Apple investors should cash in on US-China trade war, says Merrill Lynch
Though Apple and many existing investors may not be happy with the fallout of the U.S.-China trade war, for others it may be a ripe stock opportunity, Merrill Lynch's Wamsi Mohan said on Tuesday.
Apple shares closed at $185.72 on Monday, a two-month low, the analyst noted. That makes for "a particularly attractive buying opportunity," he continued, since while Apple could face tariffs up to 25% on iPhones, iPads and Macs as soon as June, there are several factors working in investors' favor in the long term.
These include a "solid" risk-versus-reward scenario, the company's ongoing capital return program, and its enormous cash reserves. As of the March quarter the company had over $225.4 billion in reserves worldwide, enough to weather long stretches even in a complete disaster.
In theory Apple could avoid the headaches of overseas production by relocating iPhone manufacturing to the U.S., but the company would still take a massive hit.
"We estimate the incremental cost of manufacturing iPhones in the U.S. could be 15-25%, and, if passed on to consumers could lead to demand destruction, in our view," Mohan wrote.
U.S. President Donald Trump launched the trade war last year, and has repeatedly urged Apple and other companies to do more domestic production. That's potentially problematic since while it can reduce logistics costs, the U.S. maintains higher labor, safety, and environmental standards, and much of the knowledge and infrastructure needed to support manufacturing has been drained over the course of decades.
Automation might be an option, but that would naturally entail less job creation.
Apple shares closed at $185.72 on Monday, a two-month low, the analyst noted. That makes for "a particularly attractive buying opportunity," he continued, since while Apple could face tariffs up to 25% on iPhones, iPads and Macs as soon as June, there are several factors working in investors' favor in the long term.
These include a "solid" risk-versus-reward scenario, the company's ongoing capital return program, and its enormous cash reserves. As of the March quarter the company had over $225.4 billion in reserves worldwide, enough to weather long stretches even in a complete disaster.
In theory Apple could avoid the headaches of overseas production by relocating iPhone manufacturing to the U.S., but the company would still take a massive hit.
"We estimate the incremental cost of manufacturing iPhones in the U.S. could be 15-25%, and, if passed on to consumers could lead to demand destruction, in our view," Mohan wrote.
U.S. President Donald Trump launched the trade war last year, and has repeatedly urged Apple and other companies to do more domestic production. That's potentially problematic since while it can reduce logistics costs, the U.S. maintains higher labor, safety, and environmental standards, and much of the knowledge and infrastructure needed to support manufacturing has been drained over the course of decades.
Automation might be an option, but that would naturally entail less job creation.
Comments
The question is, do you believe in President Trump?
I don't think he’s an honest or good businessman, but I also don’t think he cares about farmers etc. that are feeling the pain of the trade war.
That might be a good thing, because I really want China to respect intellectual property and really want Chinese govt sponsored theft of IP (hacking) to end.
I’m in the strange position of supporting Trump (on this on) without really believing he’s competent. Fingers crossed, that someone on his staff knows what they’re doing...
I don’t care as much about the “trade deficit” that’s not really the important issue. IP IP IP
Apple is likely going to move some iPhone production to India anyways... it’s not coming to the USA regardless.
OBTW- Communist governments are not immune from domestic economic,social or political issues. All governments strive for a stable or content populace. The Ancient Romans knew well the value of free bread and games!
Next time do do a little reading before posting.
Automation can’t replace all human labor so the discussion is purely academic. iPhone production already utilizes about as much automation as is possible.
Companies generally don’t plan for that sort of scenario since risk of an ass clown becoming president is pretty low.