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Apple Stock: 3 Reasons Why The Selloff Is An Opportunity

Apple stock continues to hover around $140 apiece, the same levels of three months ago. The Apple Maven presents three reasons why shares may climb from here in the foreseeable future.

As Apple stock  (AAPL) - Get Apple Inc. (AAPL) Report dips to just north of $140 apiece, many may feel uneasy holding shares when momentum is so unfavorable. But there are at least three reasons, all supported by investment experts and the Apple Maven, that suggest that buying AAPL now may be the right move.

Today, the Apple Maven looks at what I consider to be the three key pillars of the short-term bullish case on the Cupertino-based company’s stock.

Figure 1: Apple logo.

Figure 1: Apple logo.

(Read more from the Apple Maven: Apple Stock: iPhone Super Cycle Is Alive And Well)

#1. Selloff is not about Apple

Few will argue that Apple’s quick 10% drop from the September 7 all-time high had anything to do with the company’s fundamentals. In fact, as I have recently presented, the core of Apple’s business has been in great shape: the iPhone 13 is proving to be a bigger deal than many previously expected.

Evidence that Apple’s performance is very likely unrelated to the recent share price decline can also be found in analysts’ expectations. Over the past 90 days, while AAPL price stayed flat at around $140 per share, 2021 EPS projections climbed more than 40 cents. Apply a conservative earnings multiple of 25 times to this delta, and we are looking at over $10 in per-share value that never materialized.

Figure 2: AAPL EPS trend.

Figure 2: AAPL EPS trend.

If the recent pullback in AAPL happened despite deterioration in fundamentals, then I find it reasonable to expect Apple stock to rebound in the foreseeable future. This also seems to be the opinion of Wedbush’s Dan Ives, who recently said the following:

“We continue to believe this pressure on the tech sector is short-lived with our belief that tech stocks will be up 10%+ into year-end. The tech growth stories are being massively underestimated by the Street in our opinion, with 3Q earnings a major positive catalyst for the tech sector looking ahead.”

(Read more from the Apple Maven: Expert Says: Keep It Simple, Buy Apple Stock For 40% Upside)

#2. History says “buy dips”

I have repeatedly reminded readers that Apple stock is a better buy after a pullback. The chart below shows that, the larger the drawdown, the higher forward one-year returns tend to be. While the current 10% pullback is not quite a large one by historical standards, it is about as much as Apple stock has corrected since March 2021.

The buy-the-dip idea is shared by venture capitalist Jim Breyer. He has recently said that “for the last two years, when the mega-cap tech stocks have sold off significantly, I'm a buyer”. He believes that Big Tech, Apple included, are the best companies in the world. Therefore, why not buy equity in them when their shares go on sale?

Figure 3: Average one-year return on AAPL, by strategy.

Figure 3: Average one-year return on AAPL, by strategy.

#3. Seasonality improves in October

Maybe surprising to those who subscribe to the efficient market theory, Apple share price tends to follow a seasonal pattern. Since the launch of the original iPhone in 2007, the stock performs well early in the summer, but sells off in September. This is probably the case because investors “buy the rumors” ahead of the late September iPhone launch, and “sell the news” in the last week of Q3.

The better news is that October tends to be a rebound month. The chart below shows that the historical returns for October, since 2007, has been nearly 4%. This number represents a compelling annualized gain of 56% that is much better than Apple’s own monthly average, let alone the S&P 500’s.

Figure 4: AAPL average monthly returns since 2007.

Figure 4: AAPL average monthly returns since 2007.

To be fair, seasonality deteriorates during the holiday season (sell-the-news-pressures again?), only to recover viciously in the first few months of the new year. Still, those looking for some short-term gains might be encouraged by how well AAPL tends to perform at the start of Q4.

Twitter speaks

We have recently asked Twitter if AAPL at around $143 apiece represented a buy opportunity. Based on the answers below, around three-fourths of investors that opined seem optimistic. Don’t forget to follow us on Twitter!

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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)