On Sept. 2, Apple (NASDAQ:AAPL) stock hit an all-time intraday high of $137.98. Since then, AAPL stock has come under pressure and gone down about 18%, hovering around $113. Investors wonder if the shares will soon make new highs to go and stay over $140.
A recent thesis study by Jordan Berninger of the University of California, Los Angeles (UCLA) highlights, “The 21st Century has been defined by the exponential growth of the information technology (IT) industry, the smart phone and the personal computer. Apple Inc. has played a major role in that growth, with Apple products widely considered emblematic of the IT revolution. The health of Apple Inc. is a predictor of the health of the industry and industries that depend on it. Apple’s stock price is an indicator of Apple’s health.”
Put another way, APPL stock is a widely-followed leader, and a significant number of people are interested to see how it moves both short-term and in the long run. The tech giant is expected to report Q4 earnings in early November. Until then, AAPL stock is likely to be choppy with a downward bias. If you are not yet a shareholder, you may want to stay on the sidelines until the metrics are released. Any decline toward the $100-level would give long-term investors a better opportunity to own Apple shares. Here’s why.
Another Spooky October
Research led by Scott R. Baker of Stanford University concludes, “COVID-19 developments [have] exerted such powerful effects on the stock market since late February.”
As a result, many stocks hit 52-week lows in early spring. Then states across the country, as well as other nations, started lifting lockdown measures. Then most shares, like AAPL stock, staged a remarkable comeback even to hit all-time highs. However, the past several weeks have shown that investors’ risk appetite might be waning. Heading into October, many darlings of Wall Street looked quite vulnerable.
AAPL stock is a member of the Dow Jones Industrial Average, the S&P 500 index, and the NASDAQ-100 index. Since the end of August, all three indices are down about 6%, 7%, and 9% respectively. Many market participants believe there could be even more pain ahead for broader markets in the last quarter of the year.
For starters, the so-called “second-wave” of the pandemic has been dominating the headlines globally. Citizens around the world are concerned about another potential lockdown. Health worries add to economic uncertainties, affecting the shape of the economic recovery.
Second, a new earnings season is here. Big banks typically start the initial line-up of reports, to be followed by tech stocks. Most analysts concur that the growth pace of earnings will be muted. Although Apple has not announced its next earnings release date, it is estimated to be on Wednesday, Nov. 4, the day after U.S. presidential election.
Market volatility can reach new highs around those dates, adversely affecting AAPL stock. Therefore, potential investors may want to wait until earnings release to commit new capital into the shares. It is likely to be several weeks before Apple shares can make a new leg up to go over $140.
Where AAPL Stock Is Now
The 52-week range for Apple shares has been $53.15 to $137.98. Year-to-date, the stock is up more than 50%. As a result of the run-up in price, AAPL stock has become richly valued. Its forward P/E, P/B, and P/S ratios stand at 29.33, 26.74, and 7.32, respectively. These are high metrics, even for Apple.
Regular InvestorPlace readers will be familiar with the recent 4-for-1 split in AAPL stock, which took place on Aug. 31. In hindsight, the highs seen following the split may mark a top for the time being.
If you are an investor who pays attention to technical charts, too, then please note that it may be time to be cautious with APPL stock. There could easily be a move back to $100 or even below soon.
If you are already a shareholder, it may be time to take some profits. Alternatively, you may want to hedge your long stock position with a covered call that expires on Nov. 20. It would offer a degree of downside protection while allowing you to participate in a potential up move. That expiration date would also give you enough time to evaluate the earnings.
The Bottom Line
Two years ago, Apple became the first U.S.-based company to hit a $1 trillion valuation. In August 2020, it hit the $2 trillion-milestone, again as the first U.S. company to cross the finish line.
Since then, AAPL stock has given back some of its gains from 2020. Considering the market’s short-term risks, investors may decide to take some more money off the table. However, a potential fall could also be a great long-term buying opportunity.
With such a market-cap and moat, Apple shares are unlikely to be held down by the market for too long. The Street, which loves AAPL stock, regards large-cap companies as robust long-term investments.
The company is likely to keep its leadership position for many years to come. It has long-term catalysts, including the opportunities yet to be offered by the upcoming 5G iPhone.
We’d look to buy the dips in Apple shares. Any move toward $100 or even below would improve the margin of safety.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
