Apple stock has had a rough month, but there is more to the story -- overall the third quarter looked a lot better.
The last few weeks have been busy for Apple. On Sept. 7, the tech giant unveiled a handful of new products at its "Far Out" event, including new Apple Watches, AirPods, and of course, the heavily anticipated iPhone 14. Since the phones were available for preorder, analysts and investors have asked the same question: Is demand for the new iPhone strong?
This is a crucial question when it comes to Apple, as half of the company's revenue in the last quarter came from phone sales. Initial data showed that demand for the more expensive iPhone 14 Pro and Pro Max models was stronger than the base iPhone 14 and iPhone 14 Plus options. So strong, in fact, that one analyst told Barron's that there could be a supply issue for the holiday season.
But then earlier this week, more information about iPhone demand started to come in. One analyst from Jefferies noted that new data led him to believe that iPhone 14 demand wasn't as strong as expected in China. After that, Bloomberg reported that Apple reversed plans to boost iPhone 14 production later this year on demand weakness.
The stock has struggled since the news, falling 7.2% in the last three days, which have been the worst three-day stretch for the stock since June 13. And overall, the stock has done poorly in September. In fact, shares of Apple were down about 10% month-to-date, on pace for their worst month since February 2020 and worst September since 2008, according to Dow Jones Market Data.
Not only have reports about iPhone production and demand hurt the stock, but so has the broader economy.
The Federal Reserve has been hiking interest rates to battle historically high inflation, and while higher rates are usually not good for the stock market in general, growth stocks are particularly sensitive to higher rates as companies, like those in big tech, generate a lot of cash flow in the future. Higher interest rates mean future cash is less valuable than it was when rates were lower.
The Dow Jones Industrial Average is down 20% this year, the S&P 500 has fallen 24%, and the Nasdaq Composite has dropped 32%. All are on pace to have their worst nine months of a calendar year since 2022. Apple is a component of all three major stock indexes, and has fallen 21% in 2022.
But not all news has been bad for the company. In the third quarter, Apple stock has climbed 3.1% and is on pace for its best quarterly performance since the fourth quarter of 2021.
Even though some analysts are uncertain about where the company stands in the midst of a potential consumer spending slowdown -- such as BofA Securities analyst Wamsi Mohan, who downgraded the stock to Neutral from Buy on Thursday -- others are bullish.
Rosenblatt Securities analyst Barton Crockett upgraded the stock to Buy from Neutral on Thursday and wrote in a research note that shoppers are more interested in Apple's higher-priced items. This has been a common theme among analysts tracking the company's sales.
"Bloomberg's report [Wednesday] that Apple was walking back previous guidance to suppliers for a modest bump to second half of 2022 production back to an original target of flat should be read in the context of consumers' clear preference for the pricier models with higher ASPs [average selling prices]," Crockett said.
KeyBanc analyst Brandon Nispel, who rates Apple as Overweight, wrote that the news from Bloomberg was a negative for the day, but believes "it is neutral to consensus expectations and [we] would take advantage by buying on the pullback."
Of the 41 analysts tracked by FactSet, 78% rate the stock as a Buy, 15% say it is a Hold and 7% rate it as a Sell.
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