A week ago, I penned an article titled, “Why You Should Sell Apple Stock Right Now.” It never saw the light of day. Why? Because, unbeknownst to me, Crista Huff, chief analyst of our Cabot Undervalued Stocks Advisor, was simultaneously putting the finishing touches on a recommendation to her readers to buy Apple stock. So, which is the right answer with AAPL: buy, sell or hold?
Differing opinions about a stock—especially one as polarizing as Apple (AAPL)—are only natural. In fact, they’re healthy, giving individual investors like yourself a chance to consider both the bullish and bearish case for a stock before deciding whether or not to buy it. But the timing last week wasn’t right—I didn’t want to confuse our readers by publishing a “Sell Apple Stock” column and a “Buy Apple Stock” issue on the same day.
But now, a week after Crista added Apple stock to her Cabot Undervalued Stocks Advisor portfolio and listed it as a “Strong Buy,” I think it could be useful to show you portions of what both of us wrote, and let you decide what to do with AAPL: buy, sell or hold (if you already own it, which many of you probably do.) In the week-plus since Crista and I wrote our contrasting opinions about AAPL stock, it has given credence to both recommendations, rising to 209 from 201 early last week before falling for five straight trading sessions.
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I’ll start with my recommendation to Sell Apple. Here’s a sampling of what I wrote last Monday—but appearing for public consumption for the first time:
The Case for Selling AAPL
Chart reading and technical analysis are an essential part of evaluating any stock. And right now, the chart says to sell Apple stock.
Yes, Apple (AAPL) is still a long-term growth story that’s likely to keep rising in the years ahead. But it’s in the midst of a tailspin, and recently broke below three-month support at 207.
For the moment, AAPL remains above its 200-day moving average. But with the stock already down nearly 14% in the last month, if you own Apple stock (as many do), it’s not worth hanging on until it does dip below that 200-day line. Momentum is simply not with the stock or the company, and the market isn’t healthy enough to expect a sustained recovery in the coming days or perhaps weeks.
Two analyst downgrades—one by Bank of America Merrill Lynch, the other by Rosenblatt Securities—have accelerated AAPL’s losses in the last two trading sessions. But the initial culprit was weak earnings guidance due to lowered expectations for its new iPhone XS/XR, launched in September.
Already slipping prior to the analyst downgrades thanks in large part to the October market correction, Apple stock has now fallen for five straight weeks for the first time since 2012.
Now, does that mean you should completely write off Apple stock as a long-term investment? Of course not! It’s still growing at a healthy clip, with analysts forecasting 14.3% EPS growth in fiscal 2019 (which is already underway and ends next September) and another 9.4% growth in fiscal 2020. It’s still one of the most cash-rich, reliable money makers in the world. If you buy Apple stock now and held on to it for the next five, 10, 20 years, you will almost certainly make money.
The Case for Buying AAPL
So, that’s what I wrote. Note that I concluded by saying that AAPL stock remains a strong long-term investment, but is experiencing some short-term turbulence that has since taken it all the way down below 190—and thus below its 200-day line.
Crista knew there’d be more short-term pain ahead, too. But she viewed the depressed price in Apple stock as a prime buying opportunity for longer-term investors.
Here is a sampling of what she wrote to her subscribers last Tuesday:
I’m bringing Apple (AAPL) back into the fold, now that the share price is down about 9% since I retired the stock from the Growth Portfolio in September. AAPL is the kind of stock that I would personally add to during market corrections, or simply when whimsically negative market sentiment pushes the share price down. And guess what? Both of those situations are occurring right now.
If you’ve been flirting with the idea of buying low among famous tech or communication stocks, then you might want to review my October article: Which of the 12 Most Popular Large-Cap Stocks Should I Buy Today?. AAPL was trading at 223 when I wrote the article, though barely undervalued. However, at this moment as I write on November 5, AAPL is trading at 199. Ding! Ding! Ding! It’s time.
Apple’s recent fourth-quarter earnings report brought the unsettling news that the company is going to stop reporting quarterly iPhone sales volume. CEO Tim Cook thought that investors were too focused on that number, missing the forest for the trees, and I wholeheartedly agree with him. I personally thought the market’s fixation on sales volume was a rookie mistake, when average selling prices (ASPs) and Apple Services revenue (Apple Pay, iCloud, AppleCare and the App Store) seemed to be far more relevant numbers with which to assess quarterly successes.
Apple reported a 29.3% increase in fiscal 2018 (September year end) earnings per share (EPS). Analysts are currently expecting 2019 EPS to rise 14.3%. That number will invariably be tweaked in the coming weeks.
I’m not expecting a rapid rebound in the share price, and we could easily see the stock bounce at 195 a few times before it begins to recover. But all-in-all, I like the current price, and I’m certainly willing to wait a few short months for the rebound toward 230.
P.S. Remember Apple’s $100 billion share repurchase authorization that they announced in May 2018? I’m relatively certain that Tim Cook and Apple management see the same buying opportunity that you and I are staring at today. Strong Buy.
AAPL: Buy, Sell or Hold?
Who should you believe? That’s up to you. Chances are, we’re both right: I recommended selling AAPL to avoid the kind of short-term losses that can eat away at your portfolio, while Crista recommending buying AAPL at a discount for longer-term capital gains, despite the likelihood of an even further dip.
Long term, we both like AAPL stock. And for those of you investing strictly for the long term, perhaps that’s all the answer you need.
To see what other stocks Crista is currently recommending, click here.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!