Shares in “Magnificent Seven” component Apple (NASDAQ:AAPL) stock surged by nearly 54% during 2023. However, a growing number of stockholders have made an exit. After hitting a new all-time high in mid-December, AAPL pulled back slightly. The market has been using various developments and discussion about the company as an excuse to take profits.
This may continue in the near-term, as concerns keep rising. Let’s take a closer look at AAPL, the reasons behind its recent round of weakness, and the best way to play this to your advantage.
AAPL Stock: Santa Claus Rally, New Year’s Dip
From late October through the middle of last month, tech stocks rallied, and Apple was no exception. The “Magnificent Seven” and big tech stocks performed well due to increased confidence in the “Fed Pivot” thesis.
Recent developments indicate a strong chance rates are in fact coming down during 2024. This of course bodes well for big tech names AAPL stock. Lower interest rates justify higher forward earning multiples. Lower rates also are a positive for consumer demand/growth.
Yet since AAPL’s Santa Claus rally, two factors have started to place pressure once again, resulting in a New Year’s dip for shares. First, while low rates are good news for valuation/growth, the market may have gone overboard. At least, that is the view of some commentators, who argue that AAPL is pricey at nearly 30 times forward earnings.
Apple has also had to contend with a company-specific headwind. That would be a patent dispute involving its line of smartwatches. The import ban related to this dispute is on hold and a resolution could be forthcoming.
More Near-Term Pain, but a Pathway to Profits Hasn’t Gone Away
As mentioned above, AAPL stock could stay under pressure in the weeks/months ahead. Besides the two factors mentioned above, the macro factor fueling its late-2023 run-up could also start working against the stock.
How? The latest round of economic data could cause the market to walk back some of its high confidence that a “Fed pivot” is a lock for 2024. This may mean another round of uncertainty and volatility for stocks, names most sensitive to interest rate speculation (growth names) in particular.
But even as there may be some additional near-term pain, don’t assume that a path to profits with AAPL has disappeared. For instance, as Wedbush’s Dan Ives argued a few weeks back, channel checks suggest that global demand for iPhones, including in China, continues to improve.
This suggests better-than-expected overall results in the coming year. Only time will determine if this factor alone can reach Ives’ price target of $257.19 per share, but it could contribute to a strong rebound later this year.
The Verdict: Wait ‘Reasonable’ Levels
So far, AAPL has only sustained single-digit losses since hitting a new all-time high. However, once it’s all said-and-done, the stock’s latest drawdown could be in the double-digit range.
Maybe not a full trip back to price levels last hit at the start of 2023 (around $125 per share), but a move back to the $150-$175 per share range is very possible. At such price levels, Apple will be reasonably-priced again compared to long-term growth (forward multiple in the low-to-mid 20s).
From there, the stock could rise, as confidence in the Fed pivot grows again, and Apple provides a positive surprise in the form of stronger-than-expected iPhone sales.
Even if this results in sending shares back to prices below Dan Ives’ ambitious price target, this would still represent strong returns compared to my “buy zone” range. Until then, however, watch and wait with AAPL stock.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.