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Buying Apple Stock On The Dip: Here Is A Second Chance

Apple stock has declined to 2021 lows once again, and shares are well off their January highs. Could this be a second chance for investors to add to their existing Apple position on the cheap?

Apple’s business is on fire. The company delivered impressive results in the most recent quarter, kicking off the new year in style. But in the stock market, Apple has not been having an easy 2021 so far.

As of early trading session on Thursday, valued at just above $120 apiece, shares of the Cupertino company were down 8% for the year. They were also 16% off the late January all-time high.

In the blink of an eye, after recently logging the best day of share price performance in 2021 and nearly exiting correction territory, Apple stock is flirting with the bear once again.

Aspiring Apple investors or current shareholders looking to add to their Apple positions might want to start thinking about buying the stock at these levels.

A word of caution first

To be clear, the Apple Maven does not make stock recommendations. Instead, the channel helps investors to make their own research and due diligence on Apple stock and some of its key peers.

Also, it is nearly impossible to predict how a stock will behave, especially in the near term. Apple could decline further from here. The bearish argument can be easily made based on the following:

  • The sector/factor rotation from (1) mega-cap, growth, and tech stocks to (2) small-cap, value, and high-beta ones shows no sign of ending. In fact, the market shift may even pick up the pace during a year of recovery from the pandemic and economic slowdown, plus rising rates. This is a cocktail of bad news for Apple.
  • The volatility in Apple stock (that is, the intensity of the daily ups and downs in the share price) has increased lately – 30%-plus annualized vs. a low of 21% in mid-December, see below. This is a sign of mild market distress, as bulls and bears take turns at driving share price performance. The higher the volatility, the more unpredictably a stock behaves.
Apple's rolling 30-day annualized volatility.

Apple's rolling 30-day annualized volatility.

Opportunity back on the table

However, I believe that the most recent pullback in Apple, after it rebounded to nearly $128 per share on March 1, has cracked open the buy-on-dip window of opportunity once again.

There are two key observations leading me to believe that now could be a good time to jump in. First, Apple has been bouncing off a valuation floor for the past six months or so. That is: whenever the price-earnings ratio has reached about 33 times since August 2020, the stock has recovered.

See chart below. As of Thursday morning, Apple traded at a P/E of exactly 33 times.

AAPL, Price/Earnings 33.8

AAPL, Price/Earnings 33.8

Also, an analysis of historical price behavior suggests that buying Apple after a 15% decline has produced some of the best long-term returns.

The graph below illustrates the difference. The average one-year return of buying Apple stock when it is not undergoing a 15% correction from the peak, since 1980, has been about 22%. The average annual return of doing so when Apple is down 15% or more, as it currently is, has been a much better 40%.

Average one-year return after 15% corrections.

Average one-year return after 15% corrections.

Twitter speaks

When Apple shares approached the $120 mark last time, I asked Twitter what they thought of the buy-on-dip opportunity (if one existed) at those levels. Here is what people had to say:

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(Disclaimers: 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)