I have defended that even the most optimistic of Apple ($AAPL) bulls should understand why someone might want to sell Apple stock. For this reason, today I follow up on my “3 Reasons To Confidently Buy AAPL Stock” with the flipside of the argument.
To be clear, this article is neither investment advice, nor an indication of my current stance on shares of the Cupertino company. However, were I to sell Apple stock today, I would probably do so for one of the three reasons discussed below.
#1. Gains may have been front-loaded
Since Apple went public, in 1980, shares have produced solid annualized gains of 19%, dividends included. Although the climb was far from a straight line up, with plenty of ups and downs, Apple stock has rarely produced returns that were as strong as those observed in 2019 and 2020.
The chart below shows that, as of December 30, 2020, the trailing two-year annualized gain on Apple reached a whopping 96%. Something similar had only happened a handful of times in the company’s history, including in the early innings of the Great Recession recovery.
While Apple stock has lost quite a bit of its momentum in 2021, the annualized two-year figure is still a very sizable 67% today.
It is possible, therefore, that much of Apple stock’s potential upside that could have been justified by the company’s impressive financial performance as of late has already been fully priced in. Selling shares to lock in recent gains, especially ahead of a possible change in capital gains taxes, could make sense.
Here’s a historical fun fact: buying Apple stock when its two-year annualized returns were below 50% (which happened last after the September 2020 correction) has resulted in double the average gains of doing so when the past returns were above 50% (which is the case today). This is just another way of simply saying that buying low has been a better strategy, on average.
#2. Tough comps will weigh on narrative
As much as Apple has been delivering jaw-dropping financial results lately, analysts and investors seem to be bracing for much tougher comps starting in fiscal second half of 2021 – and probably lasting well into 2022.
The graph below shows Apple’s total company revenue growth in each fiscal quarter between 2019 and 2021. The red star marks today’s comparable period in 2020. Notice that Apple will have to deliver results over the next four quarters against a remarkably high year-over-year benchmark.
All the recent talk about how Apple’s products and services have been growing at a high double-digit percentage pace across the globe might give way to a different narrative soon. Investor sentiment could faze as the management team scrambles to justify much more modest growth rates going forward.
#3. Bad market for growth stocks
Lastly, the current market environment has been shaping up to be challenging, even if not outright bearish, for growth tech stocks. Case in point, the tech-rich Nasdaq ($QQQ) has climbed only about 4% for the year, while the broader S&P 500 ($SPY) has advanced by 13%.
The culprit here seems to be two closely related variables: inflation expectations and interest rates. Both have been on the rise since the start of 2021, at least. The higher these metrics reach, the less appealing it is for investors to bet on growth over value or cyclical stocks.
Opinions may vary on the subject, but it seems unlikely that inflation and yields will turn around and head lower anytime soon. This is the case because the post-pandemic economic rebound has barely started, and the Federal Reserve seems willing to let inflation run a little hot to ensure full recovery in jobs and economic activity – good news for old-school, industrial stocks.
In the current macroeconomic scenario, holding Apple and certain other FAAMG names may be even riskier than it was during the stay-at-home days of the COVID-19 crisis.
I polled Twitter for an opinion from Apple investors. Were they to sell at least some of their shares today, what would likely be their main motivation? Feel free to weigh in as well.
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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)