Here’s what to expect ahead of Apple earnings after April's supply-constraint warning

Published Thu, Jul 28 20229:50 AM EDTUpdated Thu, Jul 28 20229:58 AM EDT

We may sound like a broken record but even Club holding Apple (AAPL) is not immune to supply-chain disruptions, increasing macroeconomic concerns, consumer demand shifts to traveling and the strong U.S. dollar. Apple is a $2.5 trillion company that reaches consumers globally, which means it will inevitably be impacted by what appears to be a looming recession, like the rest of the tech sector has. Despite this the Investing Club remains cautiously optimistic heading into Apple's fiscal third-quarter earnings, which will be released after the closing bell Thursday. Here's what to keep top of mind ahead of Apple's results. Own Apple, don't trade it On April 11, ahead of Apple's fiscal second-quarter earnings, we sold 350 shares of AAPL to right-size our position because it was too big at that time and downgraded the stock to a 2 rating. Then, Apple reported its second - quarter earnings , released on April 28, delivering strong results including record revenue, a 5% dividend increase and $90 billion buyback authorization, returning $27 billion to shareholders through dividends during the quarter. Apple yet again showed it has a strong balance sheet with a $73 billion net cash position that can help the company continue to invest in its growth. Apple's Q2 showed that the company's robust cash flow, strong cash position and balance sheet can help it ride out market volatility. On May 13 , we upgraded the stock back to a 1 rating, meaning, we think it's a buy at current levels. AAPL is the club's third largest stock weighting in the portfolio. We are bullish on Apple and plan to stick with the stock long-term: Own it, don't trade it is our mantra. Look back, look ahead Coming out of Apple's previous quarterly report, the market was surprised by the company's warning that supply issues may lower sales between $4 billion to $8 billion. This could help manage expectations into the release. Apple has been facing supply chain issues that are expected to have an impact on the upcoming production. Wall Street is aware of the challenges Apple faces in the just-complete Q3 including the impacts stemming from China's Covid lockdowns as well as foreign exchange issues. Despite this revenue risk, we believe the market has prepared for this headwind. As supply issues improve, global demand is expected to rise along with it. Apple's competitive advantage is its strong brand loyalty with consumers waiting for upgrades on its ecosystem of products, which can continue to drive sales as supply issues gradually get better. We will be looking out for updates on supply chains, how iPhone demand is holding up in this challenging economic climate, and management commentary on the path ahead. Strong product lineup Apple is one of the world's most valuable technology platforms that aims to provide its customers with the best user experience through its proprietary line-up of products including the iPhone, iPad and Macs as well as its services like Apple Pay, iCloud and Apple Music. At its recent Worldwide Developers Conference in early June, Apple launched new models of its MacBook Air and MacBook Pro, designed with its new M2 processor chip. Apple already has an efficient M1 chip but M2 has more power efficiency and maximizes performance. Basically, the second generation M2 chip takes the M1 chip to another level of performance, which can be a real bellwether for Apple. Amid weakening consumer demand, we will be paying attention to the company's MacBook sales and any forecast on iPhone products, which are key to the company's growth prospects. Apple's service business