The Finance Gourmet

Personal Financial Advice from a former Certified Financial Planner

Apple Watch Overreaction Buying Opportunity?

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I don’t like giving short-term stock trading advice, because all of the wrong people end up taking it. Let’s start from the beginning. If you don’t have $100,000 of investable assets in a trading account (not counting 401k, IRA, or other long-term savings accounts), you have no business buying individual stocks of any kind. The ability to make a profit with small stock buys is severely limited.

Buy Apple Stock on Watch News

Apple recently announced the Apple Watch 3. The big deal for the Apple Watch 3 is that it can connect directly to cellular networks on its own without you having to have an iPhone to connect it to. This is another step in the direction of the watch itself replacing your phone, but for now, it’s mostly a novelty that appeals to Apple technology enthusiasts.

apple watch 3 problems

Recent reviews have indicated that there are some issues with the Apple Watch connectivity. As a result, Apple stock is down over 2% today. This is a major overreaction, and a buying opportunity if you are looking to invest in Apple shares.

The problem, is that the watch connects to Wi-Fi networks that do not have internet connectivity. This is the communication equivalent of driving into a dead end street. The watch thinks it is connected, but it can’t get to any actual data.

Why Apple Watch Problems Are a Buy

The severe downturn in Apple stock based on this new is a joke. The reality is that the Apple Watch is not going to be a big seller anyway, not like the new iPhone models will be. The point of the watch is to continue building the technology so it’s ready when the market is there, not to generate big revenues. Apple Watch revenues are largely inconsequential to Apple’s bottom line, so a problem with the watch simply isn’t that big of deal.

Even if the Apple watch was important to Apple stock, this is still a dumb move by the markets. Remember, the Apple Watch isn’t even out yet. Some reviewers have it, and pre-orders are available, but no watches are out in the wild yet. The fix, for this issue is a software fix, not a hardware problem, so all Apple has to do is correct the issue before watches start shipping, something it is sure to do.




The end result is that this watch thing will be fixed before it is a real issue that could actually hurt Apple’s financials.

The stock has been trading down since the iPhone announcement on September 12. That is in part from some disappointment in the offerings, but the reality is that, as always, Apple iPhone sales will be driven by Apple fans, who will buy either the iPhone 8 or iPhone X as soon as possible, and every major cell phone company is already pushing iPhone pre-orders.

Check out my Acorns reviews.

If your research tells you that Apple stock is overpriced, and that expectations are too high, that’s a reasonable position, and I’m not contradicting that. However, if you thought Apple was a buy before today, then today’s news is a joke, and a chance to get in on a dip.

This article is for general informational purposes only and is not a recommendation to buy or sell stocks. For advice on your specific investments, contact your financial professional. As of the publication of this article, the author owned shares of Apple stock, however, that may change at any time without prior notice.

 

 

Apple Stock High Again

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Apple stock price hit an all new high.

Yea! Cue the people who know me rushing to ask me if I should invest in Apple stock.

I’ve written about this before, of course. I also wrote about that Apple earnings miss that made everyone freak out a while back. I took a look and saw that I wrote an Amazon stock vs Apple stock article. I’ll have to re-read that when I get a chance and see if I was right 🙂

As was the case when I wrote those finance articles about Apple, the reality is that there isn’t much different about Apple stock today, that wasn’t also true yesterday, and a month ago. So, just because there is a BIG NEWS story today shouldn’t change your investing strategy.

Keep in mind, that this all new high isn’t the result of FINALLY breaking through a long losing streak. The last all-time high for Apple stock was back in 2015. It’s been a few years, but it’s not like this is a long suffering stock, or anything.

apple-stock-high-buy

Is Apple a Buy Here?

For years, betting against Apple has been a sucker’s bet. The company seemingly could do no wrong. Even when it did wrong, the conventional wisdom was that it was temporary and they would figure it out and start doing right again. There are still plenty of people that believe that, but it isn’t a universal thing anymore. There are rumblings that Steve Jobs really was the juice behind Apple, and that Tim Cook doesn’t have that juice.

A lot of that comes from the fact that Apple’s “new” products for the past few years have really been nothing more than incremental upgrades. A friend of mine who I’ve known for some time, and who immediately pre-ordered every new upgrade to the iPhone the day it was announced, ended up finally sitting out the iPhone 7 because there just wasn’t anything he needed, or wanted on it.




The same story is true of the iPads. Surveys show that plenty of people are running years old iPads with no intention to upgrade.

The upgrade to the company’s MacBook was met with rumblings of disappointment over a very minor feature upgrade (the touch bar) and what many felt were insufficient hardware upgrades.

Does this mean Apple is finished? Hardly, but maybe it isn’t as magic as it was.

