In the past, I’ve not minced words about my disdain for Apple (AAPL) … not the company, but Apple stock. Although it’s a superior company to be sure, consumers-turned-investors tend to put AAPL shares on a pedestal and assume it’s untouchable up there.
Granted, if any company deserves the red-carpet treatment, it’s Apple.
In good or bad times, Apple’s iPhones have attracted buyers aplenty, translating into earnings growth and topped-expectations most of the time. Those notions of infallibility, however, can be dangerous; leading to particularly harsh selloffs when they inevitably materialize.
As evidence of that idea, one only has to look at an AAPL chart going back four years. During that time, the Apple stock price has fallen more than 30% from peak to trough not once, but twice … even as the broader market kept going up.
As the old saying goes, though, the pendulum swings in both directions. The extreme buying that led to extreme selling will lead into extreme buying again, and it’s that upswing I’d like to ride.
And it could start to happen any day now.
Volatile AAPL Chart Isn’t Unpredictable
In retrospect, the big pullback in Apple’s stock price seen in late 2012/early 2013, as well as the one that unfurled over the past three months, should come as no surprise. In each case, they were preceded by unusually strong rallies. Regardless of value — and let me repeat that — regardless of value, traders are only willing to let a stock perform so well for so long, before profit-taking pressures start to kick in.
Click to Enlarge Interestingly, going all the way back to 2009, there’s a mid-line or mathematical mean (red, dashed) that seems to serve as the long-term trendline for Apple stock.
Sometimes the stock is above it, and sometimes it is below it. But AAPL always seems to find its way back to that line sooner or later. You may have even noticed this line has served as a support and resistance on a handful of occasions over the past several years, including right now.
Given what we can see right now, with Apple stock finding support at that key mid-line, I’m inclined to go against the grain (and against my usual shtick) and suggest AAPL is a buy here.
Strict adherents to previous events on the AAPL chart could easily argue that what happened in 2012 could happen again this time … and probably should.
That is, Apple stock is due to spend some time below its mid-line. And it may well do it; but for me, I’ve seen a little too much support at the all-important trendline recently to assume shares are due to retest the lowest edge (blue, dashed) of the long-term channel.
And, I’ve got a fundamental reason for thinking so.
The Value Reality
A discussion of Apple’s growth prospects would not only be lengthy, but unnecessary. Let’s just all agree that, although the iPhone will hit a saturation wall eventually, that time is far enough off in the distance to not hold the stock back yet.
In the meantime, the advent of a new Apple TV device, the company’s foray into being a cable-television middleman and a respectable ramp-up of its digital music offerings are all fairly well-handicapped by analysts.
With that as the backdrop, assuming the current fiscal year’s (ending in September) per-share earnings build on last year’s $6.45 to the expected $9.13, and then grows again to next fiscal year’s expected bottom line of $9.79 per share of Apple stock (a woefully low estimate, by the way, but that’s another story), then AAPL is presently trading at a forward-looking price-to-earnings ratio of 11.1.
That’s very unusual.
Click to Enlarge The adjacent AAPL chart tells the tale: The current trailing P/E of 12.58 (black) and the average 12-month P/E of 15.4 (gray) are almost as low as they were back in early 2013 when the Apple stock price recovered … in spades.
Many investors assume AAPL has simply reached its zenith, but they were wrong then, and they may be wrong now.
Bottom Line for Apple Stock
Extreme bargain hunters are holding out for a trip back to the $100 area, give or take, assuming AAPL needs to move all the way back to the lower of two key support lines before hitting bottom. Those holdouts may well be rewarded for their patience too.
But, eight bucks worth of difference isn’t enough for me to risk being penny-wise and pound foolish. This is the company best positioned to proverbially take over the world, and it’s wrong not to at least have a small stake in it at any reasonable price.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
