The shares of iPhone maker, Apple (NASDAQ :), are among the toughest hit in the midst of the devastating coronavirus outbreak. They are around 17% lower than their peak during the past week – the worst for stocks since the 2008 financial crisis.
The coronavirus, which has killed more than 2,800 people and infected more than 85,000 people worldwide, has abandoned US technology companies with a strong presence in Asia in particular. Apple, which is dependent on China for about 20% of its sales and largely dependent on the Asian nation to produce its phones, is particularly vulnerable.
Apple reached a record high on January 29 and reached $ 327.85 per share. On Friday, it closed at $ 273.36 and recovered somewhat after falling 21% of its record to $ 256.52 during morning trading.
After a fall of this magnitude, the temptation for a & # 39; buy on the dip & # 39; trade is too difficult for some investors to resist, especially when this strategy has repeatedly paid off in the last decade. And Apple, which was on a strong growth path before the virus spread, is at the top of the list for investors looking for the bottom.
Before warning investors on February 17 that it is not expected to meet its March revenue guidelines due to supply interruptions in China, the Cupertino, CA-based Apple fired on all cylinders.
Wall Street was positive about its growth in China, while the company was preparing to launch a new, low-cost iPhone model and a 5G-capable device later this year. Apple's latest report in January showed that iPhone device sales were robust, which defied the expectations of many analysts that the "super growth cycle" for the product was over.
Zero Growth
Although the majority of these growth catalysts are still intact in the long term, we are seeing risks for the company's iPhone core activities increasing as many major economies face a drastic coronavirus slowdown. Activity in the Chinese sector fell sharply in February, with the official meter reaching the lowest level ever.
There is no doubt that the prospects for the second largest economy in the world are ugly. It will also be difficult for the US to get out of this global health crisis unharmed. Earnings growth for US companies will stagnate in 2020 due to the corona virus, according to Goldman Sachs, which adjusted its earnings estimate for the year to $ 165 per share from $ 174 per share, representing a growth of 0% in 2020.
Now that the environment is becoming negative, the Apple share is likely to be affected by revisions of price targets analysts who have been quite optimistic so far. That means we can see another weakness from Apple, even assuming the current withdrawal has taken its course. For investors who are on the sidelines waiting to buy top-quality shares, this does not seem to be the right time to make the switch.
"Although & # 39; buying the dip & # 39; has been a successful strategy since the global financial crisis, with equity withdrawals often reversing rapidly, it may be riskier this time," said Christian Mueller-Glissmann, stock strategist at Goldman Sachs , in a note for customers. "With global growth still weak, the shock of the corona virus outbreak continues and there is less room for monetary and fiscal relaxation, the risk of longer withdrawals remains."
Bottom Line
Due to the economic disruption caused by the corona virus, Apple is currently one of the most exposed megacaps doing business in Asia. Any long-term weakness should be a purchasing option, but that stage in the current down cycle has not yet been reached, especially as coronavirus cases are increasing rapidly around the world.
