Monday started the week off with a giant bang. The Nasdaq Composite fell 3.5% and most notably Apple (NASDAQ:AAPL) fell 6% on heavy selling. And therein lies an opportunity for investors who look for long-term investments. For now, Apple stock is under headline siege but its outstanding fundamentals will win over fear in the end.
Catching falling knives can be dangerous, but the better the value that is in it, the easier the catch. The Apple stock price is already cheap as it sells at a price-to-earnings ratio of 15X and it has a solid balance sheet.
Moreover, AAPL is a cash making machine.
Apple controls its ecosystem and its clientele never complain about price. So margins are healthy and the consensus is that Tim Cook is doing a great job. I personally disagree with that last point, but for now, it suits my thesis. So there are no fundamental issues with the company now. It’s falling on pure fears of China retaliation headlines.
Unless we get a definitive reason to know that their business will severely suffer on an ongoing basis, when these fears of a tariff war abate, the buyers will step back into the stock. The company itself already committed to enormous buybacks and the major investors that are in it will likely average down. If we can’t risk money on arguably the best company on the planet, then we should just stuff our money in mattresses and hide in bunkers.
Yes, there are things to dislike about Apple. They have not had an “aha” moment under Tim Cook’s reign, so it’s hard to see tangible innovation. But they have been making the turn into the new trend in tech. Management is now focusing investor attention to services. And the company’s scope should make it an easy transition. They already have half the world’s attention. So to launch a new service, all they need to do is release it and it’s an instant success.
Recently, experts criticized Cook for no longer reporting unit sales. I think it was a brilliant move as it now focuses trader attention to the overall results. A miss in units sold cannot be the cause of a dip in AAPL stock, especially when the overall results are outstanding.
So clearly the fundamentals backing the AAPL stock price make it worthy of a long-term investment. Very few experts would argue against that point. So why the massive drop in the last 10 days? AAPL stock fell 15% from top to bottom since the last earnings spike.
The blame for the swoon lies squarely on the surprise tariff headlines from two Fridays ago when President Trump announced that the rate would increase to 25%. Monday’s 6% debacle is the results of the Chinese retaliation to the increase in tariffs.
So, for now, Apple stock is caught in the middle of the tariff war between the U.S. and China. And the two nations are negotiating in the public-sphere through tweets and state news articles, which make it difficult for the bulls to buy upticks in the stock to defend it.
While almost everyone expects that cooler heads will prevail, for now, AAPL will suffer but there too lies technical support below, so the selling should not continue for long. Going much lower will not be as easy as falling into this zone. I don’t think it can lose $50 billion in market cap too many days in a row.
Bottom Line on Apple Stock
It could see more red; after all, year-to-date the Apple stock price is still up 18%. There is more froth to give back, but the descent rate should drastically slow down. So for investors who are long Apple stock, this dip is part of normal price action.
Conversely, for those who are looking to buy into AAPL stock for the rebound can start nibbling. But since the fundamentals are hostage to headlines, it is prudent to take small bites in case the selling persists. To that point, short-term traders need to set stop losses so as not to turn a trade into an investment.
Monday, late in the day, the AAPL stock price flashed a quick candle to $182.85 and lasted but a second. This would make a first warning alert level.
Below that, the zone around $179 should also be support. But if it’s lost, then the bears will try to fill the open gap to $173 per share. Although this is not a forecast, given the Monday action it is definitely a possible scenario.
In short, Apple stock is as sure a thing as they get when it comes to investing in the stock market. Days like Monday make it hard to remember but they don’t change that fact. If the U.S. hadn’t increased its tariffs we’d be talking about setting new all-time highs this week and not worry about the floor in Apple.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
