BY MARK SEBASTIAN
January 26, 2025
When I started writing for the Pit Report Apple Inc was the largest company in the world…it is currently number 2 to NVDA.
But the paths of these companies based on what we analysts are saying are on two different paths…both are hardware companies…but…
One makes AI chips…the other makes phones and provides services within those phones.
Looking at AAPL, the growth is in services and in their ability to raise the price of phones….
One could also argue their ability to upcharge for listening apparatuses and other Iphone and Mac add ons are also an area of marginal growth.
But…when I look at the company as a whole…I don’t see it.
We can talk about all the great things about the company…free cash flow, earnings, margins.
I want to talk about Forward PE….and trailing PE. with a trailing PE of 33…Aapl has a higher PE than companies that are 1/100 the size.
How?
The answer…safe haven….and indexing….not smart investing.
AAPL makes up a huge portion of the NDX and SPX that automatically creates allocation…because of its cash position…it’s actually a safer investment in some respects than a government bond.
When the market sucks…there is AAPL.
WIth the S&P 500 near an all time high and the AAPL down nearly 20% one question to ask is whether AAPL has entered its boring phase of being huge.
Does it keep going up…or does it start having the returns of a utility?
The bottom line is you wont lose owning this company…but over the next 10 years…I think the win is the dividend…not the stock going up…they need to get back to innovating…
Sell puts.
Apple (Ticker: AAPL) has traded from the bottom of the pitchfork to the top and back down to the bottom just since Nov04:
I am using the low of Nov01 as a support level at $220.
Below there support sits at the 200 day moving average $217.82 and then $214.22.
I like that the $220 support level has held with a very bullish candle on Wednesday with perhaps confirmation on Thursday.
I do have resistance just above Thursday’s high at $227.78.
I would like to see APPL close above that before going long.
Once it gets to rallying, I will be considering a longer term trade to ride AAPL back up to the top of the pitchfork at $261.41.
Earnings next week will definitely dictate the next direction AAPL will be taking.
If AAPL is a bond replacement, it sure has
Over the last 2 months, AAPL has made about $1 Trillion in market capitalization moves up and down. Traders piled into AAPL as a safe haven from Nov to Dec only to dump shares moving into 2025. AAPL opened 2024 at $185 and climbed an amazing $75 or a 40% return to the peak in mid-December. All of this on a 2% revenue increase for the year.
Should AAPL trade at 10x revenue? Once we get behind the hype we do see some higher volatilities going into earnings. That is normal but what I want to see is how low IV goes post-earnings. Realized volatility into earnings has been huge which is not normally the case.
1 year AAPL chart with 20 realized volatility in blue
This is a big earnings for AAPL as a market leader. The higher realized volatility into the end of a record year is not the best sign for the stock. I am thinking we make a move back to $200 as traders look for other opportunities. The market ran on multiple expansion and now realized volatility is saying multiple compression.
Well, it’s hard to get bearish on one of the great companies and stocks of all time.
My first real summer job was selling Macs in the late 1980s. Remember those big blocks of plastic?
I call AAPL one of my Balance Sheet heroes thanks to its formidable pile of cash and steady-as-she-goes cash flow.
Apple did go through some tough times, nearly going bankrupt in the ‘90s before beginning a comeback that just might be the greatest ever (sorry DJT, this was even better).
But really, one has to currently admit that the darn company hasn’t been much of an innovator lately. The most clever thing it can do is buy back its own stock. Not bad for shareholders but not exactly inspiring.
Now…, with the stock down around 9% since Santa came to town, it may actually be fun to be an Apple bear again…
It is by far the worst performer in the Magnificent 7 this year. Feels like dead money. I would much prefer an AMZN or META – growth, AI, monetization of eyeballs. Heck, even GOOG gets me more excited than AAPL. But there is something pure about Apple. No pizazz but it just feels solid. Maybe not much more downside, maybe not much more upside.
Hmmmm. Sounds like a job for… Covered Call Man!
I would be selling a bit more aggressive a call right here since I see this as requiring a bit of defence. I can get $11.25 for the March 225 call, effectively getting me out of the stock at around 236.25. That $11.25 represents about 5% of the stock’s value for giving away any upside in the name.
I’m not a huge fan of playing things through earnings, but I’m worried about AAPL here. Instead of just selling it, let’s see if someone takes it off my hands at an equivalent $236.25. If I add the extra $2.50 I get before my strike is breached… that’s a nice 6%+ in call-away yield for a couple months work. Easier than selling a Mac in 1992.
Out On Assignment
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