Apple investors should cash in on US-China trade war, says Merrill Lynch

Posted:
in AAPL Investors
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.

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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.
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Comments

  • Reply 1 of 28
    SpamSandwichSpamSandwich Posts: 31,301member
    Damage to China’s economy will be massive unless they step up and start making drastic changes. I’m all in favor of free trade, but that’s not what they engage in.
  • Reply 2 of 28
    22july201322july2013 Posts: 738member
    Should I buy a new iPhone now, before prices are hiked?
  • Reply 3 of 28
    SpamSandwichSpamSandwich Posts: 31,301member
    Should I buy a new iPhone now, before prices are hiked?
    If that worries you, yes.
    anantksundaram
  • Reply 4 of 28
    lkrupplkrupp Posts: 7,162member
    Should I buy a new iPhone now, before prices are hiked?
    This is all temporary. Either China or the U.S. will blink. My money is on the U.S. blinking because of public pressure. The U.S. public doesn't want the price of their trinkets going up. Meanwhile the Chinese totalitarian government doesn't have to respond to public pressure. In fact public pressure in China is forbidden and punishable by death.
    edited May 14 Carnage
  • Reply 5 of 28
    leptonlepton Posts: 111member
    Ok,so Apple needs 100 million tiny screws. China: Sure, well grab em from the factory down the block. USA: Where da Fark we gonna get 100 million tiny screws? Infrastructure is what China has and we don’t.
    jony0leavingthebiggtyler82chemengin
  • Reply 6 of 28
    SpamSandwichSpamSandwich Posts: 31,301member
    lepton said:
    Ok,so Apple needs 100 million tiny screws. China: Sure, well grab em from the factory down the block. USA: Where da Fark we gonna get 100 million tiny screws? Infrastructure is what China has and we don’t.
    That’s the “supply chain”, not infrastructure. While that’s largely true today, it doesn’t mean it will always be true.
    anantksundaram
  • Reply 7 of 28
    seanismorrisseanismorris Posts: 1,015member
    I think the stock has upside if we can repair the relationship.

    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...
    anantksundaramroundaboutnowkudu
  • Reply 8 of 28
    seanismorrisseanismorris Posts: 1,015member
    lepton said:
    Ok,so Apple needs 100 million tiny screws. China: Sure, well grab em from the factory down the block. USA: Where da Fark we gonna get 100 million tiny screws? Infrastructure is what China has and we don’t.
    Very true.  Reversing the trend of manufacturing elsewhere isn’t going to happen.  We lack the infrastructure. 

    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.

      
  • Reply 9 of 28
    sflocalsflocal Posts: 4,674member
    lepton said:
    Ok,so Apple needs 100 million tiny screws. China: Sure, well grab em from the factory down the block. USA: Where da Fark we gonna get 100 million tiny screws? Infrastructure is what China has and we don’t.
    That’s the “supply chain”, not infrastructure. While that’s largely true today, it doesn’t mean it will always be true.
    One thing for certain is that regardless of the outcome... Companies worldwide are taking note that China is not a basket that manufacturers want to keep all their eggs in.  China needs a reality slap in the face.  Such a corrupt country is just too risky to be in bed with.

    Companies are beginning to pull out of China and it's about time.  Foxconn is looking at other non-China opportunities to build factories, particularly that China is threatening Taiwan to seize Foxconn's factories if the CEO-future president ramps up his anti-China rhetoric.  China is militarizing the South Pacific islands, ignoring international law because it knows no one wants to jeopardize their $50 microwave ovens and cheap big-screen TV's.

    I'll bet behind some ultra-secret doors in the annals of Apple's HQ, they are discussing ways to slowly, but surely get as much manufacturing out of China.  If anyone can do that, it's the supply-chain expert Tim Cook.  

    Even if all this nonsense tariff stuff gets resolved, I hope CEO's worldwide realize that China is not the country to do investments in.  There are other countries that are more than happy to pick up the slack.  

    Here's hoping China starts knocking on doors, begging for scraps.
    pscooter63SpamSandwichLordeHawkanantksundaram
  • Reply 10 of 28
    Apple and no other US company should have placed all their ‘production eggs in one foreign basket ‘, when things turn bad, you have limited or zero options.  Strategic thinking postulates that multiple distributed manufacturing and item sourcing is key.  I hope that other CEOs are learning from Apple’s mistake.

