JUNE 2020 APPLE Inc.
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MEDIUM-TERM INVESTMENT ANALYSIS OF APPLE Inc.
Our analyzes last year perfectly estimated the growth potential of Apple shares. The long-term fundamentals behind our expectations of stock price growth, despite the pandemic, remain valid for this year, but it's a good idea to learn about the main reasons behind Apple's continued stock rally.
- Apple shares reach new all-time highs largely due to stronger-than-expected sales of the iPhone 11 and significant expectations for future sales.
- Apple is a money generator. No other American company can generate as much money as Apple. In 2018, Apple managed to earn $ 59.531 billion. In 2019, it generated a profit of $ 55.256 billion. Although the result could be weaker this fiscal year, the company earned $ 11.249 billion during the first quarter of this year.
- $ 280 per share or more? Analysts asked themselves such a question in the middle of last year. $ 360 per share or more? Why not. It is no exception that there are opinions within the analytical community that Apple shares could climb up to $ 360 per share, given the excellent sales, the launch of the Apple TV + platform or the launch of new mobile devices operating on the 5G network. It is the launch of the 5G network that should be the main driving force in 2020 and 2021.
- Morgan Stanley goes even further in his estimates. According to Morgan Stanley analyst Katy Huberty, Apple's growth in the service segment will reach 20% this year, thanks in large part to Apple TV +'s new video streaming service, which was scheduled to launch last November. Morgan Stanley analysts estimate that by 2025, Apple TV + could generate up to $ 9 billion a year.
- Apple Pay on the rise. Apple Pay in the USA now ranks first in popularity among payment applications. It currently has 30.3 million users, an increase of 38% from 2018. According to an eMarketer report, up to 70% of retail stores in the US should be equipped with an ApplePay acceptance device this year.
- Apple Inc. deals with the design, manufacture and marketing of mobile communication and media devices, personal computers and portable digital music players. The company's products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, iOS and Mac OS X operating systems, iCloud and a range of accessories, services and support. It sells its products worldwide through its online stores, retail stores, third-party wholesalers and resellers. Apple Inc. is headquartered in Cupertin, California.
Factors leading to the analysis of the continuing growth of Apple's share price
Streaming. The entertainment world is changing rapidly, and an increasing number of global customers want audio and video entertainment to be wirelessly delivered to their electronic devices. Although Netflix is the current leader in streaming, many new entrants will significantly change the overall streaming environment.
- Although Apple only started its Apple TV Plus streaming offer last year and its initial offering will be limited to its original production, the company has around $ 100 billion in cash and cash equivalents to help it (unlike some competitors) could afford to spend massively on new content without feeling much financial pain.
- Performance of shares. Since the beginning of this year, Apple shares have risen by $ 50.34 per share to $ 343.99, surpassing the earnings of the computer and technology sector as a whole.
- Major obstacles overcome. Apple has seen initial strong orders for the new iPhone 11s. The biggest problem with Apple (AAPL) in the last few months has been the perceived weakness in launching the new iPhone 11. Many analysts have suggested that users will be waiting to purchase the iPhone 5G with purchases later this year. However, encouraging initial orders for the iPhone 11 have been able to eliminate a major hurdle for the technical giant to strengthen its cash machine position in 2020 and successfully fill the gap ahead of the iPhone 5G's release in 2020. Despite the possibly high price, Apple shares continue to enjoying the bullish outlook.
- Surprise named iPhone 11. Digitimes data showed that orders for the iPhone 11 have been really strong since its launch. The main reason was that Apple finally managed to hit the right price. The key was that instead of adjusting prices across the board, Apple cut the price of a weaker phone by $ 50 while maintaining stable prices on high-end devices. Importantly, according to Digitimes data, 70% of the pre-orders received covered the more expensive Pro or Pro Max phones. The reason for the strong orders is also that the new iPhones include Apple TV + for free for one year. The new iPhone phones had the following default prices: iPhone 11 - $ 699 vs. iPhone XR - $ 749 / iPhone 11 Pro - $ 999 vs. iPhone XS - $ 999 / iPhone 11 Pro Max - $ 1,099 vs. iPhone XS Max $ 1,099.
