Is Apple Stock a Sell Amid China Unrest?

As we enter the final month of 2022, a year unforgiving to the tech industry, Apple (AAPL, $148.03) stock remains quite volatile.

A big reason is the potential iPhone shortfall resulting from worker unrest at the Foxconn plant in Zhengzhou, China. Employees at the plant where Apple iPhone Pro's are manufactured have been protesting the country's zero-COVID policy.

Sources suggest that unrest at the plant could result in a production shortfall of 6 million units for the iPhone Pro. The protests started in October over food shortages but have recently turned to COVID.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

While the situation is fluid – Apple and Foxconn believe they can fill the shortfall in 2023 – it could make investors think twice before buying Apple stock.

At the very least, it gives investors food for thought when investing in companies that rely on China for their manufacturing requirements. "It will force Apple to accelerate the diversification of its production base," said Asymmetric Advisors analyst Amir Anvarzadeh, as reported by Bloomberg.

In the long run, this could be the best thing to happen to Apple. However, in the near term, investors ought to temper their expectations for Apple stock as it heads into 2023.

"We estimate that Apple now has significant iPhone shortages that could take off roughly at least 5% of units in the quarter and potentially up to 10% depending on the next few weeks in China around Foxconn production and protests," says Wedbush analyst Daniel Ives. 

Ives estimates that the iPhone supply disruptions cost Apple $1 billion per week in lost sales.

On the bright side, the latest information suggests that city officials in Zhengzhou lifted the COVID lockdown on Nov. 30, allowing workers at Foxconn's iPhone City campus to leave the property.

In addition, Foxconn has offered employees who left the plant between Oct. 1 and Nov. 10 bonuses of up to $1,672 if they return to work and remain on the job for at least two months.

It's too early to know what the lifting of these COVID restrictions in Zhengzhou means for Foxconn's plans to entice thousands of workers back to work through monetary rewards.

And investors willing to stand by Apple through its supply issues have other concerns to worry about heading into 2023.

For starters, a significant portion of iPhone owners has likely upgraded their phones in the past two years, resulting in waning demand in the year ahead.

In addition, the company's software and services revenue, according to Oppenheimer analyst Marin Yang, is experiencing a slowdown due to lower consumer spending resulting from higher inflation and interest rates.

Ultimately, Ives believes iPhone 14 shortages could be as much as 30% in Apple stores heading into the holiday shopping season. That's not good news, given consumers have already said they're looking to spend less this year.

Still, Apple stock remains an excellent long-term investment and analysts maintain a consensus Buy rating on the iPhone maker, according to S&P Global Market Intelligence. However, shares could face more near-term volatility. 

In the meantime, it makes sense when buying Apple (or any other stock) to tread carefully.

BofA Global Research sees the S&P 500 moving sideways in 2023 due to declining earnings per share. That said, it does project the index will average annual returns of 8% over the next decade.

If you're thinking of buying Apple stock, look past the production problems in China and focus on the long term. That's what Warren Buffett's doing (Apple, for those who don't know, is the top holding in the Berkshire Hathaway equity portfolio).