Experts very rarely lower their forecasts for Apple shares, but last week became an unusual one – the quarterly report published on February 1 showed a gap between sales growth and investor expectations.
During the Christmas season, iPhone sales were lower than expected. According to analysts, second-quarter revenue will be weaker. These factors signal that the company's “super” growth has started to stumble, so analysts changed their forecasts. Those views had a negative impact on Apple shares, bringing them down from 168.09 USD on February 2 to 157.10USD on February 5.
In addition to publishing first-quarter financial results, the company also offered a forecast for the second quarter that is several billion below investor expectations. The question is: what makes investors so nervous about a company worth 816 billion dollars that has delivered colossal profit for many years?
The market expected a slowdown in sales because Apple reduced purchases from suppliers as consumers became less interested in the iPhone. Most experts were disappointed by the report on iPhone sales in the 2017 Christmas season, which exceeded 77 million units, 1% lower than last year and below expectations of 80 million.
Even so, despite investors' disappointment, Apple shares are undervalued, and the current correction is a good opportunity for medium- and long-term investments. Here are two reasons to include Apple shares in an investment portfolio.
1. REPATRIATION OF FUNDS
Apple Inc Chief Financial Officer Luca Maestri said last week that the company intends to equalize cash and debt, providing dividend growth and an expansion of the share buyback program. Apple is buying 210 billion dollars worth of shares. The company is bringing hundreds of billions of dollars back to the US and plans to pay 38 billion dollars in taxes. Most likely, by May the company could increase the volume of the share buyback program to 300 billion, which is roughly 1/3 of the company.
2. DIVERSIFYING APPLE'S REVENUE SOURCES
Apple is not just the iPhone. The latest reports show that the company is diversifying its revenue. Thus, an Apple Music division generated 30 billion in profit, approaching the 50 billion threshold forecast for 2020. In the first quarter, profit generated by this subdivision reached 8.5 billion, which is 18% more than last year.
If Apple continues to grow sales from other units, convincing consumers to buy products in order to integrate solutions, then dependence on iPhone sales will decrease and diversification will provide additional growth opportunities.
From the perspective of chart analysis, the price found support at the 155.21USD level, from where it rebounded upward and at the moment has covered half of Friday and Monday's loss. We are waiting for a breakout of the 168.09USD level and a return of the price to the 180USD level.
Conclusion:
Apple is a company with fairly large potential. The fact that phone sales are falling is a temporary phenomenon, and whenever a new model appears, everyone wants to buy it. Apple shares can be in every investor's portfolio because the company will buy back its shares and the price may reach new highs this year.
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Translated from the Romanian original with AI assistance.
