Why Apple Stock is Ready to Rally

Apple CEO Tim Cook

Last quarter, Apple Inc. (NASDAQ: AAPL) saw the worst sequential drop ever for Q1 iPhone revenue in company history. It should’ve sent investors running for the hills, but instead, shareholders now seem happier than ever – ready to buy AAPL stock back up to its all-time-high of $233.47, a price level set last October.

On Wednesday, in the trading session following Apple’s earnings report, shares jumped 4.9%. The company’s market cap still sits just south of $1 trillion, but if the recent post-earnings reaction is any indication, AAPL shares could easily reclaim ground lost in the 2018 rate-hike correction – putting the cell phone giant back into $1 trillion territory.

Analysts were quick to point out Apple’s rosy second-quarter guidance, which explains how the company plans on defusing it’s “iPhone problem”. By boosting non-iPhone revenues – and beating revenue predictions across the board – CEO Tim Cook & Co. look poised to transform Apple’s business in a hugely beneficial way.

Piper Jaffray’s Michael Olson said the latest quarter showed “upside on nearly all metrics,” giving the stock a price target of $230 – roughly $19 higher than the current cost per share.

And even though iPhone sales were historically bad, they still exceeded analyst expectations that projected absolutely dismal numbers. Wall Street agrees that expansion into the non-Western markets made a major difference in that regard.

“Apple’s confidence appears based on the fact that iPhone revenues picked up notably in March in response to price cuts in perhaps a quarter of geographies such as China (likely suggesting that Apple would have missed consensus expectations in the absence of such actions) and in response to attractive trade in offers at its stores and website,” wrote Bernstein analyst Toni Sacconaghi in a research note.

“It appears that Apple expects the impact of attractive trade-in offers to be even more meaningful in Q3 than Q2.”

The “trade-in offers” he’s talking about – which allow past generation iPhone owners to trade-up for newer models – are a major feature of Apple’s plans moving forward. Even though it might cut into the company’s bottom line short-term, upgrading customers to more premium devices (and price points) will likely have a net positive effect moving forward.

A hopeful outlook – something Apple hasn’t enjoyed for months now – is starting to convert bears into bulls as a result. J.P. Morgan analyst Samik Chatterjee agrees, noting that Q1 2019 could serve as a major turning point for the company:

“With F3Q guidance indicating that Apple is balancing price and volume to maximize the revenue opportunity and is likely to get back to year-over-year revenue growth following only two quarters of year-over-year declines, we expect significant improvement in investor sentiment.”

And as of Thursday morning, it appears as though that “investor sentiment” is starting to trend upwards already. AAPL shares are up almost 0.7% at midday, lining up with a rise in the general markets following a very negative trading session on Wednesday.

Provided the major indexes keep climbing, Apple stock looks as though it will follow suit. Shareholder confidence is riding high at the moment, and with plenty of room between $211 (the current share price) and $233.47 (the all-time-high share price), there’s reason to believe that Apple’s uptrend could continue.

The only thing that could “spoil the party” from here is another general market slump, or foot-in-mouth memo from CEO Tim Cook. Even then, though, AAPL-junkies might be galvanized enough by Q2’s guidance that nothing would derail the current hype train.

And if that’s true, climbing aboard might not be the worst idea in the world.


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