Time to Sell Apple?
Robert Ross|September 14, 2023
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There’s something amiss at the world’s largest company.
Shares of Apple fell 6% last week. That was the worst two-day stretch of the year for the technology giant.
And it all came down to something I told you about a few weeks ago…
Unfortunately for Apple, its troubles may just be beginning.
Should investors head for the hills?
The Bigger They Are, the Harder They…
Apple has been the darling of the stock market for a decade.
The company redefined the smartphone market, which has grown dramatically since the iPhone’s introduction in 2007.
This year, shares have rocketed 35%, smashing the S&P 500…
And the stock hit a market cap of $3 trillion in July.
But while I’ve owned Apple shares since 2016, I’ve always had qualms about its exposure to the Chinese market.
And now it seems that the chickens may be coming home to roost.
Xi Sets His Sights on Apple
I told you two weeks ago about how Xi Jinping and his cronies in the Communist Party of China (CCP) had no problem dismantling their country’s “soft tech” sector.
That included going after companies like Alibaba (BABA), DiDi Global (DIDIY), and Tencent Holdings (TCEHY).
But do you know what Xi cares even less about than Chinese tech companies? American tech companies.
And he has set his sights on Apple. Last week, the CCP announced it would ban iPhones at its state agencies.
Now, in most countries, this wouldn’t be a big deal. In the U.S., for example, only 15% of workers have government jobs.
But in China, the percentage is far, far higher.
You Work for the State
China’s ban is a big deal because so many people work for the CCP.
There are roughly 400 million people in China’s workforce. Nearly 50% of them work for the CCP…
That means China’s ban just removed 200 million customers from Apple’s ecosystem.
To put that into context, that would be like if the entire country of Brazil were banned from using Apple’s products.
And the hits will likely keep coming for Apple.
The Apple-China Connection
Again, I still own Apple shares.
My position has gone up over 600% since I bought it back in 2016. I’ve been far from a bear on the stock over the years. However, there are some uncomfortable realities Apple investors need to come to terms with.
The first is the company’s sales mix. As of its latest filing, Apple generated 20% of its revenues in China…
In the best-case scenario, revenue from China will likely be cut by 25% over the next few years thanks to the ban.
However, the last two presidential administrations have been hard on China. They’ve put up barriers to trade and even banned the sale of AI chips to the country…
If Biden and Xi go tit for tat, what would stop Xi from completely banning iPhone sales in China?
That’s an especially concerning scenario with China’s tech companies on the rise.
A New Competitor Enters the Arena
The timing of the CCP iPhone ban didn’t surprise many China watchers (like me).
The reason? The imminent release of the Huawei Mate 60 Pro…
This Chinese-made next-generation phone (which is banned in the U.S.) looks like it can compete with American models like the new iPhone 15.
That’s despite harsh sanctions from the Biden administration on China’s top chipmaker, SMIC…
Xi has all the reason in the world to support his domestic businesses at the expense of U.S. companies.
And that could be bad news for Apple… and the broader stock market.
Apple currently represents 7.2% of the S&P 500’s total market cap and a whopping 11.4% of the Nasdaq’s.
It’s the biggest company in the world by market cap. So when Apple shares struggle, the entire market struggles.
Simply the Best
So should investors be selling their Apple stock? I sure won’t be.
It’s true there are headwinds for the company. But CEO Tim Cook – an operational and supply chain wizard – has been pivoting away from China for years.
While 75% of iPhones are still made in China, Apple is doing its best to rely less on a country that has turned increasingly antagonistic.
As I said two weeks ago… I’d stay away from Chinese stocks. But Apple still makes the best and most sought-after smartphones on the planet.
And I don’t see that changing anytime soon.
Robert Ross’s unique style of clear and direct stock research helped him build a massive following in the investment research industry, starting his career at investment research company Mauldin Economics and quickly rising through the ranks to become one of the youngest chief analysts in the industry. Today, over a million investors turn to Ross every month for his take on investing, economics, and personal finance. He now shares his unique insights in Manward Financial Digest and Manward Letter.