Why Apple stock plunged today

Apple has held up better than most tech stocks this year, but does it need to fall for the bear market to be over?

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Apple (NASDAQ: AAPL) were plummeting on Thursday morning, down 4.4% as of 10:30 a.m. ET. That was even greater than the broader tech-heavy Nasdaq Composite, which was down a little over 3% at that time.  

With the broader markets down a lot, it's no surprise Apple is down as well, but it is surprising to see this stock, which has held up better than most tech stocks, underperform to such a degree.

Apple actually received both an upgrade and a rare downgrade from Wall Street analysts today. Given that Apple still trades at a premium multiple amid an overall bear market, it's no surprise to see the stock falling back to Earth.

So what

On Thursday, Bank of America analyst Wamsi Mohan downgraded Apple from "buy" to "neutral," while lowering his price target from $185 to $160.

The downgrade wasn't particularly difficult to figure out, as global inflation, geopolitical conflict, and higher interest rates makes Mohan believe consumer spending will be low in the near term. Additionally, the very strong dollar against foreign currencies means Apple's revenue could be pressured as well next quarter, while the post-pandemic hangover in PC sales could bring Mac and iPad sales back down to 2019 levels. When you combine that with Apple's relatively high valuation at 24 times earnings and the fact it hasn't fallen as much as other big tech stocks this year, it's pretty easy for an analyst to become bearish, even on this blue chip name.

The downgrade follows yesterday's Bloomberg story that Apple has asked some suppliers to pull back on production of the iPhone 14. Citing unnamed people "familiar with the matter," Bloomberg's sources concluded that Apple had reversed a request from earlier this summer to increase iPhone 14 production amid weakening global demand.

Investors should keep in mind that Apple rumors always tend to circulate but don't always come to pass. Moreover, not every analyst is bearish. In addition to the BofA downgrade, Apple actually received an upgrade from Rosenblatt Securities today. Rosenblatt nearly perfectly reversed Mohan's call, upgrading the stock to "buy" from "neutral," and raising its price target from $160 to $189.

Encouragingly, the analyst based his upgrade on a recent 1,100-person U.S. survey, which showed "substantial interest" in the iPhone Pro Max and new Apple Watch Ultra.

So who to believe? There could be room for both positive and negative analyst opinions to be somewhat correct here, based on the relative strength of the U.S. consumer versus other countries, as well as wealthy customers versus those at the lower end of the spectrum.

"We see reason to believe that consumers in other countries share this enthusiasm, prompting us to embrace more constructive near-term and long-term estimates," Rosenblatt posited. Rosenbaltt also noted a clear preference for the premium models of the iPhone and Watch.

And therein lies the rub: Sure, consumers are excited about Apple's premium devices, but do high inflation and potential recession, especially overseas, limit these enthusiastic customers' ability to purchase a new phone or watch this fall? 

Interestingly, the markets are falling today after this week's initial jobless claims fell to 193,000, the lowest reading since April. In normal times, falling jobless claims and record-low unemployment would be a great thing for consumers and Apple; however, the Federal Reserve is trying desperately to bring down inflation, which was also revised upwards in the second quarter today. So, a "good" jobs number actually makes the Fed's job harder. Hence, this is why tech stocks are falling broadly.

Now what

Many in the investing community may be wary of Apple stock now, as its relative outperformance versus other technology could spur more selling. Bear markets often end when even the "generals," or the most-loved names, fall back to earth. This means Bank of America's call could be right in the near term.

However, it's hard to bet against a company and brand that generates the enthusiasm seen in the Rosenblatt survey. Therefore, while Apple stock may be a dubious buy in the near term, the stock likely won't stay down for long. It's a blue chip name investors can own for the long term, just as Warren Buffett is doing.     

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Billy Duberstein has positions in Apple and Bank of America and has the following options: short January 2023 $210 calls on Apple. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.         

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