Cyrus Mewawalla has rated the Apple (NASDAQ:AAPL) stock a Sell and believes now is the time to cut losses and get out. The interesting point is Apple is up by 18% in the quarter. According to sources, the iPhone maker’s fourth quarter orders are up by 20 to 30% than estimated. However, the analyst believes the party may soon be over and Apple’s shares are likely to go down by at least 20% this year.
Like always it all boils down to Apple’s (NASDAQ:AAPL) reliance on its one star iPhone product. Mewawalla said that he considers the stock a Sell because of the apparent gap between iPhone’s sales maturation and the company’s next big product. Based on his analysis, Mewawalla believes the stock presents more downside risk than upside.
If Mewawalla’s prediction about the upcoming drop turns out to be true, then it could become problematic for the world’s most valuable company. Even though the shares are trading up, they are not close to their all-time high and a 20% drop from this point may take Apple (NASDAQ:AAPL) shake the whole market.
Despite the possible impending drop, Mewawalla believes Apple’s (NASDAQ:AAPL) product pipeline promises success in the long run. However the main short-term concern for the company is iPhone sales for the next year. The analyst said that iPhone sales in China are likely to drop more than expected mainly because of the protection the Chinese government shows to its own smartphone market, which he believes will only increase.
Another important issue pointed out by Mewawalla is the company’s tax issue. The analyst predicts that Apple (NASDAQ:AAPL) may have to worry about paying a $14.5 billion tax penalty to the European Commission. He pointed out that Japan may consider taxing Apple more heavily and predicts that oversees tax on earnings may increase from 4% to 10% over the next few years. And that it could be “a very big deal on valuation”.
Mewawalla also feels this could start a chain reaction in developing economies and other countries may follow suit.
Mewawalla’s take on Apple’s (NASDAQ:AAPL) situation certainly presents a gloomily situation for short-term investors. However, the current scenario seems to fit long-term investors’ investment profile including the billionaire Warren Buffett. Buffett and other long-term players may have already analyzed the situation and have set themselves up to wait for the release of next generation of products and weather short-term losses they come. There is another group of investors including Carl Icahn who have taken themselves out of the picture completely and may want to wait for the next product lineup to start materializing before making any further moves.
The next generation of Apple (NASDAQ:AAPL) products can certainly take the company to an entirely new arena. We all know about Apple’s interest in electric cars, but there is another device that has sparked great interest, “Smart Home” systems. The device that is similar to Amazon’s (NASDAQ:AMZN) Echo is rumored to have entered the prototype testing phase.