting Chinese developers. Additionally, their supply chain is vast and reaches across the world, with multiple suppliers who employ individuals in China.
It's highly unlikely that there will be a countrywide prohibition on iPhones in the significant market, as Woodring suggests. However, it's still advisable to remain vigilant of any potential hazards.
Moving past this issue, Morgan Stanley's projected price target of $215 is also rooted in the analyst's hopeful predictions for the upcoming release of the new iPhone models. Woodring anticipates that there is a significant amount of demand for the latest technology, which may inspire consumers to upgrade more frequently than anticipated.
Quality Firm Commands Top Price
Although Woodring may have a different opinion for the near future, many people have been positive about Apple's stocks for the past eight months. The stocks have done very well this year, outperforming the S&P 500 by over 20%. Despite a recent decrease in the stock value, it is still considered expensive with a price-to-earnings ratio of 30.
Investing in shares is worth the cost. Apple has a healthy financial situation, with a net cash position of $57 billion and an annual free cash flow of approximately $100 billion. They have smart management practices and a devoted customer following. Additionally, Apple has a history of successfully creating new products and categories. Despite their massive size, Apple remains a prime stock option in the S&P 500. Although it's difficult to predict the bottom of this downturn, buying Apple's shares seems like a wise decision for the long-term.
Daniel Sparks doesn't have any holdings in the stocks referenced, but his clients might possess shares in those firms. The Motley Fool supports and advises investing in Apple and has officially announced its openness about financial disclosures.