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Can Apple Stock Continue Its Good Run in 2022?

Author: Mohit Oberoi

Last Updated: December 27, 2021
apple stock ticker

After underperforming FAANG peers for the most part of 2021, Apple (AAPL) stock has bounced back and it is the second-best performing FAANG of the year with a market cap of almost $3 trillion.

Incidentally, Gene Munster of Loup Ventures, who had correctly predicted Apple’s market cap hitting $2 trillion, had also forecasted that the iPhone maker would be the best performing FAANG stock in 2021 and its market cap would surpass $3 trillion.

AAPL stock has been in an uptrend over the last month. Can the stock continue its momentum in 2022 after a strong 2021? Let’s discuss

Apple is Buffett’s biggest holding

Apple is the largest holding for Berkshire Hathaway even as Warren Buffett hasn’t bought any shares since the third quarter of 2018. Notably, AAPL stock tumbled in the fourth quarter of 2018 and its market cap fell before $1 trillion. The stock has jumped threefold from those levels which looks like no mean achievement for a mega-cap company like Apple.

Wall Street analysts are reasonably bullish on Apple stock and out of 42 analysts covering the stock, 33 have a buy rating while eight have a hold rating. One analyst has a sell rating on the stock. Its median target price of $175 is similar to current prices.

Last week, Citi hiked their target price on Apple stock from $170 to $200 and listed five reasons why they see the stock rising higher. To begin with, Citi believes that the regulatory concerns over the company are overblown. Notably, Apple is battling antitrust issues across the globe including over the massive fee that it charges developers on the App store.

Citi is bullish on Apple stock

Citi listed the launch of AR/VR headsets as the next key driver for Apple stock. “Apple’s current market value does not reflect new product category launches. This will change with the launch of the new AR/VR headset in 2022,” said Citi in its note.

Citi analyst Jim Siva believes that the headset might be priced between $750-$1,000. He said, “The technology is the core of Apple’s next big hardware push beyond the iPhone, iPad, and Apple Watch.”

Siva also forecasts a flight to safety in 2022 and sees companies like AAPL well-positioned to capitalize on the theme. Here it is worth noting that even as the broader markets tumbled amid the omicron scare, Apple stock also moved higher. Siva also expects the company to scale up the share repurchases and dividends next year.

Revenue growth

“In April 2022, we expect Apple to announce an incremental stock buyback of $90 billion after deploying ~$85 billion in FY2021. We also expect the company to raise its dividend by 10,” said the note. Buffett has also been supportive of the company’s massive buybacks. Even Berkshire Hathaway is repurchasing a record number of shares as Buffett hasn’t been able to identify other profitable opportunities. Despite spending generously on buybacks, Berkshire’s cash pile was nearly $150 billion at the end of September, which was a new high.

Suva also expects continued topline growth to help the stock. Apple lost $6 billion in revenues in the most recent quarter due to supply chain issues. However, the supply chain situation is easing. JPMorgan which is overweight on AAPL stock is among those who believe that the supply chain situation is improving.

“In Week 14 of our iPhone 13 series tracker, lead times across all the models moderated on an average basis across the regions that we track for the second consecutive week in a row, and now stand at the lowest level we have seen across our survey since we started tracking back in September,” said JPMorgan in its note.

Electric car could be a key driver

The rumored foray into electric cars is the fifth reason Siva is bullish on AAPL stock. The analyst believes that Apple would certainly announce an electric car project and it’s a matter of when not if.

We don’t know much about Apple’s electric and autonomous cars but the company might opt for a third-party tie-up for production, as it does with the iPhone and the Macs. Last year, citing sources, a Reuters report said that Apple is working to “radically” lower the battery costs and increase the range.

Morgan Stanley

Foray into electric vehicles could be a long-term driver for AAPL stock. Morgan Stanley analyst Katie Huberty sees it as a big opportunity for the company. “Smartphones are a $500bn annual TAM. Apple has about one-third of this market. The mobility market is $10 trillion. So Apple would only need a 2% stock of this market to be the size of their iPhone business,” she wrote in a client note.

After the recent reports of Apple’s entry into autonomous cars, she has reiterated her bullish views. She said, “We can provide a number of examples from the last 20 years that show while Apple may not always be first to market, its innovation engine, differentiation via vertical integration, and manufacturing/operational excellence have allowed it to leapfrog first movers.”

Notably, Adam Jonas, another Morgan Stanley analyst, and a prominent Tesla bull, sees Apple’s entry into electric cars as a risk for Tesla. Munster also has similar views. Apple could be among the most formidable competitors for Tesla once the company launches its electric car.

Apple stock valuation

There are concerns over Apple’s valuation as it trades at an NTM (next-12 months) PE multiple of around 31x which is way above the historical averages. That said, the company’s valuation multiples have expanded as markets now see it as a software company and not merely a hardware company. Its revenue contribution from the services business has been expanding and could continue to grow as the installed base of iPhone users rises.

Also, the valuation premium should be seen in the light of the broader market valuations as well as the premium valuations of quality names that can survive in almost every environment. One potent risk for Apple is the geopolitical tensions between US and China. Previously also the company has faced boycott calls in China even as the company’s CEO Tim Cook said that the impact was minimal.

Should you buy AAPL stock?

All said AAPL is among those stocks that always tend to surprise on the upside. The stock should continue to do well in 2022 as it comes up with new products.

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Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.