Investing

Why Apple's Shares Hold Up In A Market Sell Off

Apple Inc’s (NASDAQ: AAPL)  shares moved down 3% as the market dropped by about as much, but should the market nosedive, as many investors believe it will, Apple shares should hold their value.

The market’s vulnerability is two-fold. The first is that a slow vaccine process for COVID-19 could hold the economy hostage. Closure of businesses would remain high. Certain sectors, like travel, may not return to health for months.

Second, with the market at a record compared to most in history based on earnings, it simply needs occasional corrections necessary to bring it back in line with company earnings vs stock values.

Apple share defies either of these two gravitational pulls.

Apple has proven that consumers will buy its products through difficult economic periods. Witness the last year. Even before the releases of the iPhone 12, Apple had what were more than satisfactory sales of all its products, which helped push its stock up almost 90% in 2020. And, not all of that increase was due to expectations that it would have a good final quarter, driven by the iPhone 12 and holiday buying.

Apple also continues to benefit from what investors call a supercycle in iPhone sales. It was evident that this began last quarter. Apple posted record revenue of $111 billion. Of this $66 billion was from the iPhone. As 5G networks expand around the world, there is an expectation this will continue. And, 5G is in its early stages, even in the U.S. where only a few cities are fully wired. As 5G becomes more readily available across the U.S., Europe, Japan, and China, iPhone 12 sales may even rise.

Apple’s services business also appears to be an economy beater. Sales of apps, music, cloud storage, payment system, and TV products have held up throughout 2020 and grew particularly well in the final quarter of the year.

A full market correction is usually described as a 10% drop. Some forecasts are that the next one will be closer to 20%. Part of this is because of the frenzy of trading in stocks like GameStop. There is also anxiety that new IPOs are valued much too high.

Apple has 100 million shares sold short.

Apple has something that investors cannot find in most other stocks. Its earnings and sales are almost certain to be strong through the balance of 2021.