There is no shortage of experts when it comes to Apple (NASDAQ:AAPL) stock. Some are high-profile analysts whose public opinions temporarily move the stock. Sometimes obscure analysts make flagrant calls to gain notoriety. Regardless, the impact of the headlines do not change the trajectory of the stock. Investors eventually follow the money, not the words. So it is best to do our homework and trade on our own theses.
The opinions of others are pure noise. Consider that last September, the mighty Goldman Sachs downgraded Apple’s price target to $165. It has rallied since then to almost double the firm’s price target. Clearly, their assistance here is not needed because the Apple thesis is simple.
If the stock markets are higher in the future then so is Apple. This is arguably the most successful company on the planet today, if not of all time. So significant dips are buying opportunities. Investors who are fishing for the absolutely “perfect” entry point are wasting their time in the long term. This doesn’t mean that I agree with CNBC’s Jim Cramer who takes a hard line against those who trade Apple stock. I bet that most investors would rather hit the ground running when they buy shares, so trading a stock around short-term price action is normal.
While I do think that for the long term AAPL stock will rise, I also think that up here there is not an obvious point of entry. The rally to these new highs came about too quickly so there needs to be a retest of lower levels. Such a retest will shake out a few weak hands and establish a better base of owners. This will improve the odds that new buyers won’t be too vulnerable fresh into their positions.
Apple Stock Is Not Too Expensive
I know I may have already upset a few people, but this is not me insinuating that Apple stock is too expensive. While it is currently running at a price-to-earnings ratio that is about 40% higher than usual, investors may be in the process of re-evaluating the metric for it. Apple is making the turn from an iPhone company to include more services. So maybe this is how it will be going forward with a higher P/E than historical values.
It is important to note that my suggestion that there might be better entry points is not an invitation to short the stock. While the risk to the downside when buying a stock is a 100% loss, the risk on the upside when shorting is unlimited. Those who did it under $200 are in a world of hurt right now.
Moreover, the short-term bullish risk is finite. Apple stock is vulnerable to dips, but only to retest prior breakout necklines. The first of these is around $305 per share. If that fails then $298 comes into view. The zone around $285 per share was also pivotal so it too would make for potential support. Although the big breakout came from near $268, it would have to test the other levels for support first.
Investment Strategies Are Never Foolproof
Good investors are humble with their convictions. It is good to be confident, but it is dangerous to be too cocky. Often when opinions become uniform like they are now for Apple, the blind-side scenario has a way of manifesting itself. I remember several situations where it corrected more than 30% out of nowhere. And I bet that will happen again. And when it does, the experts will again shy away from calling to buy the dip until it becomes too late again. And that’s reason enough to do our own homework so we don’t rely on third-party opinions.
So I repeat the easy thesis for Apple. This is a stock to own for years, but when at all-time highs I’d rather buy dips than chase the rally. This is at the risk of missing a few upside dollars while I wait. Rash decisions can lead to fast losses.
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. Join his live chat room for free here.
