Apple (NASDAQ:AAPL) stock has had an impressive 2020. From the March lows in particular, AAPL stock more than doubled. In market capitalization terms, it’s even more shocking. Apple’s market cap surged from a low of $1.0 trillion to $2.3 trillion by the end of the summer. It was simply incredible.
However, Apple has started to lose a bit of steam over the past few months. And that’s understandable. After all, it’s unprecedented for a company to add a cool trillion to its market cap in just a few months.
A little profit-taking after that is hardly shocking. However, is this sell-off going to turn into something more? Or will the upcoming holiday quarter get AAPL stock back on track?
AAPL Stock and the Recent Correction
Stocks can have two types of corrections: price and time. The price correction is widely known — when a stock drops, say, 20%-25%, you’re getting one of those. But you can also have a time correction, where a stock merely goes sideways or drifts a little lower for awhile after a big run-up.
Over time, as a stock trades in a range, it stops being overbought and can recharge for another potential move. Arguably, this is where Apple is now.
Specifically, for AAPL stock, it first got up to its present level in the $110s back in August. Shares continued to rally and eventually peaked at $138 in September. Since then, Apple has entered a meaningful consolidation period.
The stock dropped to as low as $109 around Apple’s so-so earnings report a few weeks ago and is now at $116. That’s not a huge pullback from the all-time highs in the context of the full year; AAPL stock started out 2020 at $75/share, after all. However, it’s certainly something.
And this time correction takes on more significance when you compare it to the overall indexes. Since Sept. 1, AAPL stock has dropped 14%, while the Nasdaq is roughly flat, and the S&P 500 has advanced another 3% to fresh all-time highs. Again, we’re not talking about a massive pullback here, but it’s notable that Apple has lagged the market.
A Strong Holiday Quarter on Deck?
Wedbush’s Daniel Ives believes that Apple could be well-positioned for the holiday season. In a recent report, he wrote that he is seeing a “surge of consumer demand” for AirPods Pro. In all, he estimates that Apple will sell around 90 million units of these in 2020.
He expects sales of 18 million for just the month of December alone. And for full-year 2021, total AirPods sales could jump to 115 million, powered by new design launches and price discounting.
While Ives acknowledges that AirPods are just around 5% of Apple’s total revenues for now, it speaks to a broader point. Apple has created an incredible ecosystem around the iPhone.
The success of AirPods shows that, even 12 generations into the iPhone, it is still capable of monetizing users to a tremendous degree. As long as the iPhone remains the must-have product that it is, Apple will have numerous opportunities to create ancillary accessories and services.
More broadly, this holiday momentum for the iPhone in general and AirPods in particular could change the outlook for Apple. The stock slid after what was perceived as a weak Q3 earnings result.
The numbers weren’t actually that bad, but AAPL stock had been on a tear, so folks were expecting blowout figures. Now though, sentiment is a little more muted, so Apple’s strong December revenues could help lift shares significantly higher.
AAPL Stock Verdict
Apple is still an expensive stock on an absolute basis. Nothing has changed too dramatically on that front. However, on a relative basis, Apple shares have now underperformed the market pretty significantly over the past couple of months.
This means that while Apple is still hardly a standout pick on its own, it’s in a better position compared to the other FAANG and big-cap tech stocks than it was a few months ago. Look, you’re not generally to make a ton of money buying a stock at a 30x P/E ratio that has modest-at-best earnings growth. However, if you want the safety of a blue chip like AAPL stock, this is a better entry point than a few months ago at the very least.
And the last earnings report wasn’t that bad. Perhaps sentiment will swing toward the upside ahead of Apple’s holiday quarter. As Wedbush has suggested, AirPods could be a standout winner for the holiday season, helping reset the story around Apple heading into 2021.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.