Apple shares could be in for a disappointing 2019 as the technology sector faces its “strongest headwinds in a decade,” one equity research analyst told CNBC Thursday.
It’s been a rough year for big tech stocks, with data and privacy controversies, falling chip prices and stagnant smartphone sales. China’s slowing economic growth and the continuing U.S.-China trade war have set Apple and its numerous Chinese manufacturing facilities directly in the line of fire. Apple shares are down 7 percent year-to-date amid this broader sell-off for tech with the Nasdaq set for its worst year since 2008.
“We’ve seen (Apple) on valuations even lower than where they are today,” Pelham Smithers, the managing director of London-based equity research and market intelligence firm Pelham Smithers Associates, said in an emailed note to CNBC.
“And with the Qualcomm lawsuit, smartphone exhaustion and trade worries, we could easily test those historic lows, which would mean up to 25 percent downside from here,” he said, highlighting Qualcomm’s long licensing battle with Apple where the sale of some iPhone models has been banned in some jurisdictions.
Still, as with robotic stocks, “this sell-off does seem to set us up for a rare buying opportunity,” Smithers said, adding that the opportunity may present itself later on in 2019 or even in 2020. That will be when Apple plans to introduce its 5G handsets, “and we should have greater clarity on the various industry concerns.”
The big test for Apple will come with the rollout of 5G, Smithers and other industry watchers say. 5G promises to revolutionize the internet, enabling faster connections and bringing down the time delay for devices to communicate with one another.
“Ultimately they (Apple) are a consumer solutions company, and the first step to that is the hardware. And then it’s what the hardware can do with the software,” Smithers told CNBC’s “Squawk Box Europe” on Thursday. “So as we move into the 5G era, it is the effectiveness of the handsets, of their tablets in this environment, either from an enterprise viewpoint or a consumer viewpoint that will be key.”
Despite the analyst’s bearish outlook, Apple watchers more generally are still overwhelmingly bullish. According to Reuters, Apple currently has 13 “strong buy” ratings from analysts, 10 “buy” and 20 “hold” ratings, with no “sell” or “strong sell” ratings. These analysts have an average target price of $215 a share. The stock currently trades at $157 and Smithers’ prediction would see it fall to 117.75 — a price it hasn’t seen since early 2017.
Apple was down 1.77 percent in premarket trading Thursday at 7.00 a.m. ET, after Wall Street staged a massive rally Wednesday which saw the Dow peg its biggest single-day point gain ever.
Disclaimer: Pelham Smithers does not own shares in Apple.
