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Apple Stock To The Moon? The Impressive Late November Run

Apple stock has rarely outperformed the S&P 500 in the near term by this much over the past five years. Here are some important considerations for investors.

When the broad equities market is strong, so is Apple stock  (AAPL) - Get Apple Inc. Report. And when the market weakens, AAPL still finds support. This has been the dynamic over the past couple of weeks at least, as we discussed in more detail in our most recent article.

Today, the Apple Maven looks at AAPL stock’s impressive run since mid-November, when shares outperformed a tumbling S&P 500 by a whopping 13-plus percentage points (see chart below). Is the largest and arguably most popular stock in the market “heading to the moon”?

Figure 1: AAPL stock’s run since mid-November, when shares outperformed a tumbling S&P 500.

Figure 1: AAPL stock’s run since mid-November, when shares outperformed a tumbling S&P 500.

(Read more from the Apple Maven: Apple Stock: Immune To Omicron Fears)

Apple stock to the moon

Through virtually all of 2021, Apple stock underperformed the S&P 500 and even the mega-cap, tech-rich Nasdaq 100. By November 10, AAPL had been up only 12% YTD, while the broad market indices managed to climb by over 21% during the same period.

Now, for the first time since late January, AAPL is ahead of the broad market, and by a hefty 6 percentage-point margin against the Nasdaq. What stands out is the speed of Apple’s recovery against US stocks.

The chart below shows the rolling three-week outperformance (or underperformance) of AAPL against the S&P 500. The recent spread of about 13 percentage points has been the second largest of the past five years. In August 2020, Apple shares rallied nearly 20% against the market in a three-week period — only to tank in a matter of a few days in early September.

Figure 2: AAPL vs. S&P 500 rolling 3-week spread.

Figure 2: AAPL vs. S&P 500 rolling 3-week spread.

What to make of the rally

There are a couple of ways to interpret what has been happening to AAPL lately. The optimistic view is that shares of the Cupertino company have been seen as a haven in the face of market uncertainty. As Omicron fears continue to spread, Apple may be the kind of stock that investors crave now.

Should this be the case, AAPL is likely to continue weathering the market-wide headwinds better than most stocks. Something like it happened in the early stages of the COVID-19 crisis, when AAPL fully recovered from the February-March bear in about half the time that it took the S&P 500 to do the same.

I am a bit more skeptical. I continue to think that AAPL is a good stock to own for the long term — as I explained several days ago, when shares were priced at $160 each. But the stock is now valued at a 52-week high forward P/E of 29 times, and pressures to lock in profits could be a bearish factor.

The graph above also supports the idea that the short-term future could be challenging for AAPL and its investors. Notice how the stock’s performance against the S&P 500 tends to meander around the +2% mark. When shares outperform the market over a three-week period by much (as could be the case now), the spread promptly changes course and reverts to the mean.

I have few reasons to believe that this time will be different. While I remain an AAPL bull for the long run, I would not be too excited about buying shares at the $166 after-hours price when market momentum might be leaning bearish.

Twitter speaks

Recently, we pointed out on Twitter that Apple stock has been rising despite the S&P 500 wobbling on the back of Omicron fears. We then asked: is this a sign to buy AAPL on strong momentum, or a sign to sell the rally? Chime in below.

Is the price right?

Looking at a company’s business fundamentals is only half the work needed to find a good stock. How much one pays to own the shares is a key factor in the success of any investment. This is why valuation analysis is so important.

Alpha Spread’s user-friendly platform allows you to estimate a stock’s fair value –through valuation multiples, discounted cash flow, and more. I believe that the service is a must for anyone looking to own the right stock at the right price. Check out alphaspread.com and get started with a 7-day free trial.

(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)