Looking Back at My Bearish Apple Prediction

I was an Apple (AAPL) bull for the large part of 2014 and also heading into 2015. Apart from Apple, I also recommended buying multiple Apple suppliers namely RF Micro Devices, TriQuint Semiconductor, Skyworks Solutions (SWKS), Avago Technologies (AVGO), and NXP Semiconductors (NXPI). Apple appreciated considerably after my call, however the suppliers outperformed Apple as all the five stocks doubled a year after my recommendation.

However, after being an Apple bull for over a year, I recently recommended investors to sell the stock, citing a weakness in the sales of the iPhone 6S and the iPhone 6S Plus.
The iPhone 6 and the iPhone 6 Plus had a huge pent up demand for Apple phones with bigger screens, which is why I was bullish on the suppliers as well as Apple.

However, the new versions of the iPhone didn’t have a strong selling point. As a result, I predicted iPhones sales to fall this year. Since Apple derives over 50% of its revenue from the iPhone, I changed my rating on the stock to sell, and as of now my call has played out nicely.

Moreover, Morgan Stanley analyst Kate Huberty recently said that she expects iPhone sales to decline this year. As someone who has been following Apple very closely for a long time, I have observed that Huberty has been one of the most accurate analysts when it comes to predicting anything about Apple. Given Huberty’s track record, her statements have had a negative impact on Apple as the shares have moved downwards in the last few days.

Also, the Street is obsessed with year-over-year comparisons, and a market overreaction to Apple posting a first decline in iPhone sales is very likely. Hence, I can see Apple shares falling further in the coming months.

Moreover, the fall in iPhone sales will also have a negative impact on Apple suppliers, especially the ones that generate a large portion of their revenue from Apple. Consequently, I would advise investors to stay away from such Apple suppliers as well.

Conclusion

Given the expected drop in sales of the iPhone, I think investors should sell Apple and Apple suppliers with high exposure to the iPhone. Apple generates a major portion of its revenue from the iPhone and a drop in sales will definitely have a negative impact on the share price. Thus, going forward, I think investors should sell Apple and wait for a better entry point.
Published on Dec 16, 2015
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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