Monday, June 12, 2017

Is Apple A Buy After Recent Sell-Off?

With a market value of nearly $750 billion, Apple is by far the most valuable and well known technology companies today. In terms of its stock price, it has had a great run for the past 12 months with a one year return of around 20%. In comparison, S&P 500 has returned about 15% for the same period.

Apple also pays a current dividend yield of 1.74% and has recently increased its dividend in access of 10%. Barring the low yield, the dividend increase is quite good and qualifies it as a high quality dividend growth stock that is also a fast growing technology company.

I've owned Apple stock both in my IRA retirement account and in a taxable brokerage account. I however did sell some of my Apple shares in the taxable brokerage account last year as I wasn't too happy with the low yield and some of the innovation and growth issues Apple was facing at the time.

What has changed since then?

Well, for one Apple had a record-breaking sale of iPhone 7 despite all the negative talk from experts and doomsayers. The next generation iPhone 8 is going to be even a bigger deal as it is expected to have many revolutionary features such as wireless charging and VR capability and much powerful processor. Apple's service business is another big catalyst as it has grown to nearly 150 million customers and expected to double in four years.

Another new area that Apple is exploring is healthcare. With the use of its Apple Watch, users can monitor basic health related information with the future possibility of non-invasive diabetes glucose monitoring capability.

There were recent reports that Apple engineers are working on such a feature and Apple CEO Tim Cook was seen test driving a glucose monitor.

Glucose monitoring could alone be a huge catalyst for Apple Watch sales given there are nearly 30 million people in the US with diabetes.

In hindsight, my selling of Apple shares last year was a big mistake as the stock has appreciated about 35% since then. Though thankfully, I still have some Apple shares in the IRA account and I'm not touching those share for a long long time.

I've been eagerly waiting for any opportunity to correct my mistake and buy more shares. It seems my wait is about to be over as Apple stock price has declined by over 7% just in the past two days. All I need is another day or two of such a decline and I'll be ready to backup the truck to load up on shares.

Source: StockCharts.com

This recent decline is mostly part of an overall tech sector correction or rotation. There are also some concerns regarding legal fight with Qualcomm which provides the fastest modem available for iPhone.

I'm pretty sure, Apple and Qualcomm will settle their legal dispute soon as it is probably in neither's best interest to continue this dispute as they both have heavy dependency on each other as a customer and a supplier.

Regarding valuation, with the current price decline, Apple shares are trading at a current P/E of 16.83 which is cheaper than the overall market. Though the yield is still below 2%.

Ideally, I want to get a starting dividend yield of at least 2% which would mean a price target of about $125. That's another 14% decline in price from where it is now. I don't think that is going to happen unless there is a broader market sell-off or some really bad news comes out.

Looking at the FastGraphs chart of Apple stock, a more reasonable target price would be around $134 which is about 10% lower from the current price and at a P/E of 15 times the 2017 earnings estimate.

The dividend yield would be slightly lower than 2% but given the double-digit dividend growth rate, an investor should do pretty well from dividend and price appreciation.


I have not yet pulled the Buy trigger on AAPL, I will wait for the stock price to come down to at least $140 before start buying again. Let me know your thoughts on Apple stock and whether you are buying or selling at the current price or what your target price is. Thanks for reading.

I bought Abbvie (ticker: ABBV) on a dip back in January and at the time of this writing, the stock has appreciated by over 18% with 4%+ dividend yield. I wrote about my buy reasons here: Bought More Abbvie (ABBV) On A Dip Today

Previous Blog Post: Lessons To Be Learned From My Stock Sale History

Disclosure: I am long AAPL and will likely buy more shares if price comes down to my target range.

Disclaimer: Author of this article is not a licensed/registered financial or investment adviser and does not provide investment advice. Any mention of stock names/tickers in this article or website is not a recommendation to buy or sell. This article is for informational and entertainment purposes only. Full disclaimer can be read here: Full Disclaimer

2 comments:

  1. GOod stuff! Apple always seems to outperform expectations and keep consumers guessing. I'm personally really excited to see what they come out with in regards to healthcare. I don't know that it'll help reduce costs which is desperately needed, but should improve quality of car.

    ReplyDelete
    Replies
    1. Yes, healthcare cost is a mess, but apple can help provide better ways to track medical data which could help people with preventive care and healthy living habits. I'm looking forward to what Apple comes up with for glucose monitoring.

      Delete