🤖 Is Apple a buy

and the sector that's growing

Good morning Pros! In today’s issue, we’ll see if Apple is a buy in the current situation and also talk about the sector that has done well despite the scenario.

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📊 Stock analysis: Is Apple a buy?

Update: Hours before the publication of this issue, Trump exempted smartphones and computers from new tariffs. As a result, Apple won’t face the full brunt of the new tariffs on Chinese imports or the 10% global tariff for smartphones and computers, as these are exempted. However, a 20% tariff on Chinese goods could still apply to some components or products, depending on specifics not fully clarified yet.

Also, we don’t know much about these exemptions yet as these may be temporary.

Apple has been in the news for the wrong reasons, including losing its top position to Microsoft. But, we cannot decline that it is still a massive name that has investors interested. But, is it a buy in the current scenario? Let’s find out:

The current situation:

  • The stock is currently trading at $198.15.

  • It has a 52 week high of $260.09 and a 52 week low of $164.08.

  • Apple enjoys a P/E ratio of 31.50 and a dividend yield of 0.50%.

  • It is up +12.23% in the last 12 months but down -18.74% YTD.

Only about 5% of Apple’s major suppliers are based in the U.S., which leaves it heavily reliant on overseas production and imports. This puts it in a very scary situation.

Even Dan Ives, a long-time Apple optimist at Wedbush, has expressed concern. While he still holds a positive outlook on the company, he has reduced his price target from $325 to $250.

Why is Apple under pressure due to tariffs?

Apple’s supply chain is deeply entrenched in China, with approximately 85-90% of its iPhone assembly occurring there, alongside significant production of components for other products like MacBooks and iPads.

The U.S. imposed a 145% tariff on Chinese imports (125% base rate plus a 20% levy tied to fentanyl smuggling), while China retaliated with a 125% tariff on U.S. goods.

These tariffs directly inflate the cost of Apple’s products, as most of its manufacturing base is now subject to steep import taxes when shipping to the U.S., its largest market.

Critical Insight: Apple’s dependence on China is a double-edged sword. While it has historically benefited from low labor costs and a robust supplier ecosystem, this concentration exposes Apple to geopolitical risks.

Critics argue Apple’s slow diversification—despite efforts to move some production to India (10-15% of iPhone assembly) and Vietnam—reflects a strategic misstep.

Had Apple accelerated its supply chain shift earlier, it might have mitigated tariff-related costs. However, defenders note that China’s unmatched manufacturing infrastructure makes rapid relocation impractical, and Apple’s efforts to diversify, while gradual, are pragmatic given the complexity of its supply chain.

This reliance raises concerns about margin compression. If Apple passes tariff costs to consumers, iPhone prices could rise dramatically—analysts estimate a 1TB iPhone 16 Pro Max could jump from $1,599 to $3,600.

Such hikes risk dampening demand in a smartphone market already showing signs of saturation. Alternatively, absorbing costs could erode Apple’s industry-leading profit margins (around 30% gross margin), impacting earnings per share and stock valuation.

Is the fall in price justified?

Apple’s stock has been volatile, dropping over 14% in April 2025, wiping out $773 billion in market capitalization in just four days.

The market’s reaction may be partly overblown. Apple’s brand loyalty and ecosystem lock-in (via services like iCloud and Apple Music) give it pricing power that competitors lack. Historical data shows Apple weathering price hikes without significant demand drops—e.g., the iPhone X’s $999 debut in 2017 didn’t deter buyers. However, the scale of potential increases (up to 79% per some estimates) is unprecedented, and consumer sentiment is fragile amid broader economic uncertainty.

What’s Apple doing to dodge the bullet?

Apple’s ability to dodge tariffs is constrained. Moving production to the U.S. is impractical—analysts estimate it would cost $30 billion to relocate just 10% of its supply chain, with a fully U.S.-made iPhone potentially retailing at $3,500.

Even if Apple ramps up production in India or Vietnam, these countries face their own tariffs (26% and 46%, respectively, though temporarily paused). Stockpiling inventory (e.g., airlifting 600 tons of iPhones from India) is a stopgap, not a solution, and adds logistical costs.