- Sales estimates. Last April, Samsung launched a new 5G model. However, it seems, and demand has suggested, that the market is still not fully prepared for the transition to the new 5G services. Apple wanted to launch the new 5G device earlier this year, however, the outbreak of the pandemic has postponed this date to September this year. It is obvious that the company's shares are suitably set for growth to new highs, until the eventual hype around 5G networks this year will trigger a mass avalanche and start a massive trend of replacing older models with new 5G iPhones.
- Apple secured an exemption from the increase in import duties in exchange for maintaining Mac Pro production in the United States. In last year's June letter to a US sales representative (USTR), Apple warned the Trump administration that the increased tariffs "would lead to a reduction in Apple's US economic contribution and that the new tariffs would favor the playing field more in favor of global competitors."
- On this account, the company's management managed to secure 10 exemptions from the new tariffs out of the total number of 15 applied for, including various computer components and others. In return, the company promised to keep production of the new Mac Pro in Austin, Texas, USA, instead of the planned relocation of production to China.
- Emerging potential in India with huge opportunities! Apple plans to bring Indian customers to its Apple ecosystem. With its growing market, India has long been one of the company's goals, where it intends to succeed with its products. At the end of last August, the Indian government announced its intention to deepen the liberalization of foreign direct investment rules. This will have a significant positive impact on Apple's operations in India and, as a result, on the company's financial performance in that country.
- Indian Finance Minister Nirmala Sitharaman has announced the Indian government's decision to ease local sourcing rules for foreign brands, including Apple. Newly foreign-owned stores will be exempt from local sourcing rules on condition that they invest $ 200 million in the country. This opens up many possibilities for Apple. The launch of online sales of its flagships and the opening of the first Apple Store in Mumbai are among the company's set goals for 2020.
- The World Bank expects the growth of the Indian economy to outperform developed and other developing countries in the future. According to analyst firm Eikon, the Indian economy grew at a year-on-year rate of 6.8% in 2018. By 2050, India is expected to overtake the United States and become the world's second largest economy after China. This expected growth of the Indian economy will lead to an increase in disposable income in the country, which will be a great opportunity for growth for consumer goods companies, including Apple.
- Analysts expect the percentage of smartphone users in India to increase from 26% in 2018 by 2022 to 36.2%. The main reason for this projection is, as 10 years ago in China, the rise of the social middle class.
- Apple's story in India is not just about smartphones. India is becoming a global economic power and companies from various industries are aware of this. The smartphone market in India will grow faster than in the rest of the world, and the OTT streaming market will grow faster than in other regions in the next 3 years. Thanks to the latest initiatives from the company, Apple is much better targeted for achieving strong results in India.
Warning of potential risks for Apple Inc.
Risks for Apple could be related to the ongoing US trade war with China, exchange rate fluctuations due to upcoming central bank meetings and subsequent dollar movements, or the decline in sales performance of these devices this year until the launch of the new 5G flagship. For this reason, it is good to anticipate possible short-term fluctuations in the share price and possible testing of short-term support levels.
Hypothetical example - CFD on Apple Inc. shares
Invested amount CZK 1 million… USD 42,556 (converted by the CNB exchange rate of 6/16/20)
CFD stock contract type
Margin 20 % of the CFD stock
CFD share price 352.26 USD (as of 6/16/20)
CFD shares … value … USD 352.26 … 20% margin… approx. USD 70.45
Target Price 1 … 370 USD
Target Price 2 … 380 USD
1st level of support… approx. 322.50 USD
2nd level of support… approx. 299.00 USD
With a full 100% investment, up to 604 units could be purchased at a margin of $ 70.45. However, under the unwritten rule of investors, the maximum amount invested should never exceed 50% of the investor's free funds.
In the case of the purchase of 1 CFD share on Apple, the movement of the price to TP at the level of 380 USD/CFD shares offers a potential of 27.74 USD.
If 50% of available funds were invested and 302 CFD shares were purchased, a price movement of USD 27.74 would increase the potential for appreciation of the analysis to approximately USD 8377.48.
However, in the event of a negative development and a decrease in the share CFD price to a support level of approximately USD 322.50 / CFD share, the same trade would mean a loss for the investor exceeding 20% of the investor's total funds.
Please note that with regard to the size of the trading account and the size of the market, it is essential to adjust the size of the leverage and adjust the degree of selected risk accordingly. Trading CFD contracts and Forex is high risk and improperly set risk management can result in the loss of much or all of the investor's funds.
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