Apple (AAPL) continues to be one of the market’s favorite soap operas, kind of like “The Real Tech Wife of Cupertino.” When Apple reported earnings this morning, news that the company hadn’t sold as many iPhones as expected rocketed around financial sites at light speed, and AAPL was down a little over 1% early in the trading day, but narrowed its loss early in the session. Does that drop mean it’s a good time to buy AAPL stock? More on that in a minute.
A 1% dip in AAPL scrubs off a little over $8 billion from Apple’s market cap, but that’s mostly just a bookkeeping blip when you’re dealing with a company whose worth is within shouting distance of $800 billion.
The reason for the negative reaction from investors is that the company sold “only” 50.76 million iPhones, which was down from 51.19 million a year ago.
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But the reason the negative reaction was so small is that the dip in sales was blamed on a “pause” in buying caused by anticipation of the upcoming release of the iPhone 8. So investors had to balance a disappointing result with the presumption that the iPhone 8 will be a blockbuster. You can see the conflict playing out in this daily chart of AAPL, which shows both the four-week flat patch in Apple stock ahead of earnings and the tiny pullback that didn’t even pull the stock below its April resistance.
News of good sales from iPads and a 10.5% increase in AAPL’s dividend probably also helped to soften the blow.
The plain truth is that it would have taken a much worse quarterly report to really torpedo AAPL. The stock has successfully transitioned from a growth stock to a dividend stock, and it is still a mega-cap favorite of institutional investors, including both mutual funds and hedge funds.
Does that mean you should buy AAPL stock here? It probably does, if what you’re looking for is a high-quality income stock that pays a reasonable dividend (the forward annual yield in 1.6%) and above average prospects for price appreciation. It’s also worth noting that of the 5.25 billion shares outstanding in AAPL, that only 53 million of them are trading short.
And given how much short specialists enjoy making bets against big winners, that’s a pretty good endorsement.
While AAPL isn’t currently recommended as a Buy in any of Cabot’s growth advisories, it was featured in Cabot Benjamin Graham Value Investor back in July 2016, when it was trading at 97. Roy Ward, who writes the Value Investor, saw a strong company with great international reach whose stock was trading at an attractive 12.5 time its latest EPS. He advised his subscribers to buy AAPL stock anywhere under his Maximum Buy Price of 101.95 and hold until it hit his Minimum Sell Price of $151.3. Roy has since adjusted his Maximum Buy Price to 113.62 and his Minimum Sell Price to 172.73. It’s a great example of how the value disciplines that generate low-risk, long-term value work over time. AAPL is a Hold in Roy’s value portfolio.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More