On Monday, June 21, one Wall Street analyst suggested that waiting until later to buy Apple stock (AAPL) - Get Report made most sense to him. Bernstein’s Toni Sacconaghi, who downgraded AAPL to neutral in early 2018 due to what he believed to be a saturated iPhone market, thinks that $110 per share is a better entry price.
Today, the Apple Maven explains why the analyst might be wrong in his “wait and see” approach to owning Apple – at least when it comes to a long-term investment, rather than a short-term trade strategy.
Read more from the Apple Maven: Apple Stock: What Are The Next Catalysts?
The cautious perspective
Bernstein is not quite an Apple bear. In fact, the research shop defends that the stock looks more appealing now, valued at a current P/E of around 25 times, than earlier in 2021, when the multiple reached a recent peak of 33 times.
Instead, the analyst thinks that the setup for the next couple of months is at best neutral for the Cupertino company, and that the stock would need to drop a good $20 per share to make the investment opportunity more palatable. The iPhone is at the center of the analyst’s skepticism:
“We still believe risk-reward is largely balanced, given potential downward revisions and potential for a weak iPhone 13 cycle. We remind investors that the only year that the iPhone seasonal trade failed between June and September was following the strong 6 cycle, which objectively bears strong similarities with the current iPhone 12 cycle.”
Read more from Apple Maven: Buy Apple Stock After The Fed’s Meeting
While I respect the point of view above, and it makes logical sense at first glance, I do not think that it is a strong enough argument to take a pass on Apple today.
On the first part, I believe that speculations on the iPhone 13 are just that: speculations. It is hard to tell today, three months ahead of the launch, how well received the next smartphone model will be. If anything, the software upgrades introduced during WWDC suggest that the new devices will offer more value to users each year.
Also, if the super cycle is to be believed, I see no reason to doubt that Apple’s device will find increased demand as 5G networks expand around the world. This is why shipments of 5G-ready devices are expected to increase progressively, rather than spike once and die out (see graph below).
On the second part, the analyst is probably referring to the graph below. Historically, Apple stock has performed best during the summer months, just ahead of the new iPhone release. Later in the year, investors then proceed to “sell the news”, as the holiday season approaches.
Mr. Sacconaghi is right that Apple stock did not do well at all in the third quarter of 2015, about nine months following the launch of Apple’s most-successful-ever iPhone 6. But at the same time, he fails to recognize that shares skyrocketed in Q3 2018, after the iPhone X’s so-called “upgrade super cycle” (does the term ring a bell?) that the analyst himself bet against when he downgraded Apple to neutral.
Read more from the Apple Maven: Why Goldman Sachs Changed Its Mind On Apple Stock
The Apple Maven’s takeaways
I believe that Apple stock still heads higher from here for the same reasons that I presented in early June, when shares were worth $123: stable yields, unsustainable drawdown and seasonal tailwinds (not to mention the more important business fundamental factors).
I think that long-term investors are probably better off owning shares at current valuations that seem reasonable, rather than waiting for a 15% drop that may never materialize. This is in line with my belief that Apple stock is best owned for the long-term, not traded for short-term profits.
Read more from Apple Maven: Big Tech Antitrust: Will Apple Stock Take A Hit?
One Wall Street analyst believes that investors should wait to invest in Apple stock once it drops to $110 per share. What best summarizes your thoughts on this approach?
Explore more data and graphs
I have been impressed with the breadth and depth of information on markets, stocks and ETFs provided by Stock Rover. Stock Rover helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.
To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that I have will give you access to all the information that goes into my analysis and much more.
(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)