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Apple was hit hard by tariffs, but investors should not panic



President Trump's recently announced China tariffs have hurt Apple's stock price. But don't worry, because investors think Apple will weather the storm – and recommend that you hang onto your AAPL holdings for now.

Heck, you can even buy more.

Apple shares plunged 5% in trading yesterday. This essentially wiped $ 53 billion of Apple's market value, more than twice the market's heat on Twitter. This is a direct response to Trump saying that 10% tariff rates will be placed on roughly $ 300 billion of goods imported from China. This will include many Apple products, including iPhone, AirPods and more.

According to renowned Apple analyst Ming-Chi Kuo, Apple plans to absorb the extra costs itself. It is rather than passing it on to the customers, which will mean raising the price of the products. This can be a risky strategy from an investment perspective.

How will this affect revenue?

Bernstein Analyst Toni Sacconaghi says that Apple taking up these costs will reduce revenue by 7%. "Apple needs to calculate how much iPhone sales will drop if it passes the cost of the tariff on to consumers," Sacconaghi said. Anything greater than a 20% drop, and Apple would be better off eating the cost of the tax itself. And ironically, there is a risk that China will also tax the iPhone as a US import in retaliation. ”

Meanwhile, Wedbush analyst Daniel Ives believes iPhone sales could drop by up to $ 8 million next year. Even if Apple swallows costs itself, it could reduce revenue by 4% in 2020. "Although Apple could curb some of the cost increases from the tariff rates by adjusting the supply chain, the process is slow."

So why is everyone still safe? Because Apple's Services business continues to go from strength to strength. There is also evidence to suggest that Apple could move production out of China over the next few years.

As a result, Sacconaghi has a "Hold" rating on Apple and a $ 190 price target, slightly below where Apple is currently valued. Ives goes even better than this, with a "Buy" rating and a $ 245 price target.

At the time of writing, Apple is trading at $ 195.74.

Source: Yahoo


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