Apple’s stock has been climbing. The sentiment is bullish. The company is cash-rich. The stock is inexpensive, and any China trade deal may give Apple’s stock a push. What’s not to like?
When looking in the past, investing seems easy. Predicting the future is notoriously difficult. To be successful, analyzing potential scenarios in advance is the smart way to go. That way, investors can act with conviction when one of the scenarios starts materializing.
It seems unthinkable, but Apple’s
AAPL, +0.17%
stock could take a beating with the advent of 5G wireless technology. The stock falling to $100 is not out of the question. Before you send me hate mail, please note that my company, The Arora Report, has been holding Apple stock since it traded at $18.71.
Let’s explore this issue with the help of a chart.
Chart
Click here for an annotated chart of Apple. Please note the following:
• This is a monthly chart.
• If you are looking at a daily chart, $100 seems far away. However, looking at the monthly chart, $100 seems feasible if new bad fundamentals develop.
• The chart shows the breakout point for Apple stock.
• Under a 5G scenario, the potential zone to which Apple stock could fall is right below the breakout point.
• The potential 5G scenario zone for Apple stock is a low-probability zone.
• The chart shows that The Arora Report’s long-term target zone for Apple stock is much higher than the current price.
• The chart shows several divergences between Apple’s stock price and the relative strength index (RSI). This is a forewarning of something negative potentially happening.
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What could go wrong?
Here are the key points to consider:
• 5G (fifth generation) technology is coming. It’s the latest generation of mobile communications, following 4G, 3G, etc.
• 5G has very low latency compared with 4G. That essentially means a faster response time. Data rates can be as much as 100 times faster than 4G LTE technology. So this is an exponential improvement.
• Even though Apple has many products, about 70% of its profits are related to the iPhone.
• With low latency, there may not be a need for powerful phones like we use today.
• If power capability in a phone isn’t needed, Apple won’t be able to charge $1,000 for a phone. The average selling price may fall significantly. Apple, on average, currently charges more than any other company for its smartphones. While companies may at first charge a premium for the phones, prices will eventually drop.
• At the Mobile World Congress in Barcelona, Spain, in February, a number of phone makers brought 5G phones. Among them were Samsung
SSNLF, -3.07%
and Huawei. Apple was not present with 5G offerings or prototypes.
• Apple makes an obscene amount of money on memory for phones. With low latency, much of what resides in a phone memory today may eventually live in the network.
• The huge profits from memory for Apple may go away.
• Qualcomm
QCOM, +0.31%
is the leader in 5G technology. However, Apple is embroiled in a big legal dispute with Qualcomm. That may give competitors working with Qualcomm a leg up.
• It is no secret that Apple appears to be falling behind in introducing a 5G phone.
• Apple’s future lies in services. However, the last Apple event that some called a Netflix
NFLX, -0.51%
killer was totally unimpressive. It was yet another Apple unveiling that disappointed investors in the Tim Cook era.
• 5G will usher in a new era of services. Apple has the cash, talent and consumer loyalty to be a leader in the new services. However, this is going to be a big change. A change is always fraught with risk.
What to do now
Investors ought to become familiar with the five stages of “change.” Please click here to see five stages of a long trade. Please click here for five stages of a short trade.
5G can as easily trigger a positive set of five stages as it can a negative set of five stages.
No immediate action is needed. For the time being, we are staying bullish on Apple. This is simply a call to be alert in the future. Astute investors tend to appreciate the risks in Amazon
AMZN, -0.10%
Facebook
FB, +1.43%
and Google
GOOG, +0.75%
GOOGL, +0.71%
stocks, but tend to be oblivious to new risks to Apple stock.
In the meantime, there will be many opportunities to make money from 5G. One set of opportunities will come from semiconductor stocks such as Xilinx
XLNX, -0.58%
Qorvo
QRVO, -0.50%
NXP Semiconductors
NXPI, +0.41%
and Analog Devices
ADI, +0.64%
Another set of opportunities may come from companies such as Nokia
NOK, +0.00%
and Ericsson
ERIC, -0.94%
In due course we will be giving signals on those opportunities.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.
Source : MTV
