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Market Insights

Stock of the week: Apple

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Early on Monday, the news broke in Asia that Foxconn, one of Apple’s major suppliers, had halted production in the tech and manufacturing hub of Shenzen. Authorities have imposed a lockdown on the city and ordered factories to close.

Foxconn’s Longhua and Guanlan Technology Parks in Shenzen are two large iPhone production & assembly hubs. In theory, this shouldn’t affect Apple too significantly. The lockdown is only expected to last three days, although it could be extended until March 20th.

Supply concerns are likely to grow if the lockdowns are extended further. China’s strict Covid policy doesn’t seem sustainable from an economic perspective, but will that matter?

Apple shares gapped down on the open, falling below the February lows and the 200 day moving average, before recovering as the session progressed. A solid close back above the blue line (200DMA) could embolden bulls seeing this as a false breakdown, perhaps thinking that price could base and push higher again.

Apple one day movement candle stick

Bears could eye the 200DMA as the line in the sand, and a failure to hold above there might encourage more selling.

Away from the charts, Apple’s recent product announcements were well-received by analysts at Morgan Stanley:

Today's product announcements - a new iPhone SE3, iPad Air, M1 Ultra, and Mac Studio (and Display) - were largely in-line with expectations and illustrate the unmatched output of Apple's $26B+ annual R&D engine.

After the event, the analysts reiterated their overweight rating and price target of $210.

  • The launch of the new iPhone SE3 is seen as a way to make 5G capabilities available at a lower price-point and encourage users of older iPhone models to upgrade. Currently, the iPhone 13 starts at $699 vs the iPhone SE at $429.
  • The new iPad Air gains the M1 chip for improved performance, plus 5G connectivity too.

What’s new?

  • The Mac Studio. Designed for users needing something in between the all-powerful Mac Pro & more standard iMac, the latest addition to Apple’s desktop range.
  • The Apple M1 Ultra Chip: The newest super chip comes with a 20-core CPU, 64-core GPU and 32-core Neural Engine.
  • Apple TV will include live sports for the first time. Apple has added Friday night Major League Baseball games to their TV offering.

Morgan Stanley:

Apple remains our Top Pick in IT Hardware given durable fundamentals, predictable cash flows, additional 2022 product launches, and platform stability in an otherwise uncertain and volatile market backdrop.

It’s hard for Apple to really change perceptions with new product launches, simply due to the sheer size of the business.

Further news on their AR/VR technology and Apple Car could definitely be the exception. In the immediate future, supply chains are the more pressing concern.

Apple weathered the original Covid supply storm well. CEO Tim Cook’s prior role under Steve Jobs as a “Supply Chain Guru” was widely credited for their success here.

However, if the supply simply isn’t available due to external factors such as factory closures, will that be the case this time?

Not investment advice. Past performance does not guarantee or predict future performance.

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