- Apple has been trading largely sideways since the middle of the summer.
- However, with the S&P 500 on the verge of a classic breakout, the risk/reward profile is attractive.
- Apple shares have a lot going for them, though they don’t come without risk.
Though it hasn’t been without its ups and downs, Apple's (NASDAQ:AAPL) stock has effectively been trading sideways since July. In fact, the tech titan’s shares closed Tuesday’s session at the same price they were just one week before they popped to their last all-time high. In the three months since then, they’ve fallen as much as 20% and rallied about the same.
Speaking from a technical perspective, at least, Apple’s shares haven’t been forming the most bullish pattern. Sure, they’ve managed a run of higher lows since August’s dip, but it’s the lack of higher highs that could give some investors pause for concern. Especially as it’s coming at a time when the Fed has signaled its intent to cut rates, and the likes of the benchmark S&P 500 index are back at highs and looking like they could be on the verge of a major breakout.
But it’s perhaps this apparent divergence that is creating a decent entry opportunity here. MarketBeat readers will be familiar with our past analysis of Apple stock and how it can often take a broader market move upwards to pull it from its lethargy. However, Apple tends to outpace most of its peers easily once it does.
As we head into the final few months of the year, it’s worth exploring the opportunities opening up in Apple. Here are two reasons to buy and one reason to avoid it.
One Reason to Buy: Fundamentals
There’s simply no getting away from the fact that as far as fundamental performance goes, Apple is a powerhouse. The company’s most recent earning report smashed analyst expectations for both headline numbers, with both EPS and revenue coming in at record levels for the June quarter.
Coupled with the fact that the company is still working through an eye-watering $110 billion share buyback program, it’s clear management feels there’s no sign of this solid performance abating.
Earlier this year, they also raised their dividend, which, along with a share buyback program, is one of the most bullish signals a company can give to the market.
A Second Reason to Buy: Bullish Analysts
No doubt, based on Apple's fundamental performance, there has been a consistent stream of analysts rating the stock a solid Buy in recent weeks.
Last month saw both Evercore ISI and Needham & Company do this, with price targets of $250 and $260, respectively.
This month, the teams at Oppenheimer, Citigroup, and Bank of America have already taken a similarly bullish stance with similar price targets.
Their reasoning is mostly the same, and they focus on what Bank of America analyst Wamsi Mohan called “continued strength in the App Store.”
One Reason to Avoid: iPhone Worries
For all the bullish performance, though, and optimistic analyst expectations, there are some concerns about the company’s iPhone numbers. Both J.P. Morgan and Jefferies have urged caution in the past week and suggested that the market’s expectations for Apple’s iPhone sales are “too high.”
Jefferies analyst Edison Lee argued that while Apple remains attractive over the long run due to its unique positioning as the “only hardware-software integrated player in the AI space,” its smartphone hardware needs work to fully take advantage of this.
It was a similar stance from J.P. Morgan’s Samik Chatterjee, who lowered his forecast for iPhone sales in the current quarter from 80 million to 76 million. He cited “more muted consumer demand” compared to previous models, but again, his longer-term outlook on the stock remains bullish. While there may be some near-term volatility as the iPhone story gets played out, Chatterjee reiterated his Overweight rating on Apple shares, along with his $265 price target.
Considering the stock closed at $225 on Tuesday night, the target upside is at least 20%.