The disconnect between the stock market and the economy continues.
For how long? No one knows.
There’s an old saying in finance “Tops are a process, bottoms are an event.”
Given how pricy stocks are today, I’d say we’re nearing the end of that process.
When you compare company valuations to GDP, aka the economy, they are now more expensive than they were during the Dot-com bubble.
The other day I heard an analyst say that he’s old enough to remember when asset prices actually corrected during recessions…not reach new all-time highs.
The statement couldn’t be more on the point. Clearly, this is a dangerous time to buy stocks.
Yet somehow, many of them are soaring.
Among these is one household name, which I think you should avoid—Apple (NASDAQ: AAPL).
I’m not saying this is not a solid company. I like it and have held it in my portfolio.
But there is another critical element to investing besides the business model and the balance sheet—it’s the price.
And in the current economic environment, the price for this stock is too high.
Apple Is Facing Harsh Economic Headwinds
These days, you can’t talk about Apple without ruffling some feathers.
It’s almost like mentioning Fauci and masks. There’s a group of people that will immediately have an emotional reaction to it.
Emotions and investing, however, don’t belong together. One should rather use reason when making investing decisions.
And right now, Apple’s stock price is unreasonably high.
As I’ve said, I like the business model… I just don’t think it will do as well over the next few years.
Everybody agrees that the economic recovery will be slow and that many of the job losses will be permanent.
Which means that consumer spending will decrease. Especially on higher-priced items, like, for example, iPhones, which represent the majority of the company’s revenues.
That, however, doesn’t seem to deter buyers from investing in Apple even as shares reach new all-time highs.
I find this buying ludicrous. It indicates that some people think the company is facing better prospects today, than in January 2020, when unemployment was at historic lows, the economy was booming, and Trump has just signed the Phase One trade deal.
The U.S.-China Trade Rift Threatens Apple’s Revenue Growth
Speaking of trade, if conditions between Washington and Beijing continue to deteriorate, Apple will be one of the companies hurt the most.
In recent years, the tech giant has been primarily relying on the rise of the Chinese consumer to generate sales growth and has built a robust presence in the country. Last year, China represented 17% of Apple’s revenues.
Given that Trump is ratcheting up his rhetoric against Beijing, that kind of exposure poses a significant risk, one that is not reflected in the current price.
In fact, when you look at Apple’s price-to-sales (PS) valuation—how many dollars you’re paying for every dollar of Apple’s revenues—it hasn’t been this high since January 2008, just before the market crashed.
I would recommend you avoid it.