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Time to buy Apple’s share price before 5G rollout expands?

Apple’s share price didn’t get off to the best start in 2019. On 2 January, the share price dropped 10% as CEO Tim Cook warned of slowing iPhone sales in China. On 3 January the stock was languishing - trading at a year low of $142, with commentators questioning whether Apple’s share price was in for further drops.
 
From that low, the stock is up nearly 97%, and is up 77% YTD. This makes it the year’s best performer on the Dow Jones. Microsoft, Apple’s chief rival, is lagging behind in second place with a 50% gain. 
 
Savvy moves into wearables and subscription services have kept investors interested. And 2020 could see a reemergence in the iPhone’s fortunes as the rollout of 5G technology gathers pace. 
 
So is Apple’s share price in for another bumper year in 2020?
 
 
Why 5G is a growth driver for Apple’s share price
 
Apple is playing catch up with rivals like Samsung and Huawei who offer cheaper, feature-heavy Android handsets. This has seen Apple’s share of the smartphone market drop to 13% in the third quarter of 2019. At the end of 2015, it had been 16%.
 
 
5G rollout in the US could be about to change all this. According to IDC estimates, 5G devices will account for 8.9% of the total smartphone market by 2023. Between then and now the number of 5G connectors will grow from 10 million to 1.01 billion.
 
While Apple doesn’t actually have a 5G smartphone in the market, Ken Hyers, Director at Strategy Analytics, doesn't think this is a problem:
 
“It may seem counterintuitive that Apple, which currently has no 5G phones in its portfolio will be able to pass current 5G market leaders Samsung and Huawei. But with three new 5G models coming next year, Apple merely needs to match its current upgrade rates for newly introduced iPhone models to take the lead next year."
 
In fact, Strategy Analytics think Apple will become the biggest global provider of 5G devices in 2020. Their analysts cite Apple’s dominant position in China and the US - the two biggest 5G markets - as reasons for optimism. Of course, that all depends on Apple getting its 5G devices out.
 
 
Wearables support Apple’s share price in 2019 
 
Four straight quarters of falling sales point to customers unwilling to trade in their old iPhones for newer models. Luckily for Apple, it has found two profitable business arms: subscription services and wearables.
 
Apple made over $46 billion in the past year from services like Apple Music and iCloud. 
In wearables, Apple's AirPod and Apple Watch businesses have both grown over 50% two quarters in a row. 
 
Such growth is an incredible feat, considering these gadgets don't come cheap. The new noise-cancelling AirPods Pro cost $249, while the regular AirPods come in at $159. No wonder CEO Tim Cook thinks you should buy both.
 
 
What the analysts think
 
2019 has seen analysts up their Apple price targets across the board. Bank of America reckons 5G rollout will benefit iPhone sales, upping its price target from $270 to $290. That would see a 3.7% upside on the current share price.
 
Evercore is a bit more optimistic, having upped its target from $275 to $305 - a near 9% jump on the current share price. Evercore is predicting a "robust" holiday season for Apple, with strong iPhone 11 and AirPods sales.
 
 
OrganisationPrice targetImplied gain (19/12 prices)
Evercore$3059.0%
Citi$3007.2%
D.A. Davidson$3007.2%
Bank of America$2903.7%
Maxim Group$190-32%

 

Tom Forte, an analyst with D.A. Davidson has a $300 price target on Apple. Forte  believes that Apple has enough leverage to ride out any problems coming from the US-China trade war. This is the same target as Citi analyst Jim Suva.

Yet, the love for Apple isn’t universal on Wall Street. One of the biggest bears is Maxim Group analyst Nehal Chokshi. Chokshi has a sell rating and $190 price target on Apple. This would see a huge 32% drop on the current share price. Chokshi’s reasons for the bearish outlook on Apple are customers ditching their iPhones for cheaper Android devices. Big question is whether Chokshi is right to go so much against the grain.

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