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T3’s Take 3: Apple Hulk-Smashes the Bears
Want to start trading like a pro? Then click here. Trust me. By Michael Comeau 1) Apple Wins, Bears Cry As I wrote yesterday, expectations appeared to be very low heading into Apple’s (AAPL) Tuessday night earnings report. The numbers confirmed that suspicion as Apple reported better-than-expected revenues, earnings, and iPhone unit sales. The company also delivered very strong revenue guidance, which indicates that iPhone sales are holding up much better than the bears have expected. Apple shares ripped 6.6% to $103.03 today, helping to push the Nasdaq Composite and Nasdaq 100 indices to within striking distance of all-time highs. And let’s give Warren Buffett some credit — he disclosed his stake in Apple in mid-May when Apple hit its 2016 low. 2) The Bull Returns… Sort of Equity markets were a little odd today. Apple set off a rally in the Nasdaq and the widely-watched biotechnology was very strong, but the S&P 500 barely budged. The index fell -0.1% to 2066.58 — not exactly a barnburner! Oil prices and energy stocks slumped on higher-than-expected oil inventories, and we also saw weakness in utilities, real estate, consumer staples, and transports. Overall, the action felt like run-of-the-mill digestion, though with a clearly bullish tinge. If biotech makes another run like this tomorrow, we could see the S&P hitting new highs and the Nasdaq finally making its own new record. 3) Fed Schmed As expected, the Fed left rates unchanged today and issued a somewhat hawkish statement. The Fed said that employment data points to an increase in labor utilization, and that near-term risks to the economic outlook have diminished. Initially, gold fell and the dollar spiked, which are consistent with a more hawkish Fed. However, almost immediately, those moves reversed themselves and gold ended up 1.6% higher at $1,349/oz at the equity market close. And the dollar ended up at daily lows. Presumably, traders still believe the Fed will move very slowly as Fed Funds futures indicate that the next rate hike won’t happen until well into 2017.
Continue Reading -->Apple Earnings Preview: Is the Bad News Bad Enough?
Tech superheavyweight Apple (AAPL) reports earnings after the close today, and as always it’s the talk of the town for tech investors. Here is a quick summary of Wall Street’s consensus expectations: (data from Bloomberg and Factset) Sales: $42.0559B (Apple’s guidance was $42 billion) Earnings $1.386 per share Gross margin: 37.945% (guidance was 37.750%) iPhone units: ~40 million And for next quarter, analysts expect: Sales: $45.537B Earnings $1.593 per share Gross margin: 38.361% Now, let’s take a broader look at overall expectations for Apple. Right now, 82.7% of analysts rate it a buy. Let’s compare that to other major large-cap tech names: Facebook (FB): 88.0% rate it a buy Google (GOOGL): 90% Salesforce.com (CRM): 91.3% IBM (IBM): 25.9% Oracle (ORCL): 56.1% The average target price on Apple is now $121.91, down from $150+ last November. And for the full year, analysts now expect revenues of $215 billion, down from nearly $250 billion last fall. You can see the trend in this chart: (red is 2016 revenue expectations, white is stock price) So it’s safe to say that expectations have come down quite a bit. And perhaps most tellingly, yesterday, BGC analyst Collin Gillis downgraded the stock to a sell, saying “Our opinion [is] that Apple has peaked under the leadership of CEO Tim Cook.” That’s not as dramatic as the “Fire Tim Cook Era” which marked the last major Apple bottom: But it’s certainly in the same ballpark in terms of line of thinking. Remember, Apple is very cyclical at this point, and you want to buy when the news stinks. Therefore, I think the bulls have the edge with Apple here. Even if Apple misses, the downside may be limited because a decent amount of negativity is being priced in with the stock trading at 11 times earnings with a 2.2% dividend yield. (vs. a 10-year Treasury with a 1.56% yield) I’ll be back after the open with some possible options trades. (Click here for my trade idea)
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