Why investors should block out the noise on Apple ahead of earnings

Published Mon, Oct 16 20232:36 PM EDT

Some on Wall Street are souring on Apple (AAPL), with one firm suggesting it's already forfeited its prime position as the smartphone leader in China. But investors should block out the noise, at least until the tech giant reports iPhone sales directly next month. In a research note Monday, Jefferies argued that iPhone 15 sales in China have declined by double digits relative to the iPhone 14 Pro. Meanwhile, local rival Huawei overtook the iPhone's No.1 spot in the country's smartphone market, helped by the recent debut of its Mate 60 Pro, according to the firm. "We believe weak demand in China would eventually lead to lower-than-expected global shipments of [the] iPhone 15 in 2023," the analysts wrote. But we're unconvinced. Apple's vast supply chain makes it difficult to extrapolate larger trends from one data point. We think it's best to wait and hear from management directly on China demand when the Club holding reports quarterly results on Nov. 2. More broadly, Apple's standing as an "own it, don't trade it" stock is unlikely to shift, in no small part because the company remains a premium brand in China — a result of its product quality, high prices and closed ecosystem. AAPL YTD mountain Apple (AAPL) year-to-date performance. Jefferies' latest research comes on the heels of news reports that Beijing planned to ban government employees from using iPhones or other foreign-branded devices at work – claims that Chinese authorities have since denied. Apple lost $200 billion in market value over two days following an initial story by The Wall Street Journal in early September, but has since pared some of those losses. Shares of Apple, which are up 37% year-to-date, lost 0.42% in midday trading Monday, to trade around $178 apiece. China accounts for roughly 19% of Apple's revenues, per the company's latest earnings report in August, with over 43% coming from the Americas. Elsewhere, Morgan Stanley on Monday cut its price target on Apple to $210 a share, down from $215, citing supply headwinds that could impact the company's December quarter. But the firm reiterated a buy-equivalent rating on Apple stock. Taken together, Apple's solid fundamentals leave us bullish long term on its stock. The company's installed base continues to grow, while benefiting from higher-margin, recurring services revenue. Apple management has also continued to demonstrates an ability to adopt to challenging operating environments, including by diversifying its supply chain away from China and expanding its operations in India. (Jim Cramer's Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A person poses holding the original iPhone and the new iPhone 15 outside the Fifth Avenue Apple Store in New York City ahead of the launch of Apple’s new iPhone 15, Sept. 22, 2023.

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