The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Apple Stock Forecast

Morgan Stanley analysts predicted that Apple would see a drop in iPhone sales next year.

However, if Apple comes up with a new affordable 4-inch iPhone, I see 2016 as another record-breaking year for global iPhone sales.

Apple’s recent 43% price cut for the iPhone 5S in India is clue that Tim Cook is willing to compete in the sub-$400 phone market.

A $400 iPhone is going to be a blockbuster product even in China, India, and other emerging markets.

Apple will likely have a great YTD performance in 2016 if it can post sales growth for iPhone sales.

Morgan Stanley analyst Katy Hubert has published a report that Apple (AAPL) will see a drop in iPhones sales in 2016. Huberty says that next year will be the first time in history that iPhone sales will decline. Huberty’s prediction is very important since the iPhone accounts for more than 2/3 of Apple’s revenue.

Ever since its release, the iPhone has posted double-digit growth in annual unit sales. Apple sold 169.2 million units of the iPhone last year. For 2015, Apple will likely end up wind iPhone sales of 231.2 million. On the other hand, Huberty believes that iPhone sales for 2016 will only hit 218 million.

Huberty is a respected Apple analyst. Her estimate of 5.7% drop in iPhone sales for next year is likely why Apple’st stock price has notably declined the past five trading days. AAPL’s stock price has dropped more 6%. Any negative report about iPhone sales is always an inspiration for the market to go bearish on Apple.

(Source: Google Finance)

This bearish mood over Apple should be exploited as an opportunity to buy the stock on the dip. I am certain that AAPL will recover back near 120 price level after holiday sales are accounted for in January/February 2016. Like the past seven years, the holiday shopping season always helped Apple sell the most number of iPhones.

Contrary to Huberty’s claim, I also see Apple possibly posting another record-breaking annual iPhone sales next year. This hypothesis is based on my assumption that Apple will really release the next-generation iPhone 7. Apple always set record when coming up with true upgrades of its previous iPhone model. Unlike the iPhone 6 release in 2014, the iPhone 6s release this year was just a minor upgrade that are not forcing iPhone loyalists to upgrade.

New Four-Inch iPhone For 2016

I expect Apple to sell up to 240 million units of the iPhone if it also delivers a more budget-friendly 4-inch iPhone 6C or iPhone 7C. Another respected Apple analyst, Ming-Chi of KGI Securities, has claimed that Apple will release a 4-inch iPhone model next year. Kuo said this one would look like an upgraded version of the iPhone 5s but without the 3D Touch screen display feature of the iPhone 6s.

Kuo said Apple still sees a market for a smaller four-inch iPhone as evidenced by the still-substantial sales of its iPhone 5s. He thinks Apple could still sell 20-30 million units of the new 4-inch iPhone. Using Huberty’s 218 million estimate, I then added 22 million units to come up with my own 240 million iPhone sales estimate for 2016.

It is only smart of Apple to come up with a smaller iPhone next year. This idea is similar to how Apple keeps on making new iPad Mini models to complement its iPad Air and iPad Pro products. It is good business (even for Apple) to cater to people who cannot afford the most expensive Apple products.

Consequently, I believe that a smaller and more affordable iPhone will go a lot in helping Apple improve its iPhone sales in emerging markets. Since the alleged new 4-inch iPhone model for 2016 will come with a smaller screen and without fancy features like 3D touch, It should far lower than $650. I think a 4-inch iPhone could retail for around $400.

My guesstimate of $400 is again based on Apple’s recent move to substantially cut (47% discount) the retail price of its four-inch iPhone 5s in India. The iPhone 5s, which accounts for 50% of iPhone sales in India, now only has a starting price of 24,999 Rupees ($373.63). The cheapest iPhone 5s used to sell for 44,500 Rupees ($665) last September.

The almost 50% discounting of the iPhone 5s is a strong hint that Apple is now willing to box it out in the sub-$400 category of smartphones. The alleged upcoming 2016 four-inch iPhone might be Apple’s killer move to dominate the market for mid-range smartphones. Apple will have a lower average selling price for iPhone in 2016 but a bigger volume of sales could make up for this.

The saturating smartphone market in China means Apple badly needs new markets like India to find new growth opportunities. A cheaper 2016-era iPhone will mostly likely help Apple improves its pathetic 1% market share in India. Coming up with a new iteration of the iPhone 5s is a great way for Apple to attract new customers in price-sensitive markets like India, Latin America, and Africa.

Let us not forget that Apple do not only generate profits from hardware sales. Apple can still make up for lower-margin four-inch phones through app and media sales from its iTunes Store. The more people who buy a sub-$400 iPhone, the bigger market there is for iOS app/games sales. Apple gets a 30% from iTunes sales.

My Takeaway

Investors should consider adding AAPL to their 2016 portfolio. It might be wise to wait and see if AAPL will fall further a for bottom-fishing opportunity. Aside from its dominant position in phones and tablet, Apple is a great company with tons of cash that could be used to quickly expand its empire.

Let us not forget that Apple still touts that it gobbles up 92% of profits from the entire smartphone industry. Please study the chart below from Statista. It should be enough reason for investors to make a bet on AAPL.

I Know First Research, A FinTech Company that created a state of the art algorithm that predicts over 3,000 markets on daily basis. Their algorithm has very bullish algorithmic forecast for AAPL. Market trends analysis of I Know First is hinting that AAPL has very strong chance to hit higher price levels after a one-year period. The bright green 1-year algorithmic forecast with 81.92 score loudly suggests AAPL is a bargain right now.

The positive prediction of I Know First for Apple is also in line with the bullish consensus Strong Buy recommendation of 25 TipRanks-tracked Wall Street analysts.

(Source: TipRanks)

The I Know First’s algorithm gave a prediction on the 20th of September 2015, it is worthwhile to see if the algorithm agrees with the bullish fundamental analysis of the company. The three-month and one-year forecasts for Apple are included.

Another previous prediction on Apple done by The I Know First Algorithm was on the 5th of January 2014 to 2015 were we see apple with a bullish signal of 23.57 and a predictability of 0.35 that is very strong. The return AAPL gave over the 1 year period was an astounding 40.39%. Also in the overall Forecast the I Know first Average was positive and very rich with 3656% return compared to the s&P500 that only returned 10.33% in the same time frame.

Recognizing a positive signal strength with the algorithm does not mean investors should automatically buy the stock. Dr. Roitman, who created the algorithm, created rules for entry for a stock such as Apple. Using this trading strategy, an investor should buy a stock if the last 5 signal strength’s average is positive and if the last closing price is above the 5-day moving average price. When both of these conditions are met, it is a good time to initiate a position in the stock.

For more algorithmic articles on Apple:

Apple Forecast For The Second Half Of 2015 (AAPL)

Apple Stock Predictions: Algorithmic Forecast For Second Half Of Year (AAPL)

Apple Stock Forecast: Algorithmic Forecast For Second Half Of 2015 (AAPL)

Apple Stock Predictions: Apple Is A Safe, Valuable Long-Term Investment (AAPL)

Apple Stock Forecast and Quarterly Report Analysis (AAPL)