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Wall Street Strategy: How To Invest In 2023?

Views 55512023.03.24

Is Apple a good bet in 2023 after last year's 26% slide?

Apple is trading at a multiyear low. The tech giant's stock dropped 26% in 2022, lagging the S&P 500's 19% drop.

Investors' concerns over the performance of the App Store and iPhone production caused a decline in the price of Apple's stock. The fall occurs despite Apple frequently being regarded as a safe-haven investment given its strong balance sheet.

Screening the numbers

Apple will release the next earnings report for FY 23 Q1 on 2nd Feb 2023, so how will the financials perform?

Apple is well known for selling its flagship products. But the company also offers services beyond hardware, such as the Appstore and cloud services.

The margins between the two market sectors are very dissimilar. However, when taken as a whole, the group's operating and profit margins of over 25% are regarded as healthy.

It is important to take note of how the company's balance sheet is doing. It is not ideal to have a high debt-to-equity ratio, especially when the company's net debt is $71.77 billion. However, the software giant should be able to pay it off without too much trouble given its strong free cash flow and cash and equivalents. Additionally, only roughly 2% of its overall market capitalization is made up by its net debt. This indicates that Apple may simply raise additional funds to pay down its debt without significantly eroding its shareholder base.

Citi Analyst bull on Apple, expecting 30% price increase

The current price-to-earnings ratio for Apple's stock is 21.85, which is around -1 SD of the Mean. The compelling valuation of Apple has caught the attention of long-time tech analyst Jim Suva at Citi. Suva restated his buy recommendation for Apple, with a price objective of $175 that anticipates a 30% increase from current levels.

"We believe demand for Apple’s products and services is likely to remain resilient throughout FY23. We do recognize that regulatory risks remain a major overhang on the stock, but we view these as headline risk rather that fundamental risk. Such headlines could provide a near-term stock pullback which we would view as a buying opportunity for Apple shares," Suva wrote.

Here are the six factors behind Suva's bullish 2023 call on Apple.

1. Apple's future growth in India

2. iPhone sales growth

3. Services sales upswing

4. New products(AR/VR headset)

5. Regulatory risk overestimated

6. The cash giveaways(in the form of buybacks and dividends)

There are 43 analysts tracking Apple. The consensus rating is still a Buy with the average price target of $183.6.

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