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Apple Earnings Strategy: When To Buy AAPL Shares

Apple will release earnings soon ()

Apple will release earnings soon ()

Apple (AAPL) will release their earnings for the fourth quarter of 2017 next Tuesday, and the guessing game has begun. It used to be that analysts would wait until they had seen the numbers before opining or changing any rating on Apple stock. In part that was because up until last year, the company continually made those analysts look foolish by beating every quarter’s estimates by huge margins.

That meant that investors who bought the stock in the run up to earnings invariably benefited, and analysts would rush to upgrade forecasts once the extent of the beat was known. However, the recent slowdown in growth has changed the dynamic somewhat.

Now it seems that the competition among those that cover AAPL is to see who can come out with the gloomiest earnings prediction, and who can downgrade the earliest. Over the past week two big names, Barclays and Stifel have downgraded AAPL in front of earnings, both citing worries about i-Phone 7 sales.

This kind of focus on potential and actual negatives surrounding Apple’s earnings has changed the way retail investors should approach the release too. With such negativity abounding the stock is likely to lose ground as earnings approach, and/or to react to anything but a spectacular report in a negative, or at best muted, manner.

Far from buying in front of the release, then, waiting until afterwards makes sense this time around. That assumes that buying AAPL at all would be a good idea; an assumption not everybody will be comfortable with. The negative slant to coverage that makes it likely that you will be able to pick up AAPL cheap next week will also put off some people, but a look at the facts and prospects should reassure you.

First, let’s look at the stock’s actual performance. If you listen to the naysayers they would have you believe that AAPL has underperformed recently. The reality, though, as demonstrated by the chart below comparing AAPL to the Nasdaq tracking ETF, QQQ over the last six months, is completely different. During that time AAPL has outperformed its benchmark by a factor of 3, gaining 24% compared to the index’s 8%.

Appreciation in AAPL though, as with any stock, is about what will happen in the future rather than what has happened in the past, but there are a few reasons to be optimistic on that front too. As I wrote a few weeks ago, my personal experience suggests that demand for the Apple Watch series 2 is greater than anybody expected, with a fair amount of pent up demand resulting from widespread shortages of the product in the holiday buying season.

In addition, even those anticipating lower than expected iPhone sales have noted that the higher priced 7 Plus has proven more popular than expected, which should benefit the bottom line.

All of that is positive, but what investors are really looking for is for Apple to do something spectacular again in order to re-invigorate the whole ecosystem. Their recent decision to start commissioning original content for Apple TV offers the possibility of that. Content production is, of course, a very crowded field right now, and a difficult business at the best of times, but Apple has a huge advantage over others that might try to break into the market: over $200 billion in cash.

As Netflix (NFLX) and Amazon (AMZN) have shown, it only takes one or two hits to be successful in this area and with the ability to absorb a few failures, betting against Apple succeeding would seem to be foolish.

Add in a decent and growing dividend and buying or adding to holdings of AAPL is a good idea. With that said, though, the fact that the conventional wisdom seems to be that this will be a disappointing earnings release for the company makes patience in this case a virtue, and waiting until after next Tuesday’s report is a risk that should pay off.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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