Today I’m going to talk about the fool proofway to make money by investing in—or betting against—the darling of investors across the U.S., Apple (AAPL – yield 1.5%), maker of the iPhone, iPad and Mac. The interesting thing about AAPL stock is that people become so smitten with the aura of the company and its products that they can’t see the forest for the trees when it comes to the share price.
Let’s cut through the fog and figure out how you can make money on AAPL each and every year.
I know, I know … you think I’m going to entice you with candy, then pull the rug out from under you. This can’t possibly be an easy strategy, right? It’s going to involve staring at the computer all day, constantly trading in and out, right? Or waiting for the very moment of the quarterly press release in order to get a jump on all the other traders, right? And you need big money to successfully employ this strategy, right?
Nope. A first-time investor who owns a few shares of AAPL and lives in their mom’s basement can successfully win with this strategy. (You hate me right now. Your blood pressure is rising. You know I’m setting you up for a fall.)
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Relax. I’m the most logical investor in America. I figured this out, it’s easy, and I’m giving it to you as a gift. Here we go …
The Idiot’s Guide to Profiting from AAPL Stock
To employ this winning strategy with Apple stock, there is only one thing you need to know, and that’s whether the company is expected to see earnings per share (EPS) rise or fall this fiscal year.
Apple reported $9.21 EPS at the end of its 2017 fiscal year, which ended in September 2017. Wall Street’s consensus EPS estimate for fiscal 2018 is $11.54. Therefore, investment professionals across the country are expecting EPS to rise 25.3% in fiscal 2018.
You don’t actually need to know the EPS growth rate in order to implement this investing strategy. You also don’t need to know the dividend yield, the price/earnings ratio (P/E) or where CEO Tim Cook plans to vacation this summer. All you need to know is that profits are expected to rise. It’s helpful to know that the 2018 EPS estimate has been rising for many months because that gives you confidence that there’s a very firm expectation for profit gains in 2018.
Great, we just did all the work we need to do. Seriously. But I’ll give you the background now, so you understand what’s about to happen with the share price.
Take a look at the five-year price chart on AAPL stock. What you see is that the share price rises during each year that Apple’s profits rise. And the share price falls during each year that Apple’s profits fall. It’s like clockwork.
Caveat: With AAPL, I measure the stock’s rise and fall through June 30, not through September 30. That’s because on Wall Street, by the time we’re nine months into Apple’s fiscal year, big investors turn their attention to the next fiscal year, and begin buying and selling based on that subsequent year’s outlook. The pivotal turnaround point in the share price happens in July or August for AAPL, so I’m going to measure the share price gains and losses through June 30 of each year.
AAPL Share Price, EPS Growth Directly Correlated
Here’s the pattern:
One year capital gain or loss, excluding dividends. Time periods are one year through June 30.
2013: EPS fell, share price fell (31.6%)
2014: EPS rose, share price rose 62.8%
2015: EPS rose, share price rose 36.5%
2016: EPS fell, share price fell (22.9%)
2017: EPS rose, share price rose 53.1%
2018: EPS expected to rise, share price up 20% so far through February 21, 2018
You might be wondering if there’s been a correlation between the percentage EPS gain (or loss) and the gain (or loss) in the share price. The answer is “no,” although in four of the five years through fiscal 2017, the capital gain (or loss) was dramatically bigger than the percentage that EPS rose or fell.
Despite this extraordinarily predictable profit or loss scenario on the share price, each time the market trashes AAPL stock, investors act confused, shaking their fists at Wall Street and complaining to anybody who will listen to them. But the reason is simple—earnings were falling that year! They’ve made the mistake of falling in love with their stock (not unlike first-time political volunteers who fall in love with their candidate). They’re blinded by emotions and can’t see reality.
Please allow me to reiterate: With AAPL, recent history tells us the share price closely tracks the earnings trend. This is one of the most predictable opportunities in the stock market. Take advantage of it! The stock will probably climb through June 2018, at which point its direction will then be fueled by fiscal 2019 expectations. And thus far, Wall Street is expecting 2019 EPS to grow 14.4%. Therefore, I’m expecting capital gains to continue through the summer of 2019. Buy AAPL stock now. Strong Buy.
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*This post has been updated from an original version, published in 2017.
