Apple stock price has returned to September 2021 levels. While investors may be feeling uneasy about the recent selloff, the decline could also pose an opportunity.
Apple stock took another hit on May 11, just like the rest of the market in this turbulent 2022 so far. Shares have just dipped to the low $146s from a peak of $182 reached in early January, down 16% and back to September 2021 levels.
It would be overly optimistic to say that Apple has already declined as much as it could. The stock has sold off by 30% or more a few times in the past several years alone. Still, there are reasons to be optimistic about buying AAPL on the dip.
Below, I list a couple of them.
#1. Apple’s business remains robust
One thing is the market, which has showcased plenty of weakness lately. Something completely different are the fundamentals of the economy and the performance of individual companies.
From a macro perspective, there are enough reasons for investors to worry. Inflation remains high. The interest rate hiking cycle has barely started, and no one (not even the Federal Reserve) knows when it will end. Signs of economic slowdown continue to mount across the globe — more evident in places like China, but still observable in the US.
Should macroeconomic factors deteriorate substantially, even Apple could suffer the consequences. However, for now, the Cupertino company has been an oasis of prosperity.
The most recent earnings report proved that Apple can still deliver solid growth on top of outstanding results in 2021. Demand remains high for the iPhone, now in its second 5G cycle with the well-received iPhone 13.The Mac is also sizzling hot, as the M1 chip family has helped Apple to stand out among PC-making peers that have instead witnessed declining shipments.
Sure, fiscal Q3 will be disrupted by supply chain challenges, which CEO Tim Cook and team believe could shave off up to $8 billion in revenues for the quarter. Still, it is hard to find a tech company that has been “delivering the goods” as Apple has managed to lately.
#2. The more AAPL sinks, the better
Let’s do a quick mental exercise: if a time traveler came from the future and gave you winning lottery numbers, but did not tell you exactly when those numbers would be drawn, what would you do? Would you play one ticket each week until you hit the jackpot?
This is how I think of the Cupertino giant. Over time — I just can’t pinpoint exactly when — Apple stock should return to all-time highs and then climb much further from there. I believe this to be the case because Apple remains an incredibly relevant tech company. As some might put it, “Apple is not going anywhere”.
If I am highly suspicious that the trajectory of Apple shares is up and to the right, although with bumps along the way, then it is better to buy AAPL when the stock is cheaper. That time could be now, between 15% and 20% below all-time highs.
I have plugged in the numbers before and presented my findings in my “best strategy” article. The data suggests that buying AAPL on any random date has produced solid annual returns of 34% through 2021. But when bought in a 15%-plus drawdown like the current one, the average gains have been an even better 40% per year.
Here is a number to keep in mind: by climbing back to the all-time highs of $182, AAPL stock will produce returns of 20%. This is just the gain associated with a reversal to early January 2022 levels. Not bad for a start.
Having said the above, keep in mind that Apple can still dip further before recovering. Equity investing is risky. Shareholders should understand their financial goals and risk tolerance before committing capital to AAPL or any other stock.
