Is AAPL Stock Climbing Its Own Wall of Worry?

There’s an old saying that stock markets “climb a wall of worry.” If that’s true, then so do individual stocks—and the higher the profile, the greater the worry. Lately, Apple’s (AAPL) wall of worry has been as tall as the Empire State Building.

Wall of Worry, Explained

First, let me explain what exactly a “wall of worry” means. Actually, I’ll let Paul Goodwin do the explaining, in this excerpt from a story he wrote about the concept a few months ago:

“What the saying means is that a bull market isn’t a peaceful place. When the good times are rolling, investors are constantly tense, wondering how long they will keep rolling, fretting about whether a correction in a particular stock is going to turn into a rout and agonizing over whether to take profits in a position or let it ride.

“Experts and commentators do their part by issuing warnings about everything that could possibly go wrong with the economy, the markets and most leading stocks.”

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AAPL would certainly fall into the category of “leading stocks.” And there have been countless warnings about what could go wrong with AAPL stock over the past year-plus—ever since its sharp downturn in the second half of 2015. We at Cabot have done it ourselves, advising Wall Street’s Best Daily readers to sell Apple a year ago to the day.

In the 12 months since, AAPL stock is up 42%, exactly triple the return in the S&P 500. During that time, AAPL has outpaced the likes of Amazon (AMZN), Facebook (FB) and Google (GOOG)—a veritable who’s who of the market’s great growth stocks. Here’s what a one-year chart of Apple stock looks like:

Apple (AAPL) has been climbing a wall of worry over the past year. Can it last?That’s quite a climb!

Apple Earnings Pivotal

Against that backdrop comes Apple’s second-quarter earnings report, after the bell today (Tuesday). Having scaled the wall of worry, Apple’s earnings estimates are actually quite optimistic, with analysts expecting a 10.7% increase in earnings per share and a 6% sales improvement, which if true would mark the best top- and bottom-line growth for the company since the third quarter of 2015.

Is the sudden optimism a bad sign for Apple stock? Those are awfully high bars to clear, and part of what has fueled AAPL’s recent were earnings beats in each of the last two quarters. A miss could slow Apple’s momentum, and prompt a breakout to the downside for AAPL stock after three months of stagnation.

One thing is for sure: if Apple falls short of second-quarter estimates, it would undoubtedly bring all the stock’s naysayers back out of the woodwork. Ominous warnings about another major crash in AAPL stock would surface on virtually every financial website and blog out there, and Apple’s wall of worry would be rebuilt before Wednesday’s opening bell.

Apple certainly has its problems. Profits and sales have slipped considerably in the last two years, the brand has become stale amid an endless churn of iPhone upgrades, and it’s been years since the company produced a new product that has truly wowed consumers the way it used to with the late Steve Jobs at the helm. Those factors, plus a 32% drop in the stock from May 2015 to May 2016, have all contributed to the general feeling of doom and gloom surrounding AAPL on Wall Street these days.

Meanwhile, AAPL has quietly been one of the market’s strongest performers. Can it continue to surge, or has the stock reached the top of its wall of worry and there’s nowhere to go but down? The response to tonight’s earnings could be quite telling.

Chris Preston

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