Trading at around $90 a share in early May, there weren’t many people predicting that Apple Inc. would rise 25% over the next five months — yet that’s just exactly what has happened. Most were harping on the company’s subpar March quarter where revenue showed a 13% YOY decline. Most also seemed to think that $75 might be a next stop for the stock after an already 20% decline.
On a YOY basis, AAPL’s June quarter wasn’t any better, although a glimmer of hope sprung into shares as investors starting looking forward towards the iPhone 7 and what comps might look like going into the holidays and 2017. Battery overheating issues at chief smartphone rival Samsung have probably also helped investor mood, with an assumption that an on-the-fence buyer may opt for an iPhone rather than risk getting burned, both literally and figuratively, by a Galaxy.
Apple Inc. (AAPL) – Buy, Sell, Or Hold?
With future optimism getting baked into Apple Inc. ‘s stock and an additional $125 billion, yes billion, in market cap put on over the past 150 days or so, Apple has perhaps put on a touch of undeserved weight here near-term. Keep in mind that the company is pegged to earn about 10% less this year than it did last year. Further, while 2017 is currently being viewed as a year of growth, that growth will probably only get profitability back to where it was at the end of 2015.
All in all, I’d argue that Apple is basically treading water right now. And as its earnings multiple rises towards the mid teens alongside recent stock price appreciation, shares are not the fairly compelling value they were at $90. The dividend yield has also dropped somewhat precipitously, now at 2% versus the 2.5% seen earlier in the year.
If starting or adding to a position does not seem prudent at the moment, would it be wise to simply hold here? That’s a loaded question to say the least. But one I’ll take a stab at answering.
I’ll start with the proverbial middle-of-the-road answer of maybe. Let me explain further.
When evaluating a situation like this, investors need to consider their rationale for owning the stock in the first place. Do you own Apple for its growth prospects, its dividend yield or dividend growth prospects, its relative value, or some other reason?
Once the purpose for owning the stock is established, then one should consider whether owning it at the current price continues to make sense, keeping in mind that an investor’s powers of price clairvoyance may prove at best inconsistent, and that there should be distinct differences in ways that investors as opposed to traders act.
For me, Apple is a worthy hold. But then, I’m not expecting the world out of it. In today’s market, I like owning cash cows with very clear dividend growth potential — of which Apple clearly possesses. I’m also realizing of the better than 50/50 probability that $105 and not $125 will be the stock’s next price stop.
But even if I’m right, I’m not willing to give up the quality of the company’s fundamentals to start trading it. If I sell at $115, and the stock goes to $125 — then what? That’s what separates a position one views as an investment as opposed to more of a speculation. Apple does not appear so overvalued here to me that I see at as a “no-brainer” sell. That doesn’t mean I wouldn’t sell at some point – maybe at $125 – maybe at $150. Ask me if we get there.
If you are 100% certain that Apple heads back to $100, then you should sell. Perhaps you should sell and then short sell. But you’re kidding yourself if you think you can ever be 100% certain about anything in the stock market. Further, understand the regret you may have in selling, if you end up being wrong. That regret may be pretty steep if you are just really an investor masquerading from time to time as a trader.
Adam Aloisi was long shares of Apple Inc. at time of writing, but positions can change at any time.
Disclaimer: The above should not be considered or construed as individualized or specific investment advice. Do your own research and consult a professional, if necessary, before making investment decisions.