Shares of Apple (NASDAQ:AAPL) have certainly fallen hard along with the rest of the market over the past few weeks. Apple stock is now down nearly 10% from the recent highs despite good earnings and a better outlook from the recent earnings report. While growth is undoubtedly slowing, AAPL is now nearing levels that make it comparatively attractive on both a fundamental and yield basis. Time to take a bite out of Apple.
Apple reported earnings on July 30 and beat expectations on both the top and bottom line. Earnings came in at $2.18 per share, well above the consensus for $2.10 per share. Revenue also was a beat at $53.8 billion versus expectations for $53.4 billion. Most importantly, Apple raised guidance to a range of $61 to $64 billion. Previously the company guided to just $60.98 billion.
As expected, the initial reaction was positive with AAPL stock trading past $220 following the release. Since then, however, Apple stock has given back all those gains and more. AAPL stock now sits at $200, a big pullback from those $220 highs of only 8 trading days ago. This despite the solid earnings beat and raised guidance. To me, the combination of better earnings and a cheaper stock price makes AAPL a much more attractive buy than it was just a month ago.
Apple stock now sports a forward price-to-earnings multiple of 15.6, well below the forward multiple of 18.2 for the S&P 500. The dividend yield of 1.5% is not that far below the 1.64% yield on the 10 year Treasuries. Lower multiple stocks with a decent dividend are a good place to hunker down during these periods of market turmoil.
The technicals also point to a potential pop on the horizon for Apple stock. The MACD reached recent lows before turning higher. The five-day RSI got to oversold levels with a reading below 30 before strengthening. Bollinger Percent B also printed negative before getting back to positive territory. Prior instances when these metrics were this oversold marked significant short-term lows in Apple stock.
AAPL also held the crucial 100-day moving average at $197.29. AAPL stock still remains above the uptrend line from the lows of last December.
Apple Stock Chart
All eyes will be on Apple as it releases the latest iPhone offerings on Sept. 10. The iPhone 11, rumored to be called the iPhone Pro, may likely have a triple lens camera with a square design. It is expected to come in three different screen sizes and have bilateral charging. The impending release date will likely dampen upside for AAPL stock in front of the event, but should be a solid catalyst for a move higher following the official announcement.
The recent delay in imposing new tariffs on China by the Trump administration should also provide a more bullish backdrop for AAPL stock in the coming months. Any easing in the trade war tensions may at least help staunch the recent slide in stocks, as the the big rally Tuesday in Apple stock showed. This is especially important for Apple in front of the new product launch next month.
Investors should look to add Apple to the portfolio on any move back toward the $200 area. The initial upside price target is the post earnings highs at the $220 level. Selling the Jan $220 covered call for $7 helps to cushion the downside by the premium received while pre-positioning to exit at the target price. A meaningful break of the trend line would be reason to exit AAPL and a good stop out point.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.
