Apple Stock Price Forecast January 2022 – Time to Buy AAPL Stock?

US stock markets started 2022 on a positive note and continued their momentum from the previous year where the S&P 500 gained almost 27%. Apple (NYSE: AAPL) was the second-best performing FAANG stock of 2021 and on the first trading day of 2022, it reached a milestone of hitting a market cap of $3 trillion.

Apple was also the first company to hit a market cap of $1 trillion and $2 trillion. For years now, it has been the biggest company by market cap but was briefly dislodged by Microsoft in 2021. AAPL stock rose smartly from its 2021 lows and has added almost $1 trillion to its market cap from its 2021 lows. What’s the forecast for the stock and can it continue its good run in 2022 as well?

Apple was the best performing FAANG in 2019 and 2020

Apple was the best performing FAANG stock in 2019 and 2020. The stock had tumbled in the fourth quarter of 2018 amid the trade war scare. The stock shed almost a third of its market cap in that quarter but has since tripled from those levels. In 2020, it also split its stock to increase liquidity. Tesla had also split its stock that year amid the splendid rally.

Meanwhile, Gene Munster’s prediction of Apple’s market cap hitting $3 trillion has come true. He had also correctly predicted Apple’s market cap hitting $2 trillion. However, his prediction of AAPL being the best performing FAANG stock of 2021 did not come true and the iPhone maker’s returns trailed that of Alphabet.

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AAPL is Warren Buffett’s biggest holding

AAPL is the largest holding for Warren Buffett’s Berkshire Hathaway by a fairly big margin. While Buffett hasn’t added any shares since the third quarter of 2018 and has instead sold shares, the conglomerate holds a 5.4% stake in the company. The percentage holding hasn’t dropped despite Buffett selling shares, thanks to Apple’s generous buybacks. Apple is a cash-rich company and in the absence of other attractive growth opportunities, it has been using the cash for buybacks. While US tech companies are quite frugal when it comes to dividends, and most of them either don’t pay dividends at all or even if they pay, the yields are even below the S&P 500, they spend billions of dollars every year on buybacks.

Buybacks help propel the EPS higher by lowering the number of outstanding shares. While it’s more of denominator management, its an accepted and legit way to add stockholder value.

Citi expects more buybacks

Citi expects Apple to announce another massive buyback and increase its dividend by 10% in 2022. It is among the reasons the brokerage is bullish on AAPL stock and raised the target price from $170 to $200. It expects the launch of AR/VR headsets to further add to the company’s revenues. Also, Citi expects a flight to safety in 2022 and has forecast that companies like Apple would see buying interest. It also believes that the regulatory concerns about Apple are overblown. Notably, Big Tech companies are facing increased scrutiny globally over their alleged monopolies. Apple’s app store policies, where it charges a fat fee to the developers have especially been under scrutiny.

Finally, Citi believes that rumors over Apple’s electric car would help buoy the stock price. Apple is rumored to launch an electric car by the middle of this decade and even Tesla bulls like Adam Jonas and Munster see that as the biggest risk for Tesla.

Supply chain pressures are easing

Apple reported strong sales in the last fiscal year even as the supply chain issues shaved off $6 billion from its fiscal fourth-quarter revenues. Meanwhile, after the strong growth in the last fiscal year, the company’s topline is expected to grow at a CAGR of only about 5% over the next three fiscal years.

Meanwhile, in the short term, the easing of supply chain issues could be a tailwind for AAPL. JPMorgan, which is bullish on the stock said last month that the supply chain problems are easing. “In Week 14 of our iPhone 13 series tracker, lead times across all the models moderated on an average basis across the regions that we track for the second consecutive week in a row, and now stand at the lowest level we have seen across our survey since we started tracking back in September,” it said in its note.

Apple stock long-term forecast

Apple’s long-term forecast would depend on how its electric vehicle plans play out. The mobility industry has a much bigger TAM (total addressable market) than what AAPL is currently targeting. If the company can come up with an attractive value proposition like the iPhone, it can target Tesla’s dominance of the EV industry. But then, taking on the persona of Musk and the strong value proposition from Tesla won’t be an easy task.

Should you buy Apple stock?

Apple stock trades at an NTM (next-12 months) PE multiple of almost 32x. The multiples are way above its long-term averages and apart from the last year, we saw such valuations during the 2007 boom when the iPhone supercycle was beginning. One may argue that even the broader market valuations have expanded so we can’t single out Apple for the expansion in valuation multiples. However, Apple now trades at a premium of over 40% of the S&P 500’s valuation while the five-year average is only about 4%.

That said, Apple’s pivot towards services business and the expected foray into electric cars have led to a rerating of the company. Markets now see it as a software company and not a hardware company. Microsoft has also seen a significant expansion of its trading multiples as it has ventured into several high-growth industries.

Overall, while Apple might not be able to replicate the strong revenue growth of the last fiscal year, the valuations don’t look unreasonably high and given the company’s strong brand and innovative products, it can command such valuations.

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