Why Is Apple Stock Up?

So, if that’s all true, why is Apple stock up?

There are a lot of reasons, some more real than others. First, and foremost, Apple has embarked on a huge share buyback program, just like IBM has spent the last couple decades doing. Like IBM’s massive share repurchases, Apple’s $70 billion buyback has removed so many outstanding shares from the market that things like Earnings Per Share are going up, even if revenue isn’t.

You see, earnings per share is a division problem. Removing, or buying back, shares lowers the divisor. Divide by a smaller number, and your result is higher. Apple has lowered the number of outstanding shares by 6 percent, which is a LOT.

Don’t forget that Apple’s board of directors actually cut Tim Cook’s pay for poor performance just last year, so it isn’t all rainbows.

Here is a pretty good explanation of what I’m talking about.

If this is all true, then why is the stock price going up?

Remember that stock prices are based on the FUTURE. After all, you don’t want to buy stock today for $133, and then have it not go up. The point of buying it for $133 now, is that you think it will go higher in the future.

Why do people think that?

Well, there IS a new iPhone coming, and people are convinced that this one will be a bigger deal than the iPhone 7. Goldman Sachs things there will be “3-D sensing technology”, which might be awesome. Remember, Apple’s fan base is loyal and rabid. It won’t take too much to get them out there buying and creating record iPhone 8 sales, especially since many of them are sitting on aging iPhone 6s.

And, while last year’s MacBook was a bit of a bust, rumors are that the company is going back to juice it up some more. If that happens there is TONS of pent up demand from a developer community that wants/needs more powerful MacBooks and are just BEGGING for the opportunity to buy them.

Last, but not least, President Trump has talked about some sort of tax holiday or tax break to allow corporations to bring offshore funds to the U.S. at a huge discount. No one has more money sitting overseas than Apple, so anything along those lines would be a huge boost for the company.

So, is Apple a buy?

Let’s review:

You should not be buying individual stocks unless you have an investment account with $100,000 in it. (This is in addition to your regular savings!)

You should not have an account like that unless you are already maxing out your 401k and IRA contributions (and 529 contributions if you have kids).

If, and only if, you meet both the above requirements, chances are pretty good that at least one of those three things are going to happen and when they do, the stock will likely pop. And, while you wait, the stock is still paying a 1.7% or so dividend, which is better than a savings account. So, if you’ve got a slot for a tech stock in your portfolio, you have plenty of time to wait out any ups and downs, and you’re looking to go aggressive, it’s probably a buy.

This is not a recommendation to buy or sell securities. This article is for informational purposes only and is not an offer to buy or sell securities. The author does not hold himself out to be a financial advisor or financial planner and is not a licensed broker. Talk to your tax and financial professionals for advice specific to your own personal situation. The author owned shares of Apple stock at the time this article was published, but that can change at any time without notice.

Apple Stock iPhone 7

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I write more about Apple stock than I ever mean to, but people just love to talk to me about it, so here we go.

New iPhone New Apple Stock Moves

Apple stock is one of those stocks that gets a lot of attention, and action, from people who otherwise don’t invest in individual stocks much at all. That is, among your own friends, chances are that there are people who own Apple stock, and nothing else other than some company stock, or maybe some ETFs or mutual funds. These investors are, not surprisingly, often moved by news, other than any sort of analysis.

In addition to these investors, there are a lot of very experienced investors with Apple stock in their portfolio, and they both watch the fundamentals, AND try to guess how others will reaction to Apple stock.

apple stock outlook logo

All of this adds up to a stock that likes to move A LOT based on any single news event or earnings report.

For the last several months, Apple stock has not done well. There were concerns that the company could no longer innovate, and the momentum left behind by Steve Jobs had finally run out. But, last week, Apple introduced its new iPhone 7. Ironically, while the phone has been upgraded to the latest hardware, there isn’t really anything new and different, beyond the elimination of the headphone jack, and the introduction of wireless earbuds.

None of that matters, however, because Apple has a very loyal customer base that buys the new version of the iPhone as soon as it comes out, no matter what. Then, there is a follow up customer base that buys it a little later after all the buzz dies down. No matter how you slice it, the new iPhone means a bunch of new money for Apple. And, today, the company announced that it has sold out of the initial run of iPhone 7 Plus, without telling anyone just how many that is.

It seems everyone suddenly remembers that Apple makes iPhones and that Apple customers buy iPhones, and so the stock is up over 11% for the week, last I checked.

Is Apple Stock a Good Investment Now?

This brings us to the question that everyone has on their mind. Is Apple stock a good investment now with the new iPhone.

