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Will Apple's share price beat inflation woes?

Apple's [AAPL] share price and other big tech stocks ended down last week as investors engaged in a bout of profit taking. Apple's share price slid 4.1%, PayPal's 3.6% and Microsoft's 1.6%, while the tech-heavy Nasdaq saw a 1.6% decline as inflation worries flustered investors.

Whether this represents a long-term rotation away from tech stocks is debatable. As an investment theme, big tech was down 1.88% last week on our Global Thematic ETF Screener, with both ETFs tracked on the theme in the red.

More pertinent for Apple's share price were two major investors trimming their stakes in the company, sending the stock below its 50-day moving average on Wednesday. However, with expectations that Apple will continue to deliver strong earnings in 2021, now could be the time to buy.

 

 

Inflation fears weigh on Apple’s share price

Apple's share price was volatile last week as fears grew that the cash thrown at markets by policymakers could start to slow as the economy emerges from the pandemic.

While the Fed has said it will keep interest rates at 0% until inflation rises to 2%, some analysts have warned that the central bank may have to change course should inflation rates surge.

In minutes from January's Fed policy meeting released on Thursday, the Fed discussed ways to make higher inflation palatable to the public, with officials largely agreeing that subdued inflation is a greater economic risk than rising prices.

Catalysts for this include an economic recovery in 2021, along with the effects of President Biden's stimulus package. However, it seems that things will stay the same for at least a while longer.

“We’re going to be patient. We’ll seek inflation moderately above 2% for some time ... The way to achieve credibility on that is to actually do it. And so that’s what we’re planning on doing,” Fed Chair Jerome Powell said at a news conference after last month’s policy meeting.

“We’re going to be patient. We’ll seek inflation moderately above 2% for some time ... The way to achieve credibility on that is to actually do it. And so that’s what we’re planning on doing” - Fed Chair Jerome Powell

 

Buffet and Vanguard trim Apple holding

Along with inflation worries, Apple's share price was hit by two of its largest shareholders cutting their holdings. Warren Buffett’s Berkshire Hathaway Inc. disclosed its holding of 887.14 million Apple shares, as of December 31, down from the 944.30 million shares it owned as of September 30. Apple's biggest shareholder, Vanguard International, cut its stake in Apple by 25.51 million shares to 1.26 billion shares.

Berkshire Hathaway’s decision to sell Apple could be driven by a desire to take profits and invest elsewhere. The other concern is that Apple is trading at 30X times earnings, meaning its valuation could be stretched.

 

Where next for Apple’s share price?

With strong cash flows and record revenues in its fourth-quarter earnings, Apple has a lot going for it on a fundamental level.

In its most recent quarterly earnings, Apple saw earnings of $1.68 per share for the quarter, smashing Wall Street’s predicted $1.41. Next quarter, analysts are currently predicting earnings of $0.82 a share, up from $0.64 in the same quarter last year. Revenue is forecast at $76.97bn, up 32% from the $58.31bn seen last year.

$76.97billion

Apple's forecasted Q2 revenue - a 32% YoY rise

  

Apple’s share price could benefit further from the 5G rollout, something that Raymond James analyst Chris Caso believes will bolster the stock over a two-year cycle. Caso has a $150 price target on the stock. The iPhone represented 59% of Apple's total revenue in the fourth quarter, up 17% year on year. That quarter also saw strong growth for sales of Apple’s subscription services (+24%), Macs (+21%) and iPads (+41%), compared to the same period last year.

Among the analysts tracking the stock on Yahoo Finance, Apple's share price has a $151.75 price target — a 20.6% upside on its price through 23 February’s close. The end of January saw a spate of analysts maintain their buy ratings on the company, with DA Davidson and Deutsche Bank backing the stock.

Should the Fed change policy, the cycle of ever-increasing earnings could end for Big Tech titans. For the time being, though, Apple’s share price may still have some upside to come.

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