Apple (AAPL) is a notable omission in my international model portfolio. There are several reasons.
First, sales growth has been declining for several years.
Second, Apple is vulnerable if there is a US-China trade war. Greater China represents almost 25% of projected sales and imposition of tariffs or other trade barriers could hurt Apple. But, even without trade barriers, sales in China are already slowing.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad…” (Tim Cook, January 2 letter to shareholders)
Third, Apple is losing market share in China as local smartphone technology improves. From The Wall Street Journal:
Apple’s share of the Chinese smartphone market has been shrinking, crowded out by tech giants such as China’s Huawei Technologies Co. that market increasingly sophisticated phones at a lower price tag.
Apple’s share of the Chinese smartphone market contracted to 7.8% in the first three quarters of 2018 from a peak in 2015 of 12.5%, according to Canalys, a market research firm.
Fourth, Apple is testing primary support at $150 on the long-term chart. Bearish divergence on Twiggs Money Flow warns of selling pressure; a peak at zero would strengthen the signal. Respect of resistance at $180 would also be bearish, while breach of support at $150 would confirm a primary down-trend.
Last, Apple is trading at a Consensus Forward P/E of 14.8 (Morningstar, February 12, 2019) which equates to an estimated LT growth rate of 10% at 12.5% p.a. rate of return. Given the current sales outlook, that seems optimistic.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.