The Finance Gourmet

Personal Financial Advice from a former Certified Financial Planner

No-Brainer High Risk Apple Trade Coming Up

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Apple has announced an event on September 12. Traditionally, Apple announces new iPhones and other “gadgets” in September, and expectations are high.

So, what is an investor to do?

If you are a long-term investor, nothing. Absolutely nothing. The event will generate some noise in Apple’s stock price, but the actual effects will take place over the months and years as Apple executes on its strategy, and how well the new phones are received.

apple event stock trade

Short-Term Apple Trade

What about a short-term investor looking for a little trade on Apple’s big event?

In that case, it’s time to look into options and start pricing volatility plays. No matter what Apple announces there will be a reaction. In fact, there is a very good chance that there will be an OVER-reaction. That reaction will show up in a quick rising, or falling stock price.

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Now, if you don’t understand options, and don’t already have an options enabled account, this move is not for you, but if you’ve been to this rodeo once or twice before, there is money to be made here in a good volatility trade, coupled with the usual leverage of stock options.

Buy Apple Stock?

What about just buying (or shorting) some shares of Apple stock?

While that is certainly doable, you should carefully calculate your expectations and risk IN DOLLARS. As always, it’s too easy to get caught up in sexy percentages and forget what you are actually looking at.

As of right now, Apple stock is trading at about $225 per share. To buy 100 shares, you would need $22,500. If the stock price rose, say $10 per share based on the announcement (around 4% to 5%), you would make $1,000 profit on your $22,500 investment. A $20 share increase (almost 10%) would net your $2,000 on your $22,500 investment.

So, is it worth the risk (and trade costs) of dropping $22,500 to buy some stock in order to make $2,000? If the answer is yes, and you can afford to risk the money (no college funds!), then there would be dumber trades out there.

Remember, however, that expectations are HIGH for this event. If Apple disappoints, with a few “incremental upgrades” it might be a long while before you see a $225 share price again. That $2,000 quick profit, could be a $2,000 quick loss just as easily, and the prices will react so quickly, you’ll never get a shot at getting out. Even a stop-loss could send you reeling.

Will I be getting in on this short-term Apple trade?

Nope.

Short-term trades aren’t my style. Easy ones like this don’t come along all that often, and the juice isn’t always worth the squeeze. I do have some Apple stock already. Buying in a while back gives me a nice ongoing dividend, so I’ll be rooting for Apple, but the shares I already own will have to be my skin in this game.

At the time of publication, the author owned shares of Apple stock. That may change at any time, without notice. This is not an offer to buy or sell securities, nor is it financial advice. The author does not hold himself out to be a financial advisor. The author is not a licensed broker. This article is for general informational purposes only and should not be considered financial advice. 

Is FAANG a Good Investment?

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Even if you’ve never heard of FAANG, chances are you have heard of all the stock components and maybe even contemplated an investment in one or more members, but is FAANG a good investment or bad investment?

What Is FAANG?

Let’s start from the beginning. FAANG stands for Facebook, Apple, Amazon, Netflix and Google. As you can probably tell, these are very big, very well known, technology stocks. They are also frequent investments among investors who only invest in a few individual stocks, people often called Main Street investors (as opposed to Wall Street investors).

One omission from the list is Microsoft, which is also a very large, very well known, technology company. Unlike the others, however, Microsoft’s stock is not well loved by Wall Street investors and analysts, in large part due to its sideways performance from 2002 to 2013. While its stock has recently done well, it still doesn’t have the same shine, or flair as the others. Perhaps this makes it a less “noisy” investment with fewer fair-weather, amateur, investors? That’s an article for another day.

faang microsoft

For professional stock analysts and investors, FAANG represents a quick look at the “new” titans of American business. Each of these companies represents the mature, profitable, internet-based, mobile, online economy at the level of a full-size, profitable, Fortune 500 company, unlike say Twitter, which still struggles to make money.

For amateur investors, FAANG stocks represent a mirage of investing in “the future.” For these Main Street investors, an investment in Google, or Apple is because they “know” these high-tech companies, and they “know” they will go up because of how great their cutting edge technology is. Unfortunately, everything they know about, say, Apple (they have new iPhones!) is already baked into the price.

Is FAANG a Good Investment?

So, that raises the question of whether FAANG stocks are a smart investment. The answer, as always, depends upon your individual situation and investing goals, but beyond that, there are some things you need to know about investing in FAANG to avoid potential catastrophe.

First, don’t think that you are “special” in knowing about these companies. These are worldwide brands that are closely followed by every kind of investor, from the guy with $3,500 in an Ameritrade account, to billionaire hedge fund managers. And, yes, they know about the new iPhones.

Second, as tech titans, these stocks move both on their own accord (Hey, look! New iPhones are selling really well.), as well as representatives of technology (Uh, oh! Bad news for tech companies today…) Your best buying opportunities will be when the market overreacts to general technology news that doesn’t actually harm these individual stocks over the longer-term.

Third, know that these stocks tend to move together. Yes, only Apple sells iPhones, but more people buying iPhones means more people using Facebook, and more people using Netflix, and so on. These are all technology companies with big, international footprints. As far as your asset allocation goes, these all count as U.S. large-cap stocks. In other words, if you want to own all five FAANG stocks, you are going to need to diversify your portfolio elsewhere. From a diversification standpoint, these stocks are all the same.

Fourth, they won’t always go up. It’s easy to look now and wonder how there can even be a future without these companies, but it happens all the time. Go back to the 1990s and look at how many lists Cisco is on as a sure thing, even as a safe-pick for a 10-year or 20-year investment. Just look up at the top of this article to remember how many years Microsoft was a non-gainer even though there was once a time where a world without Microsoft was an anarchist pipe dream. Treat these investments like any other stock. Management and execution are crucial.

Fifth, these companies can be very volatile. If you are putting these in your diversified portfolio, they’ll need to be offset with more stable, value stocks, a nice stable mutual fund, or even bonds.

Finally, there will be news. The old maxim to buy the rumor and sell the news doesn’t always work as well with these companies as with others because so many people are constantly trying to predict what their next move will be. That beings said, buying the NEWS on these companies is a fool’s errand. Often the news gets overbought by household investors leading to a drop in the next few days. Couple that with some bad news, and you have a ‘bought at the top’ situation. Buy these stocks based on their long-term prospects and historical value only.

FAANG stocks are a good investment for the long-term, but they aren’t magic. They need to be monitored, and gains should be taken along the way, just like any other stock.

This is not an offer, or recommendation, to buy or sell securities. As the time of publication, the author owned Apple and Microsoft stock, however, that may change at any time. The author is not a financial advisor and does not hold himself out to be one. Consult your financial professionals for advice on your specific situation.

 

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.

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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.

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