Apple (NASDAQ:AAPL) is arguably the best company on the planet. This has been the consensus for years — although it hasn’t wowed us with the “a-ha!” moments of Steve Jobs’ era of late. Nevertheless it’s still an amazing money-making machine. AAPL stock has acted well of late in spite of tremendous trepidation. This is proof that there aren’t serious problems within the company.
However, there are whole stock market issues to worry about. 2020 has proven itself as one for the record books from many angles. Today the goal is to establish three ways — and reasons — to trade Apple into 2021.
When we shut down the entire world, we dealt a knock-out punch to all businesses. Counterintuitively, some indices made new highs after the initial shock. Apple is one of them, so the onus is on the bears to break such tenacity. Without a new shoe to drop, the Apple thesis is simple: If the stock markets are higher in the future then so is AAPL. Owning it it makes a lot of sense and carries very little headline risk. Institutions love to own it, and its clientele is totally dedicated to it in spite of its higher product prices.
I have been a critic of CEO Tim Cook because he could have done so much more. Although I cannot prove a negative, the results from AAPL stock are not because of him but in spite of him. It’s a giant boulder rolling, so CEO or not, it would have been the same regardless of who’s at the helm.
Yes, I am taking credit away from his performance because this is the same boulder that Steve Jobs started years ago. Proof of this is that its growth metrics are in reverse.
AAPL Stock Is in Transition
Luckily for the bulls, it’s not too late because they still have a great platform — which became a little bit better recently. Revenue from services now makes up more than half of the total till. This is a great base of revenues that does not rely on headline bursts like a product release.
But eventually, they will need a new line of products other than the iPhones. Because adding services that revolve around the same product means that it’s still an iPhone company. For now, Apple is safe because its users accept the perception that they are stuck in its ecosystem. True or not, perception is all that matters most often.
The valuation of AAPL stock is tricky after this transformation towards services. The traditional metric of price-earnings ratio is now almost double its prior range. On paper, one could assume that it’s too expensive. But the experts are willing to give it a pass for now to see if it’s a function of the new sales mix. Regardless, it now sports a rich 34.6 trailing P/E, which is in line with other giga-cap tech stocks. Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) and Facebook (NASDAQ:FB) carry similar premiums.
Dissecting the Apple Stock Levels
Technically, Apple stock has a few milestones above and below it. For the long run, the strategy is to simply hold it through thick and thin. But for those who prefer to trade it a little more actively, there are actionable lines to know.
First is the chase-the-rip strategy. The bulls will have to contend with the resistance at $118 through $120.50 per share. If successful, they turn into launching pads for more upside. Buying the breakout from the resistance is the momentum trade on Apple.
Second comes the buy-the-dip strategy. The bears have so far failed at breaking through the support below. The immediate buyers will step in near $112 with another big band of them below that. The Nasdaq suffered through a very sharp correction recently and took AAPL stock with it. But the buyers showed strong conviction just below $105 per share. I bet they will again if need be. Even if that fails, the century mark will be even a stronger defensive line. Round numbers like $100 per share have a psychological entry point for a lot of people who missed it on the first go around.
Lastly — and something I don’t think is in the cards this year — is to buy AAPL stock on a market-wide crash. This could cause it to fall towards $90 per share. You’ve seen experts on TV call for it, but I strongly disagree with them. If that happens then buying there with strong conviction would be a great holiday present.
In the long run, there are no signs of this company dying. Even though I am a critic of its management. I see no imminent fissures in its structure. What’s going on now will continue on for a while.
Sure, 5G is here and supposedly Apple is playing catch up. But the onslaught of this new technology has been slow, and the longer it drags the better for Apple. I bet that by the beginning of next year, Apple will be a player in 5G.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
