And Now… Apple’s Next Trick
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I like to remind people about the state of the U.S. stock market with a little anecdote about General Motors.
In 1953, former GM CEO Charles Wilson told Congress that his company’s business was too big to fail. “As goes GM, so goes the nation,” he said, explaining that the nation’s economic future was heavily dependent on GM’s success.
Nearly 70 years later, the statement still resonates with Congress. Remember, just 13 years ago, the U.S. offered a massive bailout to the company in its efforts to save the U.S. automotive industry. In 2020, the government also put a lot of money into the auto industry as COVID-19 ravaged the job market and fueled a slump in automotive demand.
Despite the belief that the auto sector is vital to our economy, it certainly isn’t vital to the stock market. In June 2009, the Dow Jones Industrial Average replaced GM and Citigroup with insurance giant The Travelers Companies and technology company Cisco Systems.
The defenestration of General Motors from the castle that is the Dow was not surprising. The move reflected that the U.S. markets and economy now focus more on technology and digital innovation and less on manufacturing.
That trend is extremely evident in the market’s almost overreliance on one single company:
Today, I want to talk about the latest developments at Apple, why they’re so critical to investors, and why we should simply state: “As goes AAPL, so goes the U.S. stock market.”
A Giant Doesn’t Know How to Shrink
Apple Inc. is the largest U.S. public company, with a market capitalization north of $2.5 trillion.
This number is staggering. Its value is larger than the annual gross domestic product (GDP) of all but seven countries in the world. Now, obviously, these are different figures. But given Apple’s reach and its influence on the daily lives of people all over the planet, perhaps it would make sense to invite CEO Tim Cook to the next Group of Seven (G7) economic forum.
According to ETF.com, 320 exchange traded funds (ETFs) hold Apple stock.
The largest ETF holder is the mighty SPDR S&P 500 Trust (SPY), which owns a stunning 161.09 million shares.
The Technology Select Sector SPDR Fund (XLK) has 21.84% of its portfolio weight in the stock.
Apple represents 6.10% of the weight of the S&P 500.
And the Nasdaq 100? Apple is 11.13% of the weight.
With this amount of buying and holding in Apple stock, it’s pretty darn important to know what the company plans to do in the future. I want to point to a few short-term concerns and a few long-term opportunities. If you’re an Apple stockholder — and it’s likely you are or will be in the future — here’s what you need to know.
Delays Hit the New Apple Watch
In the short term, investors need to pay close attention to what is happening with the firm’s next large product launch.
Multiple media outlets reported that Apple is facing delays in production of its new Apple Watch Series 7. Nikkei Asia said that the company had quality issues with the final product. The delay wasn’t just linked to difficulty in obtaining components. The report said that the design includes complex technologies like a blood pressure sensor and water-resistant features.
The problem with these manufacturing challenges is the schedule itself. Apple usually releases its latest Apple Watch and iPhone models in September or October. While there is no sign that Apple will delay the launch of this watch, it could require the company to reassess its design and production processes. It could also create a shortage of available products, like what the company experienced after the release of its iPhone X in 2017.
This could have a short-term impact on Apple stock this quarter. However, we always remind you not to trade based on emotion or one single news event. In fact, there are longer-term variables at play that have many investors excited about the future.
Is the Apple Car Coming?
Counter to the negative supply chain concerns this week was a report by investment research firm Bernstein.
The firm analyzed what sort of revenue Apple could produce if it launched an electric vehicle by 2025.
Bernstein expects that the firm could sell 1.5 million vehicles by 2030, which would add upwards of $75 billion in revenue. That figure would double Apple’s growth rate as well.
Now, Apple has not announced plans to launch a vehicle. But we know that the size of the company and its massive amount of capital gives it that option. It could purchase an existing auto manufacturer, or it could build the business line from scratch. Either way, this could be a major source of income should the company enter an automotive industry that Bernstein estimates at $2 trillion in value.
We’ll continue to monitor this. But keep in mind, those types of figures will start to factor into Wall Street price estimates in the future. Right now, the consensus price target on Wall Street is $166.17 with 19 buy recommendations and six hold recommendations. According to TradeSmith Finance, Apple has been in our Green Zone since March 31, and it maintains uptrend momentum.
Once again, there are only two types of investors. Those who own Apple, and those who will own Apple one day.
For now, we remain bullish based on our signals.
I’ll be back soon to discuss a few important ways to uncover what the “smart money” is buying and how you can track and mimic their trades.