Investors are on edge and it shows. Yesterday the Nasdaq fell 4% during the regular session. Then it rallied 3% after the market closed. Overnight, we reverted to the flat line — and for no particular reason. The pain Thursday came in sympathy from a massive 26% drop in Facebook (NASDAQ:FB) stock. The move was huge and investors punished anything tech. Apple (NASDAQ:AAPL) stock held up relatively well, only down half as much as the index.
Today we will discuss the opportunities left in AAPL stock after the Thursday drubbing.
Overnight the price action was completely different, as tech rallied with ferocity. Investors are so finicky and changing their minds on a dime, so they spit it back out by morning.
I miss the days where homework mattered and not everyone was a day trader. This after-hour jubilation came on the back of the massive 17% rally in Amazon (NASDAQ:AMZN) off of its earnings headline.
There were even bigger moves like Snapchat (NYSE:SNAP) and Pinterest (NYSE:PINS), which were up 56% and 28% respectively. In contrast, AAPL stock just showed a little bit of enthusiasm.
AAPL Stock Foundation Is Bulletproof
The Apple fundamentals are the envy of most others. Steve Jobs built a golden goose and a cash machine. Under the leadership of Tim Cook, the boulder continues to roll forward. Nevertheless, it is still an iPhone company to a great degree in spite of a big shift in sales mix. Services revenues now account for a big chunk of the income, but most still revolve around the iPhone.
Eventually they will need to find new sources of income so not to stagnate. Amazon reinvents itself often, and AAPL has all the potential to do the same.
Fundamentally, it is on solid footing and has ample resources it needs to adapt to changes in trends. Its financials are as good as they come. It is hard to complain about $378 billion in revenues. Critics will have to get creative to knock its bullish thesis down in the short term.
Valuation is a bit challenging with a price-to-earnings ratio close to 30. While it is not extremely expensive, it’s a bit rich relative to its old itself. However, it’s definitely not reason enough to short the stock. Therefore, if the indices are doing better in the future, then so is AAPL stock.
Stagger Entries Over Time
Timing entries into it would be the only challenge in the short term. It is still hovering close to its all-time highs while going into a Federal Reserve tightening cycle. There is resistance near $178 per share, but that would also be the eventual catalyst. If the bulls are able to break above it, then they have the opportunity to set new highs. Otherwise, patient investors should wait for a 10% dip, even at the risk of missing some upside.
The Jan. 24 lows are strong support and a decent starting position. Losing them would be extremely harmful to the momentum, but I don’t see that happening. Of course, if the indices crash then anything is possible. But as it stands now, this is a low-odds scenario.
Apple already reported its earnings and lacks the potential catalyst like Amazon. So I see no rush to buy in especially into a full size position of AAPL stock. Using options instead could allow for bullish positions with room to spare.
Otherwise, there are plenty of better value quality stocks that have fallen on hard times. Alibaba (NYSE:BABA), Square (NYSE:SQ) and Shopify (NYSE:SHOP) come to mind. They may have a better bang for the investment buck this year.
These are great businesses with outstanding futures that have gone into an abyss. The upside potential in them seems easier than breaking new highs in Apple this quarter. I am not being bearish AAPL, just listing it in a lower order on my shopping list.
Perhaps AAPL stock would be a good candidate for an iron condor range-bound trade for the next few weeks.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
