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2 Crucial Lessons From Cathie Wood About Apple Stock

Cathie Wood’s ARK Invest is not much of an investor in Apple stock. But the famed fund manager has offered valuable advice about the Cupertino company’s shares that is worth revisiting.

In doing my daily research of Apple stock  (AAPL) - Get Apple Inc. Report, I stumbled upon a gem from Ark Invest’s CEO, CIO and rockstar money manager Cathie Wood. In January 2016, during an interview with CNBC, she was asked which stock seemed like a better buy at the time: AAPL or AMZN.

Considering Apple stock’s loss of 5% in 2015, her response was the following:

“At this moment, […] Apple might be, because […] the thinking there is so short term. […] Apple is going to become a big company, and [the stock] has been depressed recently by channel checks: how iPhone sales will do in the first quarter, or in the second quarter.”

Since this interview, Apple share price climbed a whopping 400%-plus in just over five years.

Figure 1: Cathie Wood, CEO of ARK Invest.

Figure 1: Cathie Wood, CEO of ARK Invest.

Read more from the Apple Maven: What ARK Invest CEO Cathie Wood Thinks Of Apple Stock

#1. Buying quality on weakness

The first important lesson from Ms. Wood’s 2016 insight above is that high-quality companies, whose stocks are likely to climb over time, should be bought on weakness. The logic is simple: if the long-term trend is up, buy shares when the market is selling them at a discount.

I put some numbers around this idea a couple of months ago. Historically, it has made much more sense to buy AAPL when shares declined from a previous peak.

The chart below shows the historical average one-year return in Apple stock under different scenarios. Notice that, the more shares dip, the higher the future returns have been.

Figure 2: Average one-year return on AAPL, by strategy.

Figure 2: Average one-year return on AAPL, by strategy.

Following the same logic, current Apple investors might be encouraged that the stock remains under water: 12% below the January 2021 top of $143. Should AAPL make fresh all-time highs soon, as I recently speculated that it could, returns for the remainder of the year may start to look appealing.

Read more from the Apple Maven: What Wall Street Is Saying As WWDC Unfolds

#2. Filtering out short-term noise

The second point made by Cathie Wood is at least as important. In her view, Apple stock was under pressure in 2015 and early 2016 due to short-term concerns over smartphone sales in the following couple of quarters, especially after the blockbuster release of the iPhone 6.

In analyzing market movements, I believe it helps to think about the real drivers of share price: buyers and sellers of the stock. Sometimes, people on both sides of the transaction are more concerned about how a stock might perform in the near term, possibly hoping to make a quick buck – and this is just fine.

In these cases, long-term buyers are probably better off ignoring “short term noise” about what sales or earnings might look like right around the corner. Better yet, they might want to take advantage of selling pressures created by short-term traders to enter a position at better prices.

Apple might be faced with a similar setup in 2021. The chatter on Wall Street seems to revolve around the company’s follow through to a successful pandemic year and launch of the first 5G-capable iPhone.

But look beyond the next 12 months, and one might find it easier to make a bullish case on Apple stock. The company continues to grow revenues, expand margins, pile on cash, while it has yet to tap into opportunities in mixed reality and autonomous vehicles.

Read more from the Apple Maven: Apple Stock: Could This Be The Next Big Thing In Services?

Twitter speaks

Big Tech stocks like Amazon and Apple are a tiny piece of famed investor Cathie Wood’s ARK portfolios. In your view, which of the following FAAMG names would deserve higher allocation in a tech disrupter and innovator ETF? Leave your vote below on our partner's Twitter, @AmazonMaven.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)