Why Apple’s share price rallied to reclaim $1tn valuation

Apple’s [AAPL] share price has been steadily climbing since the beginning of August, rising 5% through to the end of September to $223.97, which added $9bn to its market cap, raising it to $1.02tn.   

Then shares surged 2.3% on Monday (30 September), following a JP Morgan analyst’s prediction that the stock could climb a further 21% on stronger-than-expected sales of the new iPhone 11.

Analyst Samik Chatterjee prompted the surge after raising the price target from $243 a share to $265. The firm has an overweight rating on the stock, which is in line with market consensus – rated a strong buy or buy among 32 of the 38 analysts on Yahoo. 

JP Morgan raised its iPhone sales forecasts for the current quarter by an additional one million units and for the fourth quarter it predicts a further three million units, MarketWatch reported. Apple is therefore project to sell 198 million iPhone in 2020 and 200 million the following year.

“We are modestly raising our iPhone volume forecasts and expect investor sentiment on AAPL shares to improve materially given the firm’s ability to drive upward revision to volume expectations despite the 2019 product cycle largely considered to be a muted one,” Chatterjee wrote in a note to investors.

Eric Ross, Cascend Securities chief investment strategist, echoed Chatterjee’s bullish sentiment just a week earlier, highlighting better-than-expected pre-order figures for the iPhone 11 in Investor’s Business Daily. Ross has a buy rating on the stock with a price target of $270.

iPhone sales forecast suggests robust quarter 

When Apple announced the release of its iPhone 11 line-up on 10 September its share price popped 3.17%, giving its stock a high of $223 and a market cap of $1.01tn. 

Indeed, the anticipation of the company’s latest iteration of its flagship product suggests that investors are optimistic that it will be successful. 

However, this reaction was not entirely expected given that the company had revealed that iPhone sales accounted for less than half of its quarterly revenue in its third quarter results. 

For the first time in seven years, the smartphone accounted for just 48% of Apple’s total revenue of $53.8bn, as competition from rivals such as Samsung Electronics and Huawei continue to heat up. 

As a result of the company’s flailing iPhone sales, it had announced a pivot to focus more on its wearables and services divisions, which have both posted strong returns in the last year. 

Apple is forecasting revenue growth between $61bn and $64bn for its upcoming fourth quarter results along with operating expenses to be between $8.7bn and $8.8bn.

The company is due to reports its fiscal fourth quarter results on 30 October.

A moving target 

This isn’t the first time Apple has hit a $1tn market valuation. It first passed the mark on 1 August 2018 and while it managed to keep hold of the high valuation for the next two months, slowing iPhone sales and the decision to stop disclosing the sales figures began to take hold in November, dragging it back down. 

Since the wider market sell-off at the close of 2018, Apple has managed to regain most of its losses and briefly reclaimed a $1tn market capitalisation on 11 and 12 September when its stock was at a high of $223.

Apple share price vitals, Yahoo finance, 2 October 2019

Shares in Apple are currently trading 3.8% below its 52-week high of $233.47 and 58% above its 52-week low of $142. However, its relative strength index is looking extended, warns Matt Maley, chief market strategist at Miller Tabak. 

“If [the stock] rallies a little bit more, it’s going to get ... [to] an overbought condition that has led to significant sell-offs in the past,” Maley told CNBC, cautioning that it could hit a tough spot if it nears its all-time-high of $233.47. 

“When you have that kind of extreme coming at a time when a stock is testing its all-time high, you run the risk of a double top,” he warned. “Basically, what I’m saying is … if you’re a short-term trader, you could play it on the short side, [with] its all-time high as the stop. And if you like it and you believe in JP Morgan’s call, I think you’ll get a chance to buy it at lower levels so it can work off that overbought condition.”