Apple (AAPL) remains a colossus of a company, with a market cap of $585 billion, annual sales of $216 billion (in the fiscal year ended in September), cash reserves of nearly $68 billion and a dividend yield of 2.1%. And despite all that, AAPL stock is still selling at a bargain-basement P/E ratio of just 13. So, does that mean it’s time to buy AAPL?
The standard wisdom about Apple is that the company has hit a wall. Recent upgrades to the iPhone, iMac, MacBook and iPad have failed to light a fire under consumers. The stock is 60% owned by institutional investors, of whom there are 2,440. Thirty-six analysts follow the company. And the stock itself is trading at the same price level it first reached in November 2014. Here’s what the stock’s chart looks like. (I left the weekly trading volume in the chart so you could see that the general trend in activity is gradually down.)
With that combination of factors, it’s hard to surprise anyone, and hard to imagine that anyone who wants the stock doesn’t already own it. From a growth investor’s point of view, who is left to buy AAPL and push the price higher?
Yet a recent news story indicates that Apple may have some unexpected news in its pocket.
On Tuesday, Apple CEO Tim Cook reported that the number of Apple Watches actually being sold was at a new high. Actual sales numbers, called “sell through” were said to be the highest in the product’s history during the first week of holiday shopping, portending the best quarter ever for the smart watch.
Will the Apple Watch provide the fuel for further advances in AAPL? I have no idea. But after years of doubting that the company could top itself and come out with new products that would match the fervor over the iPhone, some investors are ready to give the company the benefit of the doubt. Those years of watching Steve Jobs finishing off a product presentation with his patented, “Oh, and one more thing …” still have many investors conditioned for another insanely great product to appear.
With all that said, I have to come down on the side of the Apple doubters. And it’s not because of any sales trends, product news or speculation about what surprises the company may have in the pipeline.
The major factor for me is that the chart for AAPL shows no enthusiasm on the part of investors. Yes, there are ups and downs, but there is no evidence that AAPL is attracting new investors or encouraging old ones to bid the stock up.
Right now, I’d venture to guess, AAPL is being held by the institutional investors who own three-fifths of it for two reasons: First, it looks good on the annual report to have some AAPL in the list of holdings, and second, because AAPL was added to the Dow Jones Industrial Average in March 2016, it’s a member of the blue-chip index that conservative investors favor more than any other but the S&P 500.
And it’s no accident that AAPL stock has been underperforming the S&P 500 since March 2015.
My advice, even though growth stocks are being put in the shade right now by old-world issues like industrials and financials, is to keep some of your money on the sidelines until the Nasdaq and other growth indexes start to show some life. And then look for a chart that shows a more enthusiastic buying trend.
In other words, don’t buy AAPL.