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Thursday, March 28, 2024

Wednesday – Apple Earnings Today Keep the Bears at Bay

Go Apple go! 

Once again, Apple (AAPL) puts in a stunning quarter and we couldn't be more pleased as AAPL is one of the largest positions in our Long-Term Portfolio as well as our Options Opportunity Portfolio.  Our target in the LTP is $130 by next January and, if we hit it, our net $14.50 Jan $100/130 bull call spread (from 10/20) will return $30 for a very nice $15.50 (107%) gain.  There's no margin in a bull call spread, a nice options trade for beginners however, we got a little fancier in the OOP and our position looks like this:

The net cash outlay of the position was $22,650 and, if all goes well, it will pay $90,000 at $130 for a $67,350 profit less whatever we owe the short callers, probably $20,000 at $130 so net/net $47,350 profit is still over 200% back on cash on the biggest position in our portfolio – we can live with that!

AAPL was our Trade of the Year in 2013, 2014 and 2015 but last year it was Natural Gas (UNG) and this year it's Silver Wheaton (SLW) and both, of course, are in our Options Opportunity Portfolio as well as our Long-Term Portfolio.  Our 2015 Trade of the Year on AAPL just expired with AAPL right at our $120 target on Jan 20th and that cashed us out of that one at the full $90,000 from our initial $8,000 cash outlay (we were more aggressive with put sales then) for a very nice $82,000 (1,025%) profit in less than two years.  

By the way, do not spend $3/day to subscribe to our newsletter or you will see trade ideas like this all the time!

Having hopefully established my bona fides as an Apple bull, let's talk about why they are no longer our Trade of the Year.  70% of the company's sales are iPhones, that's a little worrying but, then again, if my company had to have all its eggs in one basket – that's a pretty good one!  Bears use it as a knock but 90% of GMs sales are cars, 90% of Nike's sales are sneakers…  We get it, AAPL is not GE – move on.

What is more concerning is that, despite Apple's $78.4Bn quarter, it's "only" up $2.5Bn (3%) from last year and this quarter (Oct 1st – Dec 31st) had an extra weekend in it (14 vs 13 in 2015) and that's 15% more peak shopping days and profits ($17.9Bn) were $500M (2.6%) LOWER than last year's Q1.  

The only reason Apple LOOKS like they are doing better than 2015 is (drum roll please) BUYBACKS!  That's right, the thing I always complain about other companies doing my favorite company does more than any of them.  AAPL bought back about $27Bn (4.2%) worth of their own stock in 2016, giving them less shares to divide the earnings by.  Now, for a company that's dropping $50Bn to the bottom line with $246Bn piled up in the (95%) overseas vault and a p/e of 10 – buying back their own stock isn't a bad idea for Apple – so I give them a pass but let's not let that trick us into thinking earnings are better than they are. 

I certainly still like Apple but I don't think they have a lot of upside from here until they come out with a new product line that generates significant additional revenues.  Services are very encouraging ($7Bn) but, as you can see from this chart – it doesn't really move the needle on overall revenues.  

There's no doom and gloom here, iPhone dominates the market and competitors are getting crushed – they might be selling phones but not ones that make a lot of money.  I see Apple moving to more home and car sales down the road – both of those have significant room to match phones in sales at even higher price points but we need to see something rolled out at some point – until then it's just speculation so let's not get too carried away with AAPL as it nears our $130 target (a bit early).

Apple will boost the markets today, taking their suppliers (MU, QCOM, JBL) along for the ride with record NUMBER of iPhones sold (78M) for the quarter and I'm still waiting for the 8, so 78 million and one soon!  Still, Apple alone won't save the markets and we're back to shorting Oil (/CL) Futures as it tests the $53.50 line (of course) and we'll short the Russell (/YM) at 1,370 and the S&P (/ES) at 2,280 and the Nasdaq (/NQ) at 5,150 and the Dow (/YM) at 19,850 because Apple alone will not save the markets – it's simply interrupting the sell-off

You are very welcome for yesterday's call to go long on Natural Gas (/NG) at $3.15, we hit $3.20 this morning for a $500 per contract gain and Teva (TEVA) popped nicely off the open as well.  You are welcome to join us for our last Live Trading Webinar at 1pm, EST before our 2-day Live SEMINAR at Caesar's Palace in Las Vegas on Feb 12th and 13th.

In Vegas, we will discuss Trading Strategies, Portfolio Management, Top Stock Picks for 2017, Dividend Investing and whatever else comes up at the time – hope to see you there! 

 

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