The Apple [AAPL] share price has lagged the market so far in 2021. Up circa 10% in the year-to-date (as of 16 July’s close), the Apple share price has been easily outpaced by the S&P 500’s 15% gain and rival Microsoft’s [MSFT] 26% rise in the same period of time.
Aside from strong earnings, there just hasn’t been too much to get investors excited about the Apple share price. Last year saw the release of the iPhone 12 and with it Apple’s first 5G enabled handset. This year’s release — the iPhone 13 — is likely to see iterative improvements to the device’s processor and camera. While welcome, it’s not exactly game-changing stuff.
Yet those lowered expectations, taken with the relative underperformance in the Apple share price, may have set up a buying opportunity.
Apple's YTD share price rise
JPMorgan expects the Apple share price to outperform
Apple saw signficant investments from DNB Asset Management in the second quarter. The Nordic asset manager bought 423,239 shares in Apple to take its total holdings to 3.9 million shares. In a shakeup of its portfolio, DNB Asset Management also bought more Nio [NIO] stock, initiated buying Li Auto [LI] and halved its holding in Intel [INTC].
So, just how well has DNB timed its investment? In a recent investor note, JPMorgan’s Samik Chatterjee suggests that the Apple share price typically performs well between July and September. Throw in demand for the iPhone 12 proving “resilient” and the analyst’s prediction that iPhone sales will outstrip forecasts this year, then DNB’s investment could be well judged. Tim Cook (pictured), CEO of Apple, had noted 66% year-over-year increase in iPhone 12 sales in second quarter. Chatterjee reiterated an overweight rating on the stock, lifting his price target from $165 to $170 — a 16% upside..
“We believe the setup is attractive and Apple shares are positioned for a significant outperformance over the next 2-3 months given the first half underperformance,” Chatterjee wrote in a note.
“We believe the setup is attractive and Apple shares are positioned for a significant outperformance over the next 2-3 months given the first half underperformance” - JPMorgan’s Samik Chatterjee
Strong iPhone 13 launch could power stock
Pivotal to the Apple share price performance in the second half of the year is the iPhone 13 launch. The iPhone is one of Apple’s biggest cash cows. In the first quarter of the year, revenue from the product came in at $65.50bn, up 17% year-on-year, and accounted for over half of the company’s $111.44bn total revenue in the quarter.
Apple’s iPhone 12 was a game-changer for the company. Released in October it was the first iPhone 5G connectivity — with some analysts suggesting that the sector-wide shift to this technology could see a ‘supercycle’ in sales.
Apple's Q1 revenue from iPhones - a 17% YoY rise
While the iPhone 13 will be more of an update to the 12, rather than an overhaul, Apple seems bullish that demand for its 5G handsets will continue to remain on par, or even in excess of previous years.
According to Bloomberg, the company has asked its suppliers to build up to 90 million next-generation iPhones this year. Typically, Apple will request an initial run of 75 million for a new device’s launch, so upping the order by 20% suggests Apple is bullish on how many units it’ll shift.
Potential reasons for any spike in sales include the vaccine rollout — i.e. people are going out more so want to be seen with the latest iPhone — and those looking to make the switch from 4G to 5G technology, having held off upgrading for a like-for-like 4G phone.
“Apple’s building on strong momentum from the iPhone 12 release in 2020 and may continue to benefit from 5G smartphone upgrades and an overall improved smartphone market to follow that up with another strong release” - Matthew Kanterman
“Apple’s building on strong momentum from the iPhone 12 release in 2020 and may continue to benefit from 5G smartphone upgrades and an overall improved smartphone market to follow that up with another strong release,” Matthew Kanterman, an analyst at Bloomberg, said.
The Apple share price has an average $159.34 price target from analysts tracking the stock on Yahoo Finance, representing an 8.8% upside on 16 July close. Of the 38 analysts offering recommendations, 11 rate Apple a strong buy and 21 a buy.
Should Apple continue to see strong sales of its 5G handsets, then the current muted performance represents a chance to buy a high-quality technology stock.