Apple investors 'overreacting' to Supreme Court ruling & US-China trade war

Posted:
in AAPL Investors
Apple investors are overreacting to the financial threat posed by the U.S.-China trade war and Monday's Supreme Court ruling on the App Store, an analyst claimed on Tuesday.

iPhone XS


Although shares have traded down 11 percent since the start of last week based on both issues -- mostly the threat of further tariffs -- Apple can weather the storm, said J.P. Morgan's Samik Chatterjee in a new memo.

"Given that till date there has been limited impact from the tariffs on Apple's hardware products, and likelihood of outsized losses from recent lawsuits appears limited, we believe the share price reaction can be seen as largely an overreaction," he commented. He admitted however that "there could be more downside" on Apple shares in the near term if negativity grows around talks to end the trade dispute.

U.S. President Donald Trump made good on a promise to raise some tariffs on Chinese goods from 10 to 25% on Friday, including those affecting some Apple accessories. China announced plans to retaliate on Monday, and the Trump administration is preparing a set of expanded tariffs that could take effect by the end of June and finally touch core Apple products like iPhones, iPads, and MacBooks.

While Apple could raise iPhone prices by as much as 14 percent to keep up its high profit margins, it's more likely that Apple will absorb the blow to keep prices in check, Chatterjee suggested.

"Assuming roughly a quarter of iPhone shipments are imported into the US following assembly in China, we estimate absorbing the cost of the tariff would imply that gross margins on total iPhone revenues decline by 4%," he elaborated. "Assuming similar headwinds on other hardware products, including Mac devices, iPad, wearables, and accessories, imply to us an aggregate -14% EPS downside to our base case earnings assumption."

Considering a recent $5 billion antitrust finding against Google, in which it mainly had to stop forcing phone makers to include its search app, this week's Supreme Court ruling allowing an anti-monopoly case to proceed against Apple will probably have "limited" impact as well, Chatterjee said. The analyst sided with Apple's failed Supreme Court argument however, which was that app pricing is set by developers, and that the App Store encourages competition even though iPhone and iPad owners have no choice but to use it.

J.P. Morgan is giving Apple stock an "overweight" rating with a $235 price target.

Comments

  • Reply 1 of 11
    genovellegenovelle Posts: 907member
    They do have a choice. Buy something else. 
    jbdragon
  • Reply 2 of 11
    iOS_Guy80iOS_Guy80 Posts: 131member
    For once, a rare, positive analyst report.
  • Reply 3 of 11
    lkrupplkrupp Posts: 6,950member
    My AAPL dividends are being reinvested at a ridiculously low price. AAPL will come back and I am okay with what’s happening. It’s all fear and panic selling and that’s when smart investors make a killling. Buy low and sell high people.
    edited May 14 jbdragonbadmonk
  • Reply 4 of 11
    FatmanFatman Posts: 286member
    Time to buy! If you were waiting for a pullback, this is it.If you are an appleinsider regular and don't own shares, here's your opportunity. Lkrupp, my advice - Don't reinvest dividends, take the cash and buy at the level you determine makes sense - just like Apple does with its own share buyback program.
  • Reply 5 of 11
    matrix077matrix077 Posts: 627member
    Apple should start bringing manufacturing back home. It will come to the point it won’t worth it to build everything in China, a communist state. If Amazon can build a road to the moon Apple sure can advance automatic and green manufacturing in America. 
    edited May 14
  • Reply 6 of 11
    matrix077 said:
    Apple should start bringing manufacturing back home. It will come to the point it won’t worth it to build everything in China, a communist state. If Amazon can build a road to the moon Apple sure can advance automatic and green manufacturing in America. 
    Not if the general public balks at a $1000 iPhone.
    If Apple’s products were made here, they would be much more expensive, unless Apple used some of it’s cash horde to offset the cost to the customer.  

    That’s not gonna happen. 

    Amazon throws money at things and then walks away from them. They wanted to own the home automation business and spent a lot of money hiring people to install home automation devices. They started a test program in Seattle
    and were going to expand into CA and AZ and from what I have seen, they walked away from it. 
  • Reply 7 of 11
    anantksundaramanantksundaram Posts: 19,105member
    Yesterday was another opportunity to get in...
  • Reply 8 of 11
    iOS_Guy80iOS_Guy80 Posts: 131member
    lkrupp said:
    My AAPL dividends are being reinvested at a ridiculously low price. AAPL will come back and I am okay with what’s happening. It’s all fear and panic selling and that’s when smart investors make a killling. Buy low and sell high people.
    Ditto. Same philosophy in owning Disney.
  • Reply 9 of 11
    kenaustuskenaustus Posts: 899member
    Not if the general public balks at a $1000 iPhone.
    If Apple’s products were made here, they would be much more expensive, unless Apple used some of it’s cash horde to offset the cost to the customer.  

    That’s not gonna happen. 


    Apple already has robots that breakdown iPhones for recycling components.

    At some point Apple will have the robots available to assemble components into finished products.  That will allow assemblies in multiple countries.  One in the US, one in Asia, one in Europe. Wherever the political climate supports the company's growth.

    As for assemblies in the US, most states will be looking to bid on that factory.
  • Reply 10 of 11
    tipootipoo Posts: 1,037member
    Buy the dip if you think it's oversold, I did. 
  • Reply 11 of 11
    carnegiecarnegie Posts: 711member
    I'm not sure I'd agree that the market overreacted to the Supreme Court decision because I don't see where the market reacted much to that decision. Surely some investors did, but the market as a whole didn't - at least, it didn't react dramatically. There wasn't much of a price move when the decision was announced shortly after 10 AM ET on Monday. The market seemed to take the decision in stride.

    On the other hand, AAPL has been significantly impacted by concerns relating to the trade war and, relatedly, by broader moves in the equity markets.
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