Apple was the best-performing FAANG (Facebook, Apple, Amazon, Netflix and Google-parent Alphabet) stock in 2019 and 2020. However, the stock has looked weak this year and is down 5%, underperforming them. markets as well as FAANG peers. . What is the forecast for the stock in June 2021 and should you buy it now?
Apple is the largest company by market capitalization and the only company in the world with a market capitalization of over $ 2 trillion. While Amazon and Microsoft have been strong contenders for the coveted $ 2 trillion market cap, they haven’t been able to cross the threshold.
Apple stock is under pressure
Apple stock hit its all-time high of $ 145.09 in January and has since fallen more than 12% from its high. The stock is currently in the correction zone after exceeding 10% of peak. There are several reasons for the drop in Apple stock. First, the tech and growth names tumbled in 2021 as investors turned to reopening stocks. The share rose sharply last year as it was among the beneficiaries of the ‘home’ trade.
In addition, concerns about tighter regulatory control and a possible increase in corporate taxes in the United States are weighing heavily on Apple shares. US tech giants also face the risk of tax hikes as the G7 crack down on tax arbitrage. American tech companies would end up paying higher taxes under the new regime.
Apple stock looks neutral on the charts
Looking at technical indicators, Apple stock traded in a narrow price channel between its 50-day Simple Moving Average (SMA) and 200-day SMA. The 200-day SMA, which currently stands at $ 124.43, provided strong support for the stock, while the 50-day SMA, which stands at $ 128.71, provided resistance. The action must cross the narrow price channel for a technical uptrend to resume. Its 14-day RSI (Relative Strength Index) is currently at 52.2, which is also a neutral indicator. However, the stock broke the 10, 20 and 30 day SMA which is a bullish signal.
Apple hosted the Worldwide Developers Conference (WWDC) earlier this month and revealed several new features. He announced a service called iCloud + which will have a “privacy relay” feature. It would work like a VPN and users can hide their browsing history. The feature would appeal to users who focus on their privacy. The company also announced several new features for the FaceTime app.
The valuation seems reasonable
Apple stock is currently trading at an NTM PE multiple (next 12 months) of 24.8x. The multiple has averaged 21.6x over the past three years and 18.6x over the past five years. While the stock’s valuation multiples are greater than its long-term multiples, the expansion of multiples seems justified.
First, Apple stock has seen a revaluation as it has increased its service income. Software companies are trading at a higher multiple than hardware companies, and more and more markets are seeing Apple as a software company. Second, we are in a 5G supercycle that would lead to higher multiples for the title. Incidentally, its multiple NTM PE had peaked nearly 40x in 2007-2008 as the company entered the iPhone supercycle phase.
Legendary value investor and Berkshire Hathaway chairman Warren Buffett is also bullish on the company. This is the conglomerate’s largest stake and Buffett has admitted to making a mistake selling Apple shares in the past two years. However, the Oracle of Omaha also used the sale of shares as an example to emphasize the beauty of share buybacks. Despite reserving an $ 11 billion gain on the sale of Apple shares. Berkshire owns the same 5.4% stake in the company, thanks to the buybacks.
Apple repurchases billions of dollars of its stock every year. Although the business generates a lot of money, the business does not have enough investment opportunities to invest the money. Also, like other companies in Silicon Valley, it is very frugal with dividends and its forward dividend yield is only around 0.7%. Rather, tech companies are looking at stock buybacks that help them inflate EPS by lowering outstanding shares. While many criticized the company’s massive buyouts, Buffett backed them.
Buffett has praised Apple several times
Buffett has praised Apple and its CEO, Tim Cook, on several occasions. He sees Apple as a consumer products company and last year switched from his flip phone to an iPhone. At this year’s annual shareholder meeting held virtually, Buffett said, “A car costs $ 35,000 and I’m sure with some people, if you asked them if they wanted to give up, had to give up, their Apple, they would give up their car. “
Buffett called Apple as “indispensable” and “a huge huge deal”. Notably, in 2019, Buffett said he wanted to buy more Apple shares but at lower prices. The stock continued to rise and Buffett missed adding more stock.
Apple Inventory Forecast
Wall Street analysts are bullish on Apple and its median target price of $ 160 is an almost 26% premium over current prices. Of the 44 analysts covering the stock, 33 rate it as a buy or equivalent while nine rate it as an expectation. The remaining two analysts have a sell rating on the iPhone maker.
Long-term forecast for Apple stock
Meanwhile, Apple is a story of long-term growth. The 5G supercycle and increased revenue from services would lead to increased revenue for the company. In addition, he also plans to enter the electric vehicle and autonomous driving industry, although plans have been somewhat stalled as he has been unable to find partners for the project. While rumored to be in talks with Hyundai and Renault, talks have not advanced. Many are also speculating that Apple could partner with Lucid Motors, which goes public through a reverse merger with Churchill Capital IV (CCIV).
In particular, mobility is a much larger market than the current TAM (total addressable market) which Apple is targeting. Many analysts believe the company could be a worthy competitor to Tesla.
Overall, Apple stock looks like a good stock to add to the portfolio given the strong growth prospects and reasonable valuations.
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