Apple's Second-Half Outlook: Investors Want New Highs

Can Apple stock hit new highs later this year? The answer is yes, but some things need to fall into place for that to happen.
By Bret Kenwell ,

The stock market is still trying to put a rather volatile period behind it. That volatility has impacted nearly every stock in every sector, and Apple (AAPL) - Get Report isn't exempt from that list.

Think of the stock market as water in a bathtub when it sloshes back and forth. As momentum gains in one direction, it eventually comes flowing back in the other direction. It takes time for that back-and-forth action to calm down before the water becomes still once again. When the stock market cratered in the fourth quarter, we had a huge snap-back rally in the first half of 2019. Apple stock has participated as well -- falling victim in Q4 and surging in the first half.

Now hovering near $200, many want to know whether the stock is heading back to new all-time highs over $230 or if sub-$150 is still in the cards.

Apple is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL? Learn more now.

Sizing Up Apple Stock

When the company last reported earnings on April 30, Apple beat on earnings and revenue estimates. Its revenue outlook came in above analysts' expectations and CEO Tim Cook said the holiday quarter was the company's "trough" when it comes to China. And of course, China's the big worry here. If iPhone demand falls off a cliff in China, Apple's revenue will be in trouble and analysts will be forced to cut estimates. 

That said, the trade-war headlines will be a big driver for Apple in the second half. If they continue to progress and Apple is left off the tariff list, the stock should get by with only a few bumps and bruises. But if Apple is included on a tariff list, talks deteriorate significantly or the Chinese economy retreats, this name really can get hit hard.

From where Cook is standing, though, it looks like the company is feeling OK about China at the moment. If we can get to the fourth quarter without China or the trade war being a significant problem, Apple's stock could be in luck of running higher.

Also worth mentioning is the fact that Apple's head of design Jony Ive has left the company. He will still consult for Apple, which should ensure that its products do not become grotesque over time, but will it allow investors' focus to shift from hardware to software?

The company's Services revenue remains impressive, now clocking in at more than $10 billion per quarter. Last quarter it generated $11.5 billion in sales (+16.25% growth) while its paid subscription count more than tripled year-over-year to 390 million. 

Save 57% with our July 4th Sale. Join Jim Cramer's Action Alerts PLUS investment club to become a smarter investor! Click here to sign up!

Trading AAPL Stock

The real focus here should be Apple's Services growth, which remains robust and isn't all that far away from hitting $50 billion per year. It's helping to power Apple's enormous balance sheet and incredible buyback program, which just added another $75 billion last quarter.

The figures here are stunning and would surely demand a premium valuation if it were seemingly any other company. But for Apple stock, that doesn't seem to be the case.

Apple stock may boast a year-to-date gain of more than 28%, but it's still down more than 13% from its highs set in October. Further, the stock was actually trading really well after its earnings report in April. Only due to an escalating trade war did Apple stock crumble in May.

The company will report earnings near the end of the month. Solid results and a strong outlook should send AAPL stock higher, but only time will tell. On the upside, I want to see if Apple can push above its May highs and up through $220. Above this mark puts the $230+ highs on the table.

On the downside, I don't want to see Apple stock below $185. If so, it means it lost all three of its major moving averages, as well as the 61.8% and 50% retracements for the one-year range.

This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.

Loading ...