    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! 
    sarthos
  • Reply 11 of 28
    lkrupplkrupp Posts: 7,162member
    Apple and no other US company should have placed all their ‘production eggs in one foreign basket ‘, when things turn bad, you have limited or zero options.  Strategic thinking postulates that multiple distributed manufacturing and item sourcing is key.  I hope that other CEOs are learning from Apple’s mistake.

    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! 
    Except for one tiny thing you forgot. Consumer resistance to rising prices. That’s the main reason Apple and other U.S. companies manufacture in China. That and the simple fact that there is NO other place to manufacture that has the supply chain muscle and labor force that China has. Nowhere to get those 100 million tiny screws mentioned by another commenter in their post.
    spliff monkey
  • Reply 12 of 28
    tzeshantzeshan Posts: 1,996member
    US stock market will not crash due to trade war. The President has been known to change positions as fast as you can blink the eyes. 
  • Reply 13 of 28
    sirozhasirozha Posts: 573member
    Automation would create fewer jobs in the US? You mean fewer than 0? Would it be better to create high-paying jobs at automated assembly plants in the US or low-paying manual assembly jobs in Vietnam?
  • Reply 14 of 28
    apple ][apple ][ Posts: 8,684member
    Bring on automation. I don't care if my devices are made by robots. I'd actually prefer it more as robots are not known to be leakers of information. Maybe we could kill two birds with one stone.
    edited May 14 SpamSandwichlkrupp
  • Reply 15 of 28
    maestro64maestro64 Posts: 4,637member
    lkrupp said:
    Should I buy a new iPhone now, before prices are hiked?
    This is all temporary. Either China or the U.S. will blink. My money is on the U.S. blinking because of public pressure. The U.S. public doesn't want the price of their trinkets going up. Meanwhile the Chinese totalitarian government doesn't have to respond to public pressure. In fact public pressure in China is forbidden and punishable by death.
    Yeah someone will blink, the problem is the US media is already blinking, they are predicting doom and gloom for everyone they are already trying to scare everyone. The media should be supporting the US and telling people it may hurt but it's going to good for everyone. 
    lkrupp
  • Reply 16 of 28
    SpamSandwichSpamSandwich Posts: 31,301member
    apple ][ said:
    Bring on automation. I don't care if my devices are made by robots. I'd actually prefer it more as robots are not known to be leakers of information. Maybe we could kill two birds with one stone.
    Couldn’t agree more. I think the main reason it’s not done now is because to gain access to China’s markets companies are required to use local labor.
  • Reply 17 of 28
    anantksundaramanantksundaram Posts: 19,284member
    Given the future role of services (including health) to its future valuation, I think Apple may be heading towards a new strategic epiphany on the issue of choice of margin versus volume on its hardware. Especially given the fact that we’re probably seeing peak-China and peak-device prices.
  • Reply 18 of 28
    flydogflydog Posts: 328member
    Damage to China’s economy will be massive unless they step up and start making drastic changes. I’m all in favor of free trade, but that’s not what they engage in.
    China’s GDP is over 13 trillion a year, so no, there will not be “massive” damage to its economy.  

    Next time do do a little reading before posting.
  • Reply 19 of 28
    flydogflydog Posts: 328member

    sirozha said:
    Automation would create fewer jobs in the US? You mean fewer than 0? Would it be better to create high-paying jobs at automated assembly plants in the US or low-paying manual assembly jobs in Vietnam?
    Automation can’t replace all human labor so the discussion is purely academic. iPhone production already utilizes about as much automation as is possible. 
    spliff monkey
  • Reply 20 of 28
    flydogflydog Posts: 328member

    Apple and no other US company should have placed all their ‘production eggs in one foreign basket ‘, when things turn bad, you have limited or zero options.  Strategic thinking postulates that multiple distributed manufacturing and item sourcing is key.  I hope that other CEOs are learning from Apple’s mistake.

    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! 
    Companies generally don’t plan for that sort of scenario since risk of an ass clown becoming president is pretty low.  
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