Apple | Fundamental Analysis | MUST READ | LONG

Apple stock, like most other tech companies, has made investors experience a full range of emotions this year. While the company's stock price was volatile in the first few months of 2022, a significant downward trend began after the company reported Q2 results in late April.

The stock has not recovered since then. According to S&P Global Market Intelligence, Apple stock is down 17 percent for the year. That's mostly because investors are concerned that Apple won't be able to avoid the effects of supply chain shortages and a potential economic slowdown.

Investors went into pessimistic mode in late April after Apple released its Q2 financial results. Apple beat analysts' consensus estimates on both the top and bottom line, but investors focused on the company's management comments.

During the results announcement, CEO Tim Cook said Apple was "not immune" to supply chain problems caused by COVID-19, chip shortages, and the war in Ukraine.

Apple Chief Financial Officer Luca Maestri was more specific about the supply chain problems and said they could hurt Apple's third-quarter sales by as much as $8 billion.

"Supply chain constraints caused by COVID-related disruptions and industry-wide silicon shortages are impacting our ability to meet customer demand for our products. We expect these constraints to be between $4 billion and $8 billion, significantly higher than the March quarter," Maestri said.

Clearly, investors didn't want to hear that Apple's sales could suffer to such an extent and sent the company's stock on a downward track.

Apple investors will want to keep a close eye on the Q3 results, which will be released July 28. The results should shed light on how severe Apple's supply chain problems have become and whether the company has felt the downturn in consumer demand.

With inflation still at its highest level in nearly 40 years and the U.S. Federal Reserve focused on raising the federal funds rate to get it back on track, it is likely that Apple investors could experience some more short-term volatility as the market reacts to a potential economic slowdown.

But long-term investors should also consider that while temporary supply constraints may affect the company, Apple still has the potential to be a great investment. For one thing, the company still generates a massive amount of cash -- $28 billion in operating cash flow in the last quarter -- that will help it weather a potential economic slowdown better than other companies.

And while Apple stock isn't that cheap right now -- it's worth 23 times the company's projected earnings -- the recent stock sell-off gives investors the opportunity to buy shares of this extremely profitable company at a relative discount.

Finally, Apple continues to increase shareholder value through buybacks and invest in new products. In the last quarter, the company added $90 billion to its stock buyback program and could enter a new product segment within the next year.

With Apple stock down this year and the company still in a very strong financial position, investors may want to consider buying some stock right now.

Comment: