Investment Strategy

Where Apple (AAPL) Stock Will Probably Go From Here

Person using Apple Vision goggles

There are very few things in trading and markets that are predictable, but yesterday we saw a pattern play out that has been as reliable as such things can be for some time now. When Apple (AAPL) launches a new product or provides a major update to an existing one, their stock behaves in an identifiable, oft-repeated manner that I have been talking about in these pages for many years now, such as in this 2018 article.

As a major product announcement from Cupertino approaches, the hype begins to build and AAPL rises consistently for a few days, even a few weeks. Then, when the big reveal comes, nothing can live up to the level of hype generated, and the actual product is seen as a disappointment in some ways. Then there are a series of hot takes that create a sense of negativity. Of course, those who blather their uninformed opinions are the serially snarky types but we have become so accustomed to them that their consistent and often completely wrong negativity goes unchallenged.

Thus, the notion that the new iPhone, Apple Watch or whatever the product du jour is, is a disaster takes hold.

The traders who bought the stock to force it higher during the hype period scramble to take profits as all the negativity hits and the stock tumbles. Depending on how far the stock rose in the approach to the release, that drop may continue for a few days but, at some point, the market begins to recognize two important things.

First, Apple products are very rarely failures. Some would have you believe that is because the company has some kind of magic, but there is a more prosaic explanation for that. Apple is not really an innovator at the fundamental level. It never has been, or at least not since the very early days. Rather, what they do is to take others’ proven concepts, then improve them and market the resulting products well. That is a low-risk strategy, with a very low failure rate.

Second, in a company with annual sales totaling around $400 billion, the success or failure of any one product or update can only have so much effect on the stock. When things haven’t been instant hits (think AppleTV, for example), its overall massive sales and cashflow allows Apple room to let any new product grow. While each product and division is, I’m sure, encouraged to operate as its own profit center, over $80 billion a year in free cash flow does give the company flexibility in pricing and the ability to wait it out a while if a product is perhaps ahead of its time.

When investors begin to remember those two things, which usually comes a week or so after launch, the stock inevitably bounces. Investors should keep all that in mind this morning as AAPL goes through this familiar pattern, following the launch of the new VR headset, the Vision Pro. The buildup to the release saw the stock climb as usual, and then when the product was revealed, the stock immediately dropped, as has happened so often before:

AAPL stock chart

The criticisms this time are ones we have heard before. The Vision Pro, at $3,499 is far too expensive, the moaners say, and it isn’t, in its first iteration, absolutely perfect. However, if we let history be our guide, neither of these complaints really matter.

Yes, the price is high, especially when compared to something like Meta’s Quest line, where even the high-end Pro version comes in at around $1,000. However, what Apple has been able to do in the past is to refine an existing thing to such an extent that they create essentially their own category of “luxury” product. When that occurs, a higher price can give the impression of exclusivity and superiority, and can actually help sales in some ways. That may or may not happen here but whether it does or not, the fans of cutting edge tech who buy these kinds of things will buy it anyway.

We all know that kind of person, right? The friend or relative who just doesn’t care that what they are buying will be obsolete in a couple of years, or that prices will fall dramatically before too long. They just have to have the latest thing. There are enough of them to keep the product afloat until other complaints, like the weight of the device, are addressed in future versions.

If you are a long-term Apple investor (full disclosure, I am as well), don’t overreact to the drop in the stock that followed yesterday’s launch. It is not indicative of real problems with the product, nor is it a sign that sales will be weak, and it certainly isn’t a reason to sell. It is just what happens when Apple launches or updates something. What usually follows is a period of outperformance, so if anything, the pullback is an opportunity to add to your holdings.

Original Article: https://www.nasdaq.com/articles/where-apple-aapl-stock-will-probably-go-from-here

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