The answer is that Apple is largely the same company it was last month, when the stock was down for the year. In other words, Apple is no better or worse of an investment than it was before the iPhone 7 was announced. Granted, great iPhone sales may offer a short-term bump in Apple stock price, but the fundamentals remain unchanged.

To answer the question, Apple is a good investment. Its management is solid, as its is balance sheet and fundamentals. If that weren’t enough the company also has a dividend yield over 2%. All of that makes it a pretty great investment.

That being said, the stock price will go up and down. It will go up if people are impressed by iPhone 7 sales through year end. Of course, it will go down if those sales are not as strong as people would like. In other words, the stock price for the short-term for Apple is going to be completely based upon the reaction (or overreaction) to news reports. If you can’t handle that short-term volatility then that’s another story.

Of course, as I’ve repeatedly said, unless you have $100,000 for investing in individual stocks, you shouldn’t be buying individual stocks at all.

If you insist on wanting to invest “something” in Apple stock, first do yourself a favor and figure out what the 11% boost would have meant to you in real dollars, not percentages. In other words, if you’re like my friend who insists on putting $1,000 into Apple stock, “because I know it’s going up,” that 11% pop was worth $110, minus commissions. If that is worth it to you, then be my guest.

The key will be the holiday shopping season. If Wall Street is impressed with the 4th quarter sales of iPhone, look for a nice runnup in the stock. But, if they are “disappointing,” expect a major hammering.

 

Apple Stock and Changing Times

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Apple Stock has gotten a bit of a beat down lately after finally experiencing what everyone knew would have to happen someday. It seems that Apple has finally saturated every market on earth, and there will be no matter automatic increases in number of devices sold in ever category.

Of particular concern to most investors is the drop in iPhone sales. It turns out there are two major issues. First, is that in China, iPhones are no longer the must have item they once were. The other is the maturation of markets.

Apple No New Products

When you make a brand new product, or in Apple’s case, when you create a new product category, you get a sales trajectory that includes people buying it because it is new and different, and surely there is something that you can do with it. Of course, over time, this free pass sort of evaporates as people learn what they can and can’t do, and whether or not those things matter to them.

 

apple stock outlook logo

Recently, Apple enjoyed great success with the iPhone 6, in large part because Apple finally offered a big phone. Naturally, Apple users ran out and bought the bigger phone. However, now that there is an iPhone big and small, people are making choices rather than just buying whatever is out there. The new SE iPhone, for example, was skipped by anyone who decided they wanted a big iPhone.

The same issue is kicking in on tablets. Where once an iPad was this great new thing, it turns out that maybe people don’t need the next one. In my household, the iPad is primarily used by the 6 year old. It turns out, I need a keyboard for most anything but web browsing, so tablets aren’t really my thing, especially at the iPad price point.

The concern for investors is that previously, Apple always had an answer for this issue. There was always a new product, or a new version to light everything on fire. That hasn’t happened yet.

Apple Stock Outlook

So, what does this all mean for Apple stock?

In the near term, it has meant a drop in Apple stock. In fact, MarketWatch noted today that if Apple closes down for the day, that will be the longest loss streak in 18 years. If you think about it, that says a lot more about the last 18 years than it says about today.

The short answer is that if you want to buy Apple for a quick little run up in the next six to twelve months, that has become a pretty big risk. But, what about for longer term investors?

Here is where things get interesting. Apple will eventually come out with an iPhone 7. Even if it is nothing but faster and better looking, you can count on big sales, as Apple fans love to have the latest and greatest technology whether they need it or not. If it actually has something new and revolutionary, well, that’s going to be big, big sales.

In the meantime, a $93 share price has pushed the dividend on Apple stock into the 2.4% arena. In other words, if you like Apple stock and still believe in the company’s ability to generate great products, then you have a great little investment that pays you a solid dividend while waiting for the next big thing to come along and make your investment profitable from a capital gain standpoint.

In other words, the only real reason to look poorly on Apple stock is if you believe this is peak Apple. That is, if you think the company will never come out on top again. Has Apple become Microsoft? That’s a tough bet, even if you think the company has lost some luster without Steve Jobs. Apple is still the market share leader in most of its categories, even if those categories aren’t getting any bigger. And, its earnings and profits are still huge.

If you can ignore the short-term pricing and are willing to hold on for a year or two minimum, chances are you’ll come out with some nice gains and get almost 2.5% per year along the way. Looks like a win / win for longer-term investors, but a lot more like catching a falling knife for short-term investors.

This article is for informational purposes only and does not represent a recommendation to buy or sell securities. I am not an investment advisor or financial planner any longer, nor do I hold myself out to be one. Consult with your financial professionals for information specific to your own situation. At the time this article was published, the author owned shares of Apple stock, but that may change at any time without notice.

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