Don't Follow Warren Buffett Into Buying AppleAAPL) shares after a 15% post-earnings dip in the value. Even Warren Buffett, who has been known to stay away from tech stocks, recently bought Apple. It was recently revealed that Berkshire Hathaway bought a new 9.8 million share stake in Apple.
Understandably, Apple’s stock has rallied on the news. However, investors shouldn’t blindly follow Mr. Buffett as there are many reasons why Apple’s stock could head lower in the near future.
The present-day market is obsessed with year-over-year growth, which is why stocks like Netflix (NFLX) and Amazon (AMZN) that have a lot less earnings power than Apple are trading at a far bigger earnings multiple than the Cupertino giant.
I have been warning about Apple’s growth slowdown since November 2015 and Apple has lost almost 25% of its value since then.
The primary reason is the potential failure of the iPhone 7. Apple generates a massive portion of its revenue from the iPhone. Being over reliant on a single product can be disastrous for any company, but since Apple has a very loyal customer base, the dependency worked in its favor.
That being said, Apple cannot expect users to continue buying new iPhones every year now. The smartphone market is saturating. Smartphones are not as attractive as they were 10 years ago, and companies are running out of features to add to the smartphones. As a result, the smartphone market shrunk for the first time in Q1 of 2016.
It is safe to assume that the smartphone market will head in the same direction as the PC market. The saturating growth is a headwind for Apple as it will (or has) become impossible for the company to grow iPhone numbers.
The iPhone 7 is also not expected to be a success as the device isn’t expected to have any major upgrades. As far as features are concerned, there’s only so much a company can add to its phones. The smartphone market will probably peak soon, which is why I think investors shouldn’t blindly follow Mr. Buffett.
I have been bearish on Apple for quite some time now and I would suggest investors to stay away from the stock at least till August. Although I don’t expect the iPhone 7 to be successful, it is still a probability, which is why I think investors should reassess Apple when the iPhone 7 is unveiled.
Published on May 17, 2016By Ayush Singh