Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) bought a billion-dollar stake in Apple (AAPL, Financial) after the stock tanked in response to the post-earnings debacle. Since Buffett’s stake was disclosed, Apple has jumped almost 10% and has moved over $100.
The recovery in Apple’s stock has been terrific considering that it moved below $90 for a small period of time. That being said, investors should not follow Buffett just yet as Apple may pull back more and here’s why.
Next quarter may be worse
Apple has already guided down for the coming quarter, which is seasonally the weakest one. Despite the fact that Apple’s guidance has reduced terrifically, it can further disappoint investors. The iPhone 6S is obviously not selling as nicely as the iPhone 6. However, the fact that Samsung’s Galaxy S7 sold at least 20% more than its predecessor can hurt Apple in the next quarter.
The overall smartphone market actually shrunk in the first quarter of 2016. Given that the market for flagship phones is pretty limited, the success of the Samsung Galaxy S7 is a headwind for Apple in the upcoming quarter and beyond.
The iPhone 7 can even fall prey to the Galaxy S7. There have been numerous rumors that Apple has not added any major new features to the iPhone 7 and the design for the device is also expected to be similar to the iPhone 6S.
You can’t really blame Apple for not adding major features as smartphones nowadays are as techy as they can get and there’s hardly any new feature left for smartphone makers to add to their devices. As a result, it is likely that fewer people will shell out hundreds of dollars to upgrade their iPhone 6S, or even their iPhone 6 for that matter.
I am expecting iPhone sales to take a big hit at least in the short term, and given that Apple generates almost 60% of its revenue from the device, the stock probably cannot stay above $100 for a long time.
Conclusion
Apple may appear cheap and Berkshire Hathaway’s stake may boost investors’ confidence into buying the stock. However, due to concerns like falling sales of the iPhone 6S, lack of features in the iPhone 7, and the success of the Samsung Galaxy S7, Apple will likely struggle in the short term and may struggle for longer if rumors about the iPhone 7 are true.
Disclosure: The author doesn’t have any position in the stock mentioned in the article.
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