Earlier this week, I explained that we've started the year with a "triple yellow" warning from the Power Gauge...
The broad market S&P 500 Index, tech-heavy Nasdaq 100 Index, and small-cap Russell 2000 Index are all in "neutral" territory in the Power Gauge right now. And we're seeing that take its toll on some of the market's most powerful companies.
In fact, it's taking a toll on the largest U.S.-listed company by market cap – tech giant Apple (AAPL).
Apple currently earns a "neutral-" rating from the Power Gauge. And its stock is off about 6% from its recent high late last month.
So today, let's take a closer look. We'll use the Power Gauge to dive into Apple. And we'll examine some of the headwinds the company is facing today...
Let's start by looking at a chart of Apple. Take a look at the one below with some data from the Power Gauge...
As you can see, Apple has made some big gains...
The stock soared about 30% in 2024. But you'll also notice that it wasn't a straight line up.
In fact, Apple's stock lost ground from the start of the year through most of April. After that, it surged higher into mid-July... and then it traded mostly sideways for months until finally making another push higher toward the end of the year.
That made the stock particularly vexing for investors in 2024. And you'll see on the chart that the company earned a "neutral" rating from the Power Gauge for most of the year.
Now, something is different. And to me, it's all about earnings...
We can see that by looking into Apple's category ratings in the Power Gauge.
It's not the just the recent decline that's currently hurting Apple's rating. In fact, Apple earns a "very bullish" rating in the Technicals category.
But the Earnings and Financials categories look particularly weak right now. They both earn "very bearish" ratings from the Power Gauge.
On the Financials side, we find that Apple is trading at a price-to-sales (P/S) ratio of more than 9 times. And it's trading at a price-to-earnings (P/E) ratio of about 36 times.
Folks, that's "expensive" by any traditional measure. There's no getting around that.
But it's also worth remembering that expectations of growth can keep companies "expensive" for a long time. Put simply, investors are willing to pay a premium for companies that are growing.
Unfortunately for Apple, that growth is in question right now...
Today, the company is struggling on the growth side. Its augmented-reality Vision Pro headset was a flop. And more importantly, iPhone sales in China fell roughly 8% in 2024.
Apple is facing other headwinds, too. Consumers don't seem to be buying based on the promise of future AI features. And the current generation of AI features don't seem to be motivating consumers to make more purchases or make purchases earlier.
Worse still, Apple is facing an iPhone sales ban in Indonesia. The company recently offered a $1 billion manufacturing investment in the region. But the government rejected that offer.
Apple will likely resolve this problem. But for now, it's hurting earnings. And solving the problem is obviously going to come at a steep cost.
Putting it all together, it's no wonder the Power Gauge is still cautious on Apple today. The company is facing significant headwinds. And its earnings growth is in question.
Will Apple eventually turn things around? I expect it will...
But for now, I'll heed the Power Gauge's warning. I wouldn't rush to buy this dip.
Good investing,
Vic Lederman
