Apple Is No Longer a ‘Sure Thing’ Investment

Apple Inc. (Nasdaq: AAPL) stepped into the earnings confessional lately, and everybody on Wall Avenue is praising the corporate’s quarterly outcomes. Income and earnings exceeded expectations, and even fourth-quarter steering got here in higher than anticipated. Nevertheless, everyone seems to be overlooking some relatively key dangers that might negatively have an effect on AAPL inventory.

Let’s take a second to recap what’s driving AAPL inventory’s post-earnings bounce:

• Second-quarter earnings rose 17.6% year-over-year to $1.67 per share versus expectations for $1.57 per share.
• Income gained 7.2% to $45.41 billion, topping the consensus for $44.89 billion.
• Apple guided fourth-quarter gross sales in a spread of $49 billion to $52 billion, above estimates for $49.18 billion.

On the floor, Apple’s third-quarter report seems to be spectacular. What’s extra, analysts involved a couple of delayed supply for the iPhone eight interpreted the better-than-expected fourth-quarter steering as which means that experiences of a possible iPhone delay had been overblown – prompting a slew of upgrades and price-target will increase that exacerbated AAPL inventory’s rally.However there are a number of key factors that only a few Apple watchers are speaking about. And as soon as Wall Avenue takes observe, it may spell bother for AAPL inventory.

Apple Cored

In the event you dig deeper into Apple’s earnings report, you will discover that this quarter’s outcomes weren’t pushed by the iPhone, however relatively by companies and iPad gross sales. Companies income grew a powerful 22% year-over-year, whereas enterprise partnerships helped enhance iPad gross sales. Analysts have known as this an essential improvement for Apple, resulting in essentially the most consideration non-iPhone merchandise have seen in fairly a while. It is a telling improvement.

As an illustration, iPhone gross sales of 41.three million had been basically flat with the identical quarter final yr, and truly fell from 50.eight million within the second quarter. What’s extra, Apple continues to battle with iPhone gross sales within the Chinese language market, with latest knowledge suggesting the corporate is poised to drop out of the highest 5 distributors listing in China.

And the iPhone is not the one concern. Apple’s iPod is basically lifeless. The gadget that introduced AAPL inventory again from the brink of obsolescence is on its manner out after Apple discontinued all however one model of the enduring handheld music participant final week.

What’s Left for Apple?

Apple has ridden the coattails of its iPods and iPhones for thus lengthy, there is not a lot left exterior of these key merchandise. As an funding guru put it: “Apple has fallen behind on the very factor that folks need from it – innovation.” Gone are the times of Steve Jobs’ dramatic pauses and “Oh… another factor… ” at Apple product bulletins and investor weeks.

The corporate is now content material with incremental enhancements to present units and companies. Even the extremely anticipated iPhone eight will arrive with few revolutionary options, and most of these are current in competing smartphones already available on the market.

All is just not misplaced for buy-and-hold Apple buyers, although. Regardless of declining iPhone gross sales, Apple merchandise are extra about worth than quantity. Regardless of falling manner behind key rivals within the PC, cell phone and pill markets, Apple nonetheless holds the lion’s share of income. As an illustration, regardless of controlling simply 11% of the smartphone market in 2016, Apple captured 36% of worldwide end-user spending.

What’s extra, the corporate is engaged on cutting-edge synthetic intelligence (AI) software program for the automotive market. Apple CEO Tim Prepare dinner calls autonomous driving “the mom of all AI initiatives.” And if Apple performs its playing cards proper, AI and self-driving automobiles might be the corporate’s subsequent “another factor.”

Investing in Apple Inventory

In the event you’re a buy-and-hold dealer, I am not satisfied that now could be the time to promote AAPL inventory. However it’s most actually not the time to purchase. AAPL inventory’s post-earnings rally was stopped chilly simply in need of round-number resistance at $160. Moreover, the shares are on the verge of overbought territory, with their 14-day Relative Energy Index rising sharply previously week.

This mix of technical indicators does not bode effectively for AAPL inventory’s short-term outlook, and the shares are already exhibiting indicators of weak point as a result of an absence of follow-through shopping for after earnings.

The important thing check for AAPL inventory would be the $155 space. This area was dwelling to heavy resistance in Might and June, and will act as a short-term backstop for Apple over the following few weeks. If this area fails to carry help, AAPL may discover itself retesting the $150 space and its 50-day transferring common briefly order. A pullback to $150 would make a great shopping for alternative for long-term buy-and-hold AAPL inventory merchants.

As you possibly can see, AAPL inventory is not the “positive factor” funding it as soon as was – both over the quick time period or the long run given the corporate’s lack of innovation. In truth, Apple is commonly topic to an more and more fickle cult following on Wall Avenue and a wealth of emotional buying and selling pitfalls.

Joseph Hargett is the assistant managing editor for Banyan Hill Publishing, the place he contributes to the Sovereign Investor Day by day. You may click on right here to learn extra.