In my previous article, I wrote about how Siri will eat Google’s (GOOG) lunch and explored the long-term potential of Siri for Apple (AAPL), but the problem with long-term is that the potential could take a long time to realize. In the short-term, Apple shares could see a repeat of 2008. In 2007, Apple returned 120% while Nasdaq was flat. This year, Apple has returned 25% vs. 5% for Nasdaq. Back in 2007, most people believed equities were aiming for new highs and the recession would be mild. Today, most people don’t think the US is headed for a recession and believe equities are cheap. Just like 2007, the leading indicators are rolling over but equity is only 5% off its highs. If a recession starts to materialize next year, Apple could be in for a rough ride. In January 2008 alone, Apple dropped 17%!
The story behind Apple now is that the iPads and the iPhones are selling like hot cakes, but they are premium products and as in any recession, people cut back purchases of premium products. The demand for luxury goods is very elastic. Apple is no exception. Back in 2007, Apple had much a smaller share of the PC and the smartphone markets, so it was insulated from the broader downtrend, but now, Apple commands much larger market shares of both markets. Any pull-back in consumer spending is bound to affect Apple negatively.
Despite the possibilities of a recession, I’m actually bullish on Apple. Any serious pullbacks on Apple shares do not mean the quality of Apple products diminishes. In fact, Apple might use its $80 billion cash to make strategic purchases to take advantage of any economic turmoil. As with any recession, there will be a recovery and Apple is set to benefit greatly from future recovery. Just as Apple came out stronger in the 2008 recession, there is no reason to believe that this time will be different for Apple. The money investors have been eying for dividends will allow Apple to overcome any type of economic shock and focus on building great products. The bottom line is if you see Apple drops down to the low 300s, it will be a great time to buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.