Paul Meeks: Apple (AAPL) Could See a 40% Drop

It's one of the biggest tech stocks there is, and a come-from-behind underdog that turned into a behemoth over the course of the 2010s. It's fundamentally shaken up not only technology, but the arts as well, and even the entire field of e-commerce owes a lot to it. It's Apple (NASDAQ:AAPL), and it was one of the biggest names on the Dow in 2019. One Apple investor, Independent Solutions Wealth Management portfolio manager Paul Meeks, thinks that Apple's 2020 may be nowhere near as good as its 2019, and is looking for as much as a 40% drop.

Too Good Can't Last, And So The Apple Falls

Basically, Meeks is asserting a familiar assertion: Apple stock has done well and produced almost ongoing expansion. But if there's one thing that isn't sustainable, it's ongoing expansion. Thus, Meeks looks for Apple stock to drop well off its current price of around $292 a share as of this writing.

Meeks, in a turnaround sure to raise eyebrows clean off foreheads entirely, puts his own value projection of Apple stock at “about $170 a share, believe it or not.” Given that Meeks made his bones running the biggest technology fund on the planet during the days of the dot-com boom, anything his models have to say take on a new and all-too-real life of their own.

Meeks doesn't have a lot of company in his projections. Word from FactSet puts Apple buy recommendations at 20, while analysts recommending sell sit at just six. Fully 10 analysts are neutral, which suggests a lot of weight that could swing either way and compound potential issues. Our own coverage, however, finds that Apple short interest is on the decline, as December's Apple shorts were just over 20% what they were in November. Overall news about Apple has also been on the positive side, as InfoTrie reports put Apple near the top of its scale in positivity. Piper Jaffray bumped up its own recommendation on Apple thanks to the planned release of a 5G iPhone.

Moreover, despite the projections, and the performance that Apple has turned in so far, even Meeks held shares of Apple, mostly because his own performance is being judged against tech benchmarks. Meeks even has some sentiment attached to Apple, calling it “iconic”, which makes sense given the last 10 years.

What's So Rotten at Apple's Core?

A drop in share price that substantial has to come with some reasons behind it, and Meeks doesn't disappoint. Meeks' biggest target is basic fundamentals; the smartphone market is not what it was back during Apple's big run-up period, and Apple's move away from hardware to software-as-a-service (SaaS) operations isn't likely to sustain big numbers.

What's more, smartphone hardware isn't really a growth market any more. It certainly doesn't help that the last big period for growth in the global smartphone market was back in 2015. Granted, iPhone 11 sales proved to be better than expected, but the days of people lining up for the new Apple device seem to be waning. Piper Jaffray's earlier studies underscore this point well; it found that 51% of respondents in a study were willing to buy a new iPhone in 2019, but back during the iPhone XR, XS, and XS Max launches, that number was up around 69%

Nothing Gold Can Stay

With the end of the year now at hand, many turn contemplative, and here a line from Robert Frost might best sum up Apple's future: nothing gold can stay.

Apple has had an amazing run of things through the 2010s. It basically launched the smartphone concept—though some might say that the late 2000s were the smartphone's real glory days—and had a direct hand in the gains seen in the mobile payments market. Sure, we likely still would have had mobile payments without Apple Pay—PayPal, Square, and a host of other firms would have seen to that—but without Apple Pay, without the iPhone, would it be anywhere near what it is today?

Yet markets inevitably change. Nothing gold can stay.  Oh, Apple won't be closing its doors any time soon; it's entirely too well-diversified for that. But without the prop of massive hardware sales, it's a safe bet that Apple is in for a decline, at some point. Apple TV subscriptions and Apple Pay percentages just aren't a match for crowds at the door of the Apple Store, clamoring for the next iPhone. Customers are starting to space out those Apple purchases, and that means a drop for Apple is fairly likely.