Apple (AAPL) is a technology company like no other. Founded by Steve Jobs, arguably one of the greatest tech entrepreneurs in the post-war era, Apple inc has come to symbolise the epitome of innovation and fashionable technology. It has been pioneering consumer smartphones since 2009.
Like the IBM of old, Apple is now a ‘must-have’ stock for investors. When even Warren Buffett holds 907 million shares of Apple (about 5.6% of the company), no portfolio manager will be sacked for buying Apple shares. More importantly, Apple’s share performance has provided ample evidence that it is a really good stock to own over the long term.
In 2008, the tech stock was trading at a low of $3 (post-split, most recently done in 2020 4-for-1). Now, it is hovering at $150 per share. That’s about 50x in 15 years. Very few other large-cap stocks manage to generate a fraction of that return over the same period.
As a result of its consistent share price rally, Apple is now the most valuable company on earth – with a market capitalisation of $2.5 trillion dollars. With so much momentum behind it, the case for holding Apple is strong.
Relative Strength
The best time to buy any tech share is when the sector is under duress. For example, the tech industry is under increasing selling pressure of late (see our recent analysis of when to buy shares in Meta). Some contrarian plays – that is, buying at extreme fear – may be opening up.
Apple, on the other hand, saw its share price rose by more than 7 percent on the same day Amazon (AMZN) slumped by 10 percent. As a result, Apple’s current relative strength against other top tech stocks are widening. Have a look at the bottom chart comparing the QQQ ETF (Nasdaq 100 Index) against Apple. Apple is outperforming QQQ.
Buy, Sell or Hold?
With no price slump on the horizon, should we still buy Apple shares from the UK?
- Yes, buy only if you assume that Apple will continue to prosper in the months ahead, therefore translating into bigger profits and affirming its fundamental growth story.
- No, sell if you take a more negative view of the market. A recent covid-lockdown in Apple’s China factory may cause near-term supply disruption.
- Maybe, hold if you already owned Apple shares, taking a long-term view is imperative. Tactically, however, trimming some positions at the top of the range while buying some when prices are weak may be desirable.
Fully valued
Apple’s latest fourth-quarter revenue was around $90 billion. This takes Apple’s full-year revenue to a total of $394 billion (up 8 percent year on year). Earnings per share is about $6.11 (up 9 percent year on year). This is a set of phenomenal results. Only a handful of companies can manage to churn out so much profits year after year. Many tech shares have tanked this year because of lower earnings.
While Apple’s share price dropped initially upon this set of results, the price turned around and closed higher. This means that the market may not be that perturbed about the current tech route – and view Apple in a more neutral way.
In other words, it is possible that Apple’s share price is fully valued at current prices.
Uptrend
Apple’s share rocketed nearly 7.5 percent on the day it released its fourth-quarter results. The fact that prices surged suggests that investors are now slightly optimistic about the company’s near-term future. Sentiment about the company was negative in the third quarter as prices slid from $175 to $135.
Chartwise, Apple shares price has been trading in a range since the end of 2021. Prices peaked just a little above $180 earlier in the year; and established a floor at around $130. Current prices are about mid-way within this range.
So if you’re looking for a short-term trade now, I would not be overly aggressive in position sizing. A range-trading stock can go either way at any time, thus whipsawing buy or short positions.
Macro uncertainty will also weigh on the general market sentiment.
Prediction & Forcasts
With no meaningful slowdown in Apple’s earnings predicted, analysts are sticking to their bullish forecasts.
According to the Financial Times, nearly all analysts are recommending a ‘Buy’ or ‘Outperform’ on Apple’s stock. More tellingly, there is no ‘Sell’ recommendation and only 1 ‘Underperform’. This suggests that Wall Street is highly – and uniformly – positive about this tech titan than any other stock in the sector.
A more negative way to look at this is that the stock is pricing a bullish outcome – which may or may not happen. Any shortfall may cause a sharp drop in Apple’s share price.
Source: Financial Times
