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Buy Apple Stock Once It Hits This Level

Bret Kenwell

Shares of Apple (NASDAQ:AAPL) fell about 8% in Wednesday’s after-hours trading session after the tech giant slashed its quarterly guidance. Not only is such a move uncharacteristic of Apple, but it comes during the company’s biggest quarter of the year. It’s no wonder Apple stock tumbled on the news, particularly considering the market climate that we’re in.

It leaves one burning question for investors: Should I buy and when? Let’s look at the news, first.

The company cut its first-quarter revenue expectations to $84 billion after previously guiding for $89 billion to $94 billion in sales. Investors may also recall that Apple’s initial guidance fell below consensus too, rubbing even more salt in the wound.

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CEO Tim Cook pegged the iPhone as the culprit, as weakness in China and lower-than-expected upgrades weighed on the segment’s revenue.

The Positives for Apple Stock

This news is hammering the stock and we’ll take a good look at the charts in a minute. But I just wanted to take a moment to highlight some of the positives here.

For starters, the company has a lot of encouraging notes on the quarter. Revenue (ex-iPhone) grew 19% year-over-year. Helping drive that momentum is the Services business, which logged $10.8 billion in sales, good for 27.5% year-over-year (YoY) growth. Wearables grew more than 50% YoY, which includes the Apple Watch and those pricey AirPods you see everyone wearing in the city.

Management expects to set “all-time revenue records in several developed countries, including the United States, Canada, Germany, Italy, Spain, the Netherlands and Korea.” This further emphasizes that the overall business is healthy, while macro and emerging market factors play a negative role at the moment. Finally, they also expect the quarter to result in record earnings per share.

Regarding Apple stock specifically, we’re still talking about a company that trades at roughly 11 times this year’s earnings expectations. Keep in mind, these expectations will likely take a hit in the coming days. Still though, AAPL stock trades at 12 times its trailing 12-months of earnings. That’s pretty darn cheap for a company on our fortress balance sheet list.

Apple stock also has a ~2% dividend yield and is working through its $100 billion buybacks (that team has been busy the past few months!).

Trading AAPL Stock

chart of aAPL stock price


Click to Enlarge 
Adjacent is the one-year daily chart and below is the 30-month weekly chart. Using both charts gives us a better idea of where long-term support may rest and what could be in store for the short term.

Starting with the latter, we can see that AAPL had just gotten over that steep downtrend resistance mark (blue line). This drove Apple down more than 36% from its highs in less than three months.

As it stands, Apple stock will likely make new 52-week lows on Thursday, below the $146.59 mark it set in December. That’s going to put Apple darn close to being down 40% from the highs.

That seems unfair to me, particularly for investors with a very long-term outlook. Even though this guidance cut is bad, look at how much Apple is already down.

chart of Apple stock


Click to Enlarge 
Investors are willing to pay 19 times earnings for Walmart (NYSE:WMT), 21 times for Procter & Gamble (NYSE:PG), 19 times earnings for Colgate Palmolive (NYSE:CL) and even 15 times earnings for Johnson & Johnson (NYSE:JNJ) amid its problems.

Are they worth that type of premium over Apple? Or rather, does Apple deserve to trade at this kind of discount?

As for the long-term look — and as we highlighted earlier this week —  there should be some support near this $138 to $140 level.

That would put the decline at down 40% and at an area that seems fair for long-term buyers. It’s also where the 200-week moving average currently rests, which will hopefully provide a level of support to buyers of AAPL.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL.

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