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Apple Stock Has a Lot to Prove This Week

If Apple (NASDAQ: AAPL) is a major piece of your portfolio, you're probably not hurting as badly as many of your fellow investors. A lot of growth stock investors have been pummeled since essentially February of last year, but the world's most valuable company by market cap has held up considerably better.

Apple stock actually hit an all-time high this month. It has shown signs of mortality since its Jan. 4 peak, when it became the first company to top $3 trillion in market capitalization. It was trading nearly 13% below its high as of Tuesday's close. Most investors would love to be just 13% below their peak portfolio values. Apple isn't just a bellwether. It's, well, better.

This doesn't mean that Apple investors can ignore the market gyrations. It also doesn't mean that shareholders in the class act of Cupertino can just snooze through this week. Apple reports fresh financials shortly after Thursday's market close, and as steady as Apple has been through the sharp correction in tech and growth stocks, it will likely lead the market higher or lower by the end of the week.

Image source: Getty Images.

An Apple product a day

The market is holding out for modest growth for Thursday's fiscal first-quarter report. Analysts see revenue climbing just 6% to $118.38 billion from the $111.44 billion it delivered on the top line in the fiscal first quarter of 2021. The bottom line should grow roughly twice as fast, as the $1.88 a share that Wall Street pros are targeting is a 12% year-over-year improvement.

Apple routinely lands ahead of market expectations, but it merely met analyst net income forecasts last time out. Is Wall Street finally catching up to the tech giant? Investors naturally will be hoping that this is not the case.

The consumer tech champ has been resilient as many stocks have faltered over the past few months, but it's not immune to gravity. The stock has retreated more than a third from its earlier highs five times over the past 16 years. Could a bad report on Thursday serve as the catalyst for a sixth skid?

Apple surely had challenges through the final three months of the 2021 calendar year. The iPhone 13 and new line line of M1-fueled Macs turned heads, but Apple also dealt with the global supply chain disruptions that tripped up production lines. Will inflation of input costs eat into Apple's margins? Did omicron-related closures of some physical store locations move the needle?

There's also the matter of the suddenly iffy economy. Apple products aren't cheap, and in good times, there isn't a problem justifying the premium. It's a different story when money's tight and consumers can afford to sit out an upgrade cycle or just trade down to cheaper alternatives.

The counter to the potentially bumpy quarter given all the negative distractions is that the market was already pricing in a slowdown to Apple's business. Apple revenue moves in waves, and it seems that every three fiscal years we see a surge in sales -- with double-digit growth in fiscal 2012, 2015, 2018, and 2021 -- offset by a lull until the next major upgrade cycle. Wall Street sees net sales climbing roughly 5% in fiscal 2022 as well as fiscal 2023.

Against the backdrop of achievable growth expectations is that there are catalysts for growth in the coming quarters. The once-hyped 5G revolution that was supposed to trigger a boom in wireless has been slow to come around, but the thesis remains that folks will pay up for faster connectivity. You also can't bet against Apple as an innovator. The future is bright for Apple, even if Thursday afternoon's financial update falls short of expectations.

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Rick Munarriz owns Apple. The Motley Fool owns and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


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