Last week Apple (AAPL) fell 10% when the company slashed its revenue forecast for the first quarter of 2019, citing lower-than-anticipated iPhone revenue due to weak sales in China. I have bullish and bearish AAPL options trades below, but first I wanted to share the thoughts of fellow Cabot analysts on AAPL stock and if they think the stock is a Buy, Sell or Hold.
Mike Cintolo, Chief Analyst, Cabot Growth Investor and Cabot Top Ten Trader
“AAPL has obviously had a big dip in recent weeks; while the focus was mostly on last week’s earnings warning, the signs were everywhere for a while, as the stock slipped below its key moving averages on heavy volume in November and December. At this point, my main thought with the stock is simply that it’s not likely to be a leader going forward – that doesn’t mean it won’t bounce (in fact, if the market’s rebound continues, it probably will bounce), but it’s not some of the best merchandise in the market anymore.”
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Tyler Laundon, Chief Analyst, Cabot Small-Cap Confidential
“I haven’t done a deep dive on the stock but I do think the long-term story of a future Apple that’s a major player in services (meaning it’s successfully expanded beyond more of a hardware story) is compelling. So I’d say it’s a buy, with the caveat that I’d average in over several quarters. It doesn’t take a lot of imagination to see Apple dramatically improve iTunes and iCloud, and make a big push into new markets, like consumer health care/monitoring (through the Apple Watch). How exactly it gets there and what the mix of organic vs. acquisition-led growth is unknown. Still, given that the market would likely put a much higher multiple on the stock than Apple currently gets, that the business would likely be less cyclical and it’s already a premium brand with a significant installed base, it seems like a good value now, provided you can be patient as the transformation will take some time.”
Crista Huff, Chief Analyst, Cabot Undervalued Stocks Advisor
“The disappointment in iPhone revenue did not infect Apple Services and Wearables, which continue to sell at a brisk pace. Tim Cook expects first-quarter EPS will still reach record levels. Cook commented, ‘Services generated over $10.8 billion in revenue during the quarter, growing to a new quarterly record in every geographic segment, and we are on track to achieve our goal of doubling the size of this business from 2016 to 2020.’
“Consensus earnings estimates came down last week. Analysts now expect EPS to rise 3.4% and 11.4% in fiscal 2019 and 2020 (September year end). The respective P/Es are 12.0 and 10.8. The stock might be finding a bottom around 150. I’ll return AAPL to a Buy recommendation when the price chart stabilizes. *Hold.”
Tim Lutts, Chief Analyst, Cabot Stock of the Week
“Short term, this is probably a good buying point. A look at the chart of the past decade shows that the stock has come close to this moving average twice before—in June 2013 and in May 2016—and both were great buying points.
“So if you want to make money over the next year, I recommend buying Apple now.
“Looking longer term, however, Apple’s situation reminds me a lot of two other great companies, IBM (IBM) and Microsoft (MSFT)—and that’s a story worth exploring.”
Two AAPL Options Trades
So with AAPL trading around 148 how might I bet on, or against, AAPL stock trading options? There are two AAPL options trades to consider, depending on what you think of the company.
If I believed in CEO Tim Cook and the future of AAPL, I might execute the following trade:
Buy to Open the AAPL April 150 Calls for $9.
The most you can lose on this Apple options trade is $900 per call purchased, if AAPL stock were to close below 150 on April 18, 2019.
However, this trade has unlimited upside potential, just like a stock purchase, but at a fraction of the cost ($900 vs. $14,800).
If I wanted to bet against AAPL stock, I might execute the following trade:
Buy to Open the AAPL April 145 Puts for $8.
The most you can lose on this AAPL options trade is $800 per put purchased, if AAPL were to close above 145 on April 18, 2019.
The advantage to buying put options is that most brokerage companies don’t allow average investors to short stocks. However, they do all allow you to buy puts, which is a bearish position, because your potential loss is limited to the price you paid for the put ($800).
Jacob Mintz is a professional options trader and Chief Analyst of Cabot Options Trader. He uses calls, puts and covered calls to guide investors to quick profits while always controlling risk. Beginners and experts alike can gain from following Jacob’s advice.Learn More