The company’s silence—CEO Tim Cook has yet to comment publicly—fuels criticism of indecision, though it may reflect a calculated wait-and-see approach, banking on negotiations or exemptions.

We anticipate that Apple will hold off on passing tariff-related costs to consumers until its fall product launch. In the absence of a U.S.-China trade agreement, we’ve also increased the likelihood of Apple receiving a specific exemption.

Will there be tariff relief?

Apple may get relief because Trump is unlikely to target a major American brand like Apple, particularly after the company committed over $500 billion to U.S. manufacturing and other domestic investments over the next four years. Additionally, imposing tariffs could unintentionally benefit Apple's key rival, South Korea-based Samsung.

In Trump’s first term, iPhones dodged tariffs after lobbying, suggesting a precedent. Apple’s scale (supporting 2.7 million U.S. jobs indirectly) makes it a bargaining chip in trade talks.

One silver lining

Morgan Stanley’s bullish analyst Erik Woodring noted a potential bright spot for Apple in how consumers typically purchase iPhones. Since most buyers globally use installment plans, a 15% to 20% price increase might dampen demand but not drastically. These payment structures allow customers to absorb the higher costs gradually over two to three years, which could help cushion the impact of price hikes.

Also, Apple’s leaning on services to offset hardware volatility, with subscriptions now accounting for 25% of revenue. Analysts expect price hikes with the iPhone 17 series, likely delayed to gauge consumer reaction.

Is Apple a buy?

Apple’s a great company but uncertainty looms—competitive pressures and economic risks add volatility. For investors, Apple’s fundamentals scream long-term value, but with tariffs unsettled, waiting for a dip may be the savviest move.

📊 Analysis

Defense Stocks Shine Amid Tariff Turmoil

Defense stocks have emerged as a rare bright spot as tariff fears rattle markets. While President Donald Trump’s trade policies spark volatility, these stocks are outperforming, buoyed by domestic focus and a proposed $1 trillion defense budget.

Here’s why they’re holding strong and which names analysts are watching.

Tariff Chaos Spares Defense

Markets took a beating this week as Trump’s trade tensions escalated. The S&P 500 plunged 3.5% on Thursday, after a 9% surge Wednesday when Trump announced a 90-day tariff pause for select countries.

Since the April 2 reciprocal duties announcement, the index is down over 5%. Yet, defense stocks have bucked the trend.

Huntington Ingalls Industries, Lockheed Martin, and L3Harris Technologies each climbed about 5% since April 2, while General Dynamics edged up 0.2% and RTX dipped 3%—still outperforming the broader market.

The iShares U.S. Aerospace & Defense ETF (ITA) lost nearly 4%, reflecting mixed sector performance.

Why It Matters: Unlike tariff-hit sectors, defense firms largely produce domestically, shielding them from import costs. This resilience makes them a haven amid trade wars.

Boeing’s defense unit sources 90% domestically, with commercial business at 80%.

U.S. dominance in defense also limits foreign alternatives, forcing allies to absorb tariff costs.

Rising global tensions—Middle East conflicts, Pacific Rim disputes—further bolster demand.

Budget Boost Sparks Optimism

The Trump administration’s proposed FY26 defense budget, exceeding $1 trillion, is a major catalyst.

Gordon Haskett’s Don Bilson credits this record-breaking plan—$100 billion above this year’s—for the sector’s rise.

“A bigger naval budget is a good place to start,” he wrote, pointing to shipbuilding as a priority. Political stability may hinge on defense spending, making cuts unlikely despite tariff noise.

Stocks to Watch

Analysts are zeroing in on specific names:

  • Huntington Ingalls (HII): Up 16% in March after Trump’s “Make Shipbuilding Great Again” nod, HII could ride naval budget hikes.

  • Northrop Grumman: Morgan Stanley’s Kristine Liwag favors it for its alignment with Pentagon priorities, with Q1 earnings and budget details as catalysts.

  • L3Harris Technologies: Bernstein’s Douglas Harned sees 20% upside to $267, citing strong operations and valuation.

📰 Investment of the Week

Big names are expected to announce earnings this week, including Netflix, ASML, and JNJ. However, due to the current situation, it could be very risky to try to benefit from earnings. We’d suggest you move carefully.

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