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Looking Closer At Jim Cramer’s Fresh Take On Apple Stock

Jim Cramer has always advocated for owning, not trading Apple shares. He has recently added to his thesis, and the Apple Maven takes a closer look at Jim’s views on the stock.

Apple stock seems indifferent to record-setting, jaw-dropping fiscal second quarter results, as share price remains stuck in the low $130s. Some on Wall Street have questioned whether the Cupertino company can keep up with growth trends, which may justify lack of bullishness.

There is at least one person, however, who is not buying all the caution: TheStreet’s and Mad Money’s Jim Cramer. The Apple Maven looks at his new take on Apple stock below.

Jim Cramer

Figure 1: The Street's and Mad Money's Jim Cramer.

Apple stock: own, don’t trade

Jim Cramer’s “own Apple, don’t trade it” views are well known – and he has reiterated his opinion after Big Tech earnings week. But Jim has also offered an important pointer to those hesitant about owning Apple stock on the back of muted market reaction to the company’s results:

“Those who don't have [Apple shares] should buy it now. [Apple] delivered an excellent quarter and the fact that the stock is unchanged is kind of crazy. If it goes lower, then you can buy a second point there.”

Jim Cramer’s advice is consistent with a couple of observations. First, buying and holding Apple shares while brushing aside any attempt to time the entry into the stock has historically made the most sense – provided that the investment is held over a long-enough period.

In 86% of the cases, investors who bought Apple on any given day since the company’s early 1980s IPO saw positive returns on their investment in the next five years – by more than 10% per year two-thirds of the time. However, traders who hopped in and out of their positions endured painful annualized volatility of 45% and, at times, sharp declines of as much as 70% in only a few months.

Second, Apple’s “excellent quarter” has led to a substantial increase in fiscal 2021 EPS (earnings per share) estimates. According to our friends at Seeking Alpha, full-year earnings forecast has changed from $4.45 pre-fiscal second quarter to $5.16 now.

When improved outlook meets little share price movement, the result are lower valuations. Think of the P/E formula: if the denominator rises without much of a change to the numerator, the multiple decreases. Apple, therefore, has become more of a value stock in the past few days, arguably making it a more compelling buy.

Lastly, Apple stock tends to be a better buy when shares head lower. AAPL is currently 8% off its all-time high. Historically, buying Apple at a double-digit drawdown has led to much better one-year returns than doing so near peaks (see chart below, where “MA” means moving average).

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

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

One last word from Jim Cramer

Jim Cramer added one last comment to his investment thesis on Apple stock. He does not seem too concerned about the chip shortage, since “Apple is very powerful and it can multisource”.

Regarding component procurement, the management team raised a yellow flag during the fiscal second quarter earnings call. Therefore, the Cupertino company will certainly not be immune to the global disruptions in the supply chain.

However, Apple is also known to (1) have quite a bit of bargaining power with suppliers, given the size and breadth of its product portfolio, and (2) run one of the most efficient supply chains in the world. Jim Cramer may be right about Apple’s superior position relative to other players in the industry.

Twitter speaks

Jim Cramer seems to think that lack of share price traction is an opportunity to buy Apple stock. Do you agree, or will bears take over and pressure the stock further?

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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)