Because 2019 is about to slip into history, this is a good time to look back and analyze which of the calls of the year turned out to be good and profitable and which turned out to be wrong.
In the group of fast-growing technology stocks known as FAANGs, Apple (NASDAQ 🙂 is a stock that surprises many analysts with its strong momentum, as it defied all doom scenarios. It is worth looking deeper to see if this trend will continue if we approach 2020.
For Apple, 2019 was an extremely worrying year as it faced a slowing demand for its flagship iPhones, while the macro environment became hostile after the US and China became embroiled in a long trade war. With 20% of the company's sales from China, where it has also developed a huge network of suppliers, Apple was faced with a direct threat to its business from the perspective of rising rates and tit-for-tat retaliation.
Apple, still the largest and most profitable technology company in the world, started the new year with a market price of more than 30% compared to the record high it reached in August 2018. However, as 2019 progressed, it became clear that the consumer-tech giant had enough ammunition to tackle the challenging situation that caused the trade dispute.
Apple's monthly price chart
In our analysis of March 27, we strongly recommended buying Apple shares for this weakness, because in our opinion the pressure from the company to expand its service activities would be successful because the company evolved from just iPhones.
Although shares closed yesterday with 1.4% at $ 266.92, they have won more than 40% since March. And the share is more than 70% better than FAANG peers this year, including Facebook (NASDAQ :), Amazon.com (NASDAQ 🙂 and Netflix (NASDAQ :).
Feeding these hefty profits is a strong interest in the company's iPhone 11 and investor optimism that the Chinese policy will not harm Apple, even if the current trading event continues, due to the company's huge contribution to the Chinese economy .
5G telephones become new growth engine
In a note to customers this summer, Bank of America analyst Wamsi Mohan gave a low chance of a scenario in which Apple became entangled in the situation US-China crossfire. Now that China's risks are being re-evaluated, investors are re-focusing on the company's strong product pipeline and its commitment to accelerate sales through its services division.
A new driver that will increase the demand for new hardware is the rollout of fifth generation phones, or 5G, in 2020. Wall Street analysts expect the company to return to the fiscal year ending September 2021 the sales growth of the iPhone. Wall Street estimates the impact of 5G iPhones on Apple are too conservative, according to Jefferies analyst Kyle McNealy.
The latest bullish trend in stock also reflects CEO Tim Cook's success in diversifying Apple's revenue away from iPhones. The company's services, including Apple Music, renting movies and downloading apps, produced a 33% growth last year with revenue of $ 40 billion – accounting for around 15% of the company's total revenue of $ 265.6 billion.
So far, this trend continues. In the sector, sales increased by 18%, while sales in wearables increased by 54% thanks to the popularity of the wireless AirPods earbuds. The company is expanding its entertainment push with the recent launch of the new Apple TV + streaming service.
That contribution will continue to grow as the company's new service line – video streaming, Apple Pay and gaming – begins to increase. According to a Morgan Stanley estimate, the service contribution will continue to grow and around 60% of Apple's sales over the next five years.
Bottom Line
Apple's current higher position is supported by real improvements in fundamentals and some recalculation of the risk that analysts had associated with the US-China trade war. We continue to recommend Apple stock for long-term investors who want a solid technical name in their portfolio.
