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Apple Stock: Here’s When To Buy The Dip

Apple stock tanked, after reacting well at first to the Federal Reserve’s monetary policy announcements. The Apple Maven shares a plan on when to buy AAPL on the dip.

Not long ago, after Apple stock  (AAPL) - Get Apple Inc. Report had a great day of performance on December 15, I asked: will the Fed-driven meltup continue? I clearly jinxed the market, and AAPL shares tanked the very next day.

Current shareholders and potential investors must be wondering: has this been enough of a decline to buy the dip in Apple stock? The Apple Maven chimes in on the “trade it or fade it” conundrum.

Figure 1: Apple's product ecosystem.

Figure 1: Apple's product ecosystem.

(Read more from the Apple Maven: Apple Stock: Will The “Fed Melt Up” Continue?)

Start from the highest level

I have often defended the idea that AAPL is a stock to own for the long term, not one to jump in and out of every few weeks — an opinion that I share with CNBC’s Jim Cramer. From this perspective, I think that most growth portfolios that are not exposed to AAPL should be.

Here’s one way to think about it: AAPL has produced cumulative returns of 1,350% in the past ten years. Assume, for a moment, that something similar happens over the next decade. In the grand scheme of things, does it really matter that much if shares are bought at $175 or $165? The bigger risk would be falling victim to “paralysis by analysis” and not buying shares at all.

Now, dig deeper

Having said the above, I have recently argued that Apple stock would probably need to take a break for a moment before heading higher once again. This is the case because shares have climbed a bit too fast, in my opinion, relative to the Nasdaq index.

To reach this conclusion when AAPL was trading at $180, I used the one-month performance of the stock against its tech-rich benchmark (see below). It seemed unreasonable to me that Apple would continue to climb in the near term, after having topped the Nasdaq by nearly 20% since mid-November alone.

Figure 2: 1-month performance: AAPL vs. QQQ.

Figure 2: 1-month performance: AAPL vs. QQQ.

Said differently, I believed that enthusiasm over (1) a strong holiday quarter of iPhone 13 sales, (2) the company’s entry into the mixed reality and metaverse spaces with the anticipated Apple Glass in 2022 and (3) the autonomous vehicle opportunity and the development of an Apple Car served to front-load gains. Now, the market just needed to “digest” that rally.

When to buy AAPL

To summarize the arguments above in an actionable way, I provide the following blueprint for when to buy Apple — and when to stay away from it. Keep in mind that this is a high-level plan based on my analysis and convictions, and should not be seen as investment advice.

  • Consider accumulating shares if Apple begins to underperform the Nasdaq by at least 5% going forward. This means buying at $160 per share and below, most likely.
  • “Back up the truck” if AAPL tanks — say, below $150. Keep in mind that Apple stock tends to offer the best one-year returns when bought after a selloff of at least 15%.
  • Be cautious accumulating, and possibly even rebalance out of AAPL a bit, if the stock U-turns and shoots through the $3 trillion mark. Be even more skeptical if this hypothetical rally happens without plenty of broad-market support.

Twitter speaks

Apple stock has been suffering from increased volatility, following the vicious rally of late November and early December. When do you think is a good time to buy the dip?

(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)