Apple’s Biggest Miss in Years… and How to Play It

Keith Fitz-Gerald Jan 04, 2019
3 

Last fall, I told you Apple Inc. (NasdaqGS:AAPL) was in serious trouble and urged you to avoid it.

My goal, as always, was to get you and your money out of the way ahead of time, before deteriorating market conditions took their toll on your portfolio.

$150 a share would be the next stop, I reasoned, at a time when Wall Street was looking for a higher run from $220 a share.

Wall Street’s ivory towered analysts chuckled, and any number of Apple’s faithful called me to task, simply saying that I “didn’t understand” the company’s potential, that I was “out of tune” with sales efforts and the “upgrade path,” that the company would “overcome troubles” in China (a country I know exceedingly well).

But, nobody’s laughing now.

Wall Street analysts are piling on this morning. Seems they cannot get enough Apple-bashing AFTER Apple lowered Q1 guidance following Wednesday’s session and CEO Tim Cook called out weakening economic conditions in China.

Bernstein cut its price target from $200 to $160.

BMO cut from $213 to $153.

BofA Merrill Lynch cut from $220 to $195.

Citi cut from $200 to $170.

Goldman Sachs cut from $182 to $140.

Jeffries cut from $225 to $160.

JPMorgan cut from $266 to $228.

Macquarie cut from $188 to $149.

Morgan Stanley cut from $236 to $211.

Needham cut from $200 to $180.

UBS cut from $210 to $180.

Wedbush cut from $275 to $200.

Wells Fargo cut from $210 to $160.

And, those are just the reports I read yesterday; more are piling into my email, as I type.

Sad thing is… they’re still as wrong as the day is long.

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Wall Street couldn’t care less whether you lose money or not. Every single one of these targets is a “highside” – meaning they’re putting ’em out there to keep you buying.

Don’t fall for it.

Apple’s next stop is far more likely to be $120 to $125 now that it’s blown through my initial $150 a share target.

The company has now lost (as I type) a staggering $450 billion in market value, and Q1 revenue may be as much as $9 billion lower than previously expected. Thursday’s trading, again as I type, puts Apple on pace for the single worst day of trading since January 2013.

Apple’s business has been under pressure for a long time.

Supply-chain cuts and a change in sales-reporting structure were the giveaways. In case you don’t recall, Apple said that it would stop reporting individual unit sales and revenue figures for primary product lines, like the iPhone, at the start of Q4 on November 1.

So, what’s next?

Two things stand out in Apple’s latest numbers:

  1. Business outside their iPhone sales grew by 19% year-over-year (YoY), including all-time high, record revenue from the Services segment – which chalked up $10.8 billion in revenue for Q3. Further, Apple is on track to double the size of this business segment by 2020 from 2016, which implies at least another $3.54 billion in upside to go.
  2. Record profits ahead, including all-time revenue figures from the United States, reaching to developing markets like Vietnam and Mexico. Forget about the iPhone sales numbers… from here on out, Apple is about profits on the bottom line.

How to Think About Apple Going Forward

Apple hasn’t been a device company for a long time, but the markets and plenty of analysts cannot let go of that thought. Thinking that way is akin to still thinking about Amazon.com Inc. (NasdaqGS:AMZN) as just a “book seller.”

Apple is pushing into wearable technology, services, and medical devices – all of which are high profit, high yield investments with exploding revenue.

There are more than one billion Apple devices out there, all of which need their software and codes updated to ensure they work with legions of new innovations and equipment that haven’t yet been released. This makes the Services segment figures I was just talking about very, very valuable.

Imagine what happens when your doctor prescribes an Apple device or an IOS-specific app (which implies you have to have an Apple product to use it) in the near future.

Most people cannot fathom this… but that’s where I believe Team Cook is going.

Paying $1,000 for a freakin’ iPhone becomes irrelevant when your insurance company requires you to have one and pays for it as a function of your healthcare plan.

That’s the precise moment when Apple shifts from a “nice to have” phone maker to a “must-have” company we cannot live without. It’s also when you know that company’s shares will stabilize.

We’ve seen this before with Microsoft Corp. (NasdaqGS:MSFT). The company was left for dead, based on software sales. Shares were stagnating and going nowhere (ranging from $20 to $30 for over ten years, from the end of 2002 until 2013, with a few outliers, of course) until the company pivoted into big data, subscription models, and artificial intelligence. Now the stock is up 160% since the end of 2013 and poised for a significant run higher still.

Wall Street, incidentally, didn’t see that coming either!

So, let Apple’s shares sell off.

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The deeper and steeper the drop, the better, because that means people are so out of line with what Apple’s really up to that shares will be hopelessly undervalued – and a real bargain.

Technically speaking, I think Apple hits $120 to $125 a share range later this year before the selling stops.

That’s a revision on my part, down from the $150 I initially projected based on deteriorating market conditions and, in good measure, by how “late” Wall Street is to our line of thinking.

Let me explain that nuance so you can really connect the dots.

Apple is one of the single most widely held stocks in the world. You’ve heard me talk about that a lot in the past.

Wall Street and the institutions who listen to Wall Street – think pension funds, endowments, and big trading houses here – haven’t yet come around with regard to services, and that means there are billions of dollars in Apple stock that haven’t yet been let go to reflect everything we’ve discussed today.

As far as I’m concerned, that’s great.

Bring it on.

By the time everyone realizes how far Apple’s been oversold, you’ll be ahead of the game again, not to mention perfectly positioned for profits.

Speaking of which…

If you own Apple and don’t need the money right away, hold on if at all possible and continue to Dollar-Cost Average into shares over time. The lower prices everybody else fears will work in your favor, as you continue to pick up shares at reduced prices.

If you’re after a quick move and big profit potential, place a LowBall Order to buy shares of Apple at $125 or lower. Place this order GTC, meaning “good till cancelled.” Just make sure you’ve got the capital sitting out there in reserve if it triggers.

I’d stay away from shorting, buying puts, or other strategies that bet on the downside, because the institutions that still have to sell will do so begrudgingly – and that’s going to create volatility best reserved for your local amusement park roller coaster. Unless you’ve got nerves of steel and the discipline to go with it, that’s not for the fainthearted.

In closing, Apple’s making a critical move that the market – unbelievably – STILL doesn’t see coming.

Use that to YOUR advantage.

Until next time,

Keith

3 Responses to Apple’s Biggest Miss in Years… and How to Play It

  1. James Pieper says:

    Keith,
    I’m wondering why you wouldn’t just recommend to sell your shares of Apple now before the anticipated slide continues and then buy around the $120-125 range you’ve stated ?
    Am I missing something?
    Thank you as always ..
    Jim

    • Keith says:

      Hello Jim and that’s a terrific question.

      The last thing you want to do is try to time the markets. Trailing stops and continual management are the way to go, especially if you don’t have to sell. And that depends on your personal investment situation and risk management tolerance – neither of which I know so it would be inappropriate for me to make a personalized recommendation.

      Tactically speaking, there’s nothing wrong with “trading” Apple the way you’re suggesting. But you’ve got to use different calculus as an investor, in which case dips become a major buying opportunity.

      I’ll explain more fully in an upcoming article!

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. Richard Kettlewell says:

    Hello Keith,
    Thanks for providing me a much better perspective on a company like Apple. I recently sold an investment property and though I like real estate and still own income producing propert, I thought it would be a good time to have cash. Only problem with cash is where do I invest it. I’m Retired yet still heavily involved in efficiently managing property.
    I’ve seen you on Cavuto over the last few years and always impressed with your positive outlook and knowledge of the financial market place.
    Thank you
    Richard

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