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Macro Valuation® | Report 1 – Apple

Is the Valuation of Apple Pricing in Geo-politics?

Our view is that the market is partially pricing in the risks that Apple could face from what we see as increasing tensions between the US and China.   We recently looked at several analysts reports and either did not see geopolitical risk mentioned or it was barely mentioned.   We see this as being shortsighted and maintain our view that Apple stock has further to fall.  If you add in a slowing world economy, Apple sales face an additional headwind.  In adition, inflation is sticky and will impact the wallets of consumer.

The chart below shows that Apple has been very volatile in the past year with a low of 124 to a high of 198.

Price Chart of Apple – October 26 2023

We have taken option positions and have profited aleady from Apple stock falling.  In addition we have initiated new positions with the same view.   The volatility of options on Apple shows significant higher premiums for put contracts.  This is another signal that that the risk is towards the downside for Apple.

On the technical analysis side, there has been alot of insider trading with executives of Apple selling shares.  In addition the beta of apple is 1.31, which means it is about 30% more volatile than the broad market.  The recent slide in tech stocks is just the start of further downside.

Below please find a short summary of how Apple is facing and dealing with rising geopolitical tensions.

How does geopolitical risk affect Apple’s business strategy?

This article explores the impact of geopolitical risk on Apple as it navigates complex global dynamics. From analyzing Apple’s business strategy amidst tensions between China and the US to its plans for market expansion and diversification, it is evident that geopolitical factors play a crucial role in shaping Apple’s operations and future growth.  Geopolitical risk has a significant impact on Apple’s business strategy. As a multinational company, Apple operates in various countries that are subjected to geopolitical tensions and conflicts. These risks can have implications on Apple’s supply chain, market access, and even consumer demand. Apple must carefully analyze the political landscape and adapt its strategies accordingly to mitigate potential risks.

Apple’s supply chain mitigation strategy

The ongoing geopolitical tensions between China and the US pose challenges for Apple’s supply chain. China has been a vital manufacturing hub for Apple products, and any disruptions or trade barriers between the two countries can disrupt the supply of critical components. This can lead to delays in production and affect Apple’s ability to meet customer demand.

Apple recognizes the potential risks associated with its dependence on China for iPhone manufacturing. To reduce this reliance, Apple has been actively diversifying its production to other countries. Vietnam, India, Taiwan, and South Korea are among the countries where Apple has expanded its manufacturing capabilities. By shifting production to these regions, Apple aims to mitigate geopolitical risks and ensure a stable supply chain.

Market Expansion Outside China as a risk mitigation strategy

Apple is actively diversifying its production and market presence outside of China. This includes expanding its manufacturing facilities in countries like Vietnam and India. By diversifying its production, Apple aims to reduce the impact of geopolitical risks and gain access to new markets.  India is emerging as a key market for Apple products. With its large population and growing middle class, India offers significant growth potential for Apple. The company has been investing in retail stores, marketing campaigns, and local manufacturing to strengthen its presence in the Indian market.