2021 is not a good start for the Dow Jones Industrial Average (DJINDICES: ^ DJI) or the broader stock market, with the Dow falling 1.7% at 1:20 pm EST Monday. With stimulus checks reaching Americans’ bank accounts and the wide availability of COVID-19 vaccines just months away, there are many reasons for optimism. But valuations are historically high and talk of a stock market bubble may be weighing on investors’ minds.
Actions of Apple (NASDAQ: AAPL) and Coke (NYSE: KO) dropped a lot on Monday to take the Dow down. Apple’s shares plummeted despite a request for the tech giant to outperform other FAANG shares this year, and Coca-Cola’s shares plunged after being downgraded for valuation reasons.
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Apple may lead FAANG shares this year
Loup Ventures expects Apple to outperform all other FAANG shares in 2021. Shares rose about 80% last year, pushing the tech giant’s market capitalization beyond $ 2 trillion. It could be another big year for Apple investors if Loup’s forecast hits the target.
Loup based his view on a few factors. She expects more work and learning at home to continue to drive sales of Apple’s Mac computers and iPad tablets. Together, these products account for about a quarter of total revenue and Loup expects sales to increase by a double-digit percentage in 2021 and 2022.
Loup also expects demand for 5G smartphones to help sales of Apple’s iPhone in the second half of the year. This should trigger a multi-year update cycle, says Loup. In the long run, Loup expects Apple to launch subscription offers that include hardware and services, and that a potential Apple Car will dramatically expand the company’s total addressable market.
Loup expects Apple’s revenue to grow by around 15% this year, followed by growth of around 10% in 2022. That would be impressive given Apple’s size and the maturity of the smartphone market. Whether consumers adopt 5G enough to boost iPhone sales significantly is an open question. The appearance of the American and global economies emerging from the pandemic is also a wildcard for the technology giant.
While Apple’s shares may have outgrown this year, the first day of trading in 2021 was not a gentle one. Apple’s shares fell 3% in the early afternoon of Monday amid a broad liquidation of the stock market.
Analyst loses optimism with Coca-Cola
Although Apple received some positive comments from analysts to start the week, the beverage giant Coca-Cola was not so lucky. Analysts at RBC Capital Market downgraded Coca-Cola’s shares to “industry performance” on Monday due to concerns about the valuation.
Coca-Cola went through a difficult period during the pandemic, when restaurant visits plummeted. However, the stock has recovered much of the ground lost since the peak before the pandemic. The RBC feels that Coca-Cola’s management is making good decisions, but that the company has no control over how things are going to evolve in the short term. The RBC says that Coca-Cola is fully evaluated, that upward revisions to EPS estimates are unlikely and that the negative impacts of the pandemic will hurt business for longer than many expect.
Bankrupt restaurants and a struggling movie industry could bring Coca-Cola’s foreign sales down for a time. Less store visits can also hurt, reducing impulse purchases of Coca-Cola products. The company has been abandoning underperforming brands to refocus on its core portfolio, which could help increase profitability in a difficult environment.
Coca-Cola’s shares fell about 4.6% early Monday afternoon, as the analyst’s downgrade made things worse for stocks on a weak day for the market. Coca-Cola lost about 1% of its value last year; has already overcome that decline for 2021.