Apple Set to Post Strong 2022 Returns

Dow component Apple Inc. (AAPL) sold off in Tuesday’s session despite a widely publicized Bank of America Securities upgrade. The contrary price action suggests the stock is overbought and in need of a pullback, following a 15% 8-day buying spike into Monday’s all-time high at 182.13. The tech icon has been the strongest performer in the venerable index this month, defying broad-based volatility triggered by the Omicron outbreak in Southern Africa.

Expanding into Virtual Reality

The stock is underweight compared to the SP-500 index, raising the potential for further analyst revisions when the calendar flips into 2022.  Looking further ahead, excitement should build in reaction to “Apple VR”, an augmented reality/virtual reality headset that could be released as early as the fourth quarter, or the start of 2023. That product should command a sales premium compared to Meta Platform Inc.’s (FB) Oculus system while giving the struggling VR segment a much-needed boost.

BofA analyst Wamsi Mohan upgraded Apple from ‘Neutral’ to ‘Buy’ ahead of Tuesday’s opening bell, noting “we now expect a stronger iPhone upgrade cycle in F23, driven by the need for higher connectivity where AR becomes the killer app for 5G. (In addition), we model higher growth in Services revenue as we expect Apple to be able to charge more for more immersive AR/VR enabled Apps, as well as increased traction with a broader installed base in other categories, including advertising”.

Wall Street and Technical Outlook

Wall Street consensus has been pristine for years, now standing at a ‘Strong Buy’ rating based upon 21 ‘Buy’, 4 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $90 to a Street-high $210 while the stock is set to open Wednesday’s session on top of the average $174 target. This mid-range placement suggests that Apple is fully-valued at this time and unlikely to book substantial upside until we get closer to the Jan. 26 earnings release.

Apple mounted the February 2020 peak at 81.81 in June 2020 and entered a powerful uptrend that stalled just below 138 after the stock split four-for-one in August. Price action carved a broad rising wedge pattern into December of this year and broke out, lifting to an all-time high earlier this week. The current downturn could test breakout support in the low 160s, potentially offering a low risk buying opportunity, ahead of another year of exceptionally strong returns.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication.