Apple (AAPL) shares slumped 23% in the first six months of 2022, the stock’s worst first half for any year since 1995, when it slumped 34%, recalls Rich Moroney, editor of Dow Theory Forecasts.

Since 1990, Apple shares have dropped in the first half of a year 11 times. In these years, they averaged an 11% rebound in the second half, though they delivered gains in just six of those periods.

Using this history as a guide, the chances of Apple shares rallying over the next six months seem little better than a coin flip. Still, we like Apple’s odds for coming back into favor, especially in the event of an economic downturn, when investors often flee to the perceived safety of high-quality stocks.

Priced for a rebound

Apple earns a Quadrix Overall score of just 45, hurt by subpar ranks for Momentum, Value, Earnings Estimates, and Performance. The shares already appear to reflect plenty of pessimism: foreign-currency headwinds, supply-chain headaches, and concerns that high inflation will sap consumer demand for Apple devices.

Citing the rising U.S. dollar, Microsoft (MSFT) cut its June-quarter guidance last month. Unfavorable currency headwinds could be an even bigger factor for Apple (63% of sales come from outside the U.S.) then for Microsoft (50%).

Still, the widespread popularity of products does give the company significant pricing power. In late June, Apple raised iPhone prices by nearly 20% in Japan to help offset foreign-currency headwinds. The company has also increased prices for its Mac and iPad in the past month.

The higher U.S. dollar isn’t taking Apple entirely by surprise. Recall that Apple withheld June-quarter sales guidance when it announced March-quarter results in late April. At the time, management anticipated a rise in foreign-currency effects and cautioned that supply disruptions from semiconductor shortages and the coronavirus pandemic would reduce quarterly sales by $4 billion to $8 billion.

Lead times for the iPhone, iPad, and Mac in most geographic regions improved in June, generating some optimism that the worst of Apple’s supply chain headaches may be over. Analyst reports about consumer demand in the past couple months seems mixed.

By one account, U.S. spending on Apple devices slipped 8% in May, while other analysts say iPhone demand in China is resilient and outgrowing the overall smartphone market.

The consensus calls for June-quarter earnings per share to fall 11% to $1.15, despite 2% higher sales. Apple has met or exceeded the consensus profit estimate in 24 straight quarters and surpassed the sales estimate in 19 of the past 20 quarters.

Analysts expect Apple’s operating momentum to recover in the September quarter, with the consensus projecting 7% higher profits on 9% higher sales. At 23 times trailing earnings, the stock trades 18% below its three-year norm of 28 and at its lowest point since March 2020. With its cash-rich balance sheet, Apple is a long-term buy.

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