Apple stock is struggling and is, in fact, down this year despite two massive earnings beats. A high bar for growth and the threat of rising taxes may be the two biggest culprits, Bill Maurer writes.
We are just a few weeks away from the midpoint of 2021. If you had told someone that technology giant Apple would have reported two of the biggest earnings beats in corporate history so far this year and yet the stock would have significantly underperformed the NASDAQ Index, they might not have believed you. However, that’s just where we are now, as the chart below shows how the stock has declined 5.1% through Monday despite the Index’s nice gains.
In my last Apple article, I discussed how the company was becoming a victim of its own success. Because the two earnings reports so far this year were so great, the thought process has shifted to can Apple ever do any better? In this case, I’m not talking about strict dollar amounts, but growth percentages. Look at the chart below, showing how once we hit the December 2021 (fiscal Q1 2022) quarter, revenue growth rates are expected to crash down.
I said previously that Apple bears would jump at the possibility of Apple announcing a revenue decline for the March 2022 fiscal quarter, even if it is due to the previous year being one of the best quarters we’ve ever seen.
MacDailyNews Take: Yup.
‘Tis the fiscal Q2 tough compares to come and how the market digests / uses / abuses them, rationally or irrationally, that will be the most interesting for Apple.
After years of pent-up demand for iPhones with larger displays, when the company finally made them with the iPhone 6 and iPhone 6 Plus, Apple faced years of tough compares vs. fiscal Q215 until they finally just stopped reporting unit sales altogether.
Fortunately, Apple’s overall revenue trajectory remains strong, and I think management has a solid plan in place…
The second item I believe investors are a little worried about is the potential for rising taxes. The first part of this would obviously be higher taxes on the rich, especially capital gains taxes, that could limit investment in stocks.
MacDailyNews Take: Not just the “rich” are hit by higher capital gains taxes.
More than half of American households have some investment in the stock market, according to the Pew Research Center. Even among those with annual family incomes of less than $35,000, about one-in-five have assets in the stock market. Data from the Federal Reserve’s Survey of Consumer Finances shows that 53% of all American families owned publicly traded stock in some form in 2019, so increased capital gains taxes affect far more Americans than just “the rich.”
The threat of a capital gains tax increase dampens investor enthusiasm and limits market participation.
For Apple though, the issue would be higher corporate taxes, which obviously would impact the profit monster. For instance, the difference between an overall tax rate of 15% versus 18% for Apple in its fiscal 2022 year (based on current estimates) is roughly $3 billion in net income, or almost 20 cents in EPS. A nickel per quarter headwind makes it harder to impress investors, especially when you are coming off the best year in your history…
Right now, Apple shares are stuck in a trading range, as the chart below shows. The 50-day moving average (purple line) is forming resistance, while the 200-day (orange line) is forming support. The next major move can occur once Apple can get out of this channel, and investors are hoping it is to the upside, which could form the base to get the stock to new highs. If shares drop, the 50-day could cross below its longer-term counterpart, which would be the dreaded technical death cross.
MacDailyNews Take: Apple stock is currently range-bound, but a breakout (positive or negative) could happen at any time. AAPL remains undervalued, but concern about future tough compares continue to weigh on AAPL.