Apple Stock Is Too Cheap to Ignore, and Jim Cramer's View
Apple (AAPL) - Get Report is an obvious investment choice as a core holding in a long-term investment portfolio. The stock has a price-to-earnings ratio of 10.63 and a dividend yield of 2.45%, versus the yield of 1.40% for the 10-year U.S. treasury.
The stock closed Wednesday at $95.53, down 9.2% year to date and is in bear market territory 29% below its all-time high of $134.54 set on April 28, 2015. Shares are currently trading around $96.
Apple is scheduled to report earnings for the second quarter after the closing bell on July 26. Analysts expect this benchmark company to earn $1.40 per share. With a huge stockpile of cash, perhaps the potential announcement of a special dividend might grab investor attention.
Warnings from suppliers of iPhone components cannot be ignored. When Jabil Circuits (JBL) - Get Report reported quarterly earnings on June 15 the company offered weaker-than-expected guidance related to iPhone components for the second quarter in a row.
TheStreet's Jim Cramer has his own concerns. In a recent report, Cramer and co-Action Alerts PLUS manager Jack Mohr noted they are less than enthused about Apple's reported pursuit of the Tidal music service. "While we have been in favor of Apple using its large cash balance toward accretive acquisitions, we need to hear commentary from the company explaining its rationale behind this move (if true)," they wrote.
However, that doesn't make them any less bullish on Apple and "still believe the Services business is undervalued by the market for its long-term potential. We reiterate our $130 long-term price target."
Apple is a holding in Jim Cramer'sAction Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL? Learn more now.
How should you invest? Trade around a core position using technical charts and key levels to add to positions on weakness and to reduce holdings on strength. Let's take a look at the daily and weekly charts and look at the key levels.
Here's the daily chart.
Courtesy of MetaStock Xenith
The daily chart shows the Fibonacci retracement levels of the decline from the all-time high of $134.54 set on April 28, 2015 and the 2016 low of $89.47 set on May 12.
Apple has been under a "death cross" since Aug. 26, 2015 when the 50-day simple moving average fell below the 200-day simple moving average at a close of $109.69. A "death cross" indicates that lower prices lie ahead and that investors should sell strength to its 200-day simple moving average. On Nov. 3 the stock tested its 200-day simple moving average at $121.84.
Then on April 4 the stock tested its 200-day simple moving average at $111.32. The stock set its 2016 low of $89.47 on May 12 and rebounded to its 23.6% retracement of $100.13 with the high of $101.89 for a failed test of the 50-day simple moving average.
If Apple can penetrate and hold its 50-day simple moving average of $95.78, the first upside target is to the 23.6% retracement of $100.13. If there's a positive reaction to earnings there's a price gap to fill, which is the April 26 low of 103.91. Apple reported their last earnings report after the close on April 26 and gapped lower on April 27.
Here's the weekly chart.
Courtesy of MetaStock Xenith
The weekly chart is negative with the stock below its key weekly moving average of $96.67 and just above its 200-week simple moving average of $93.30. The weekly momentum reading is projected to slip to 28.05 this week, down from 29.37 on July 1.
If the stock ends the week above $96.67 with momentum swinging higher, the weekly chart will be upgraded to positive as investors anticipate a better-than-expected earnings report.
Investors looking to buy shares of Apple should do so on weakness to $83.03, which is a key level on technical charts until the end of July.
Investors looking to reduce holdings should consider selling strength to $102.80 and $110.22, which are key levels on technical charts until the end of 2016.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.