Would You Rather… $AAPL

So we’ve received a lot of questions about AAPL stock in the past week, as it’s come back down to the $400 level.

First, my technical thoughts.  Here’s the daily chart since August 2012:

I’ve included the daily volume in the bottom panel.  Since its January earnings report, when the stock was down 12%, each bout of selling pressure has been on lower and lower volume, shown by my red line.  In the meantime, price has fluctuated between 385 and 475, and the 50 day moving average has finally flattened out.  This flattening price action, in my view, has been part of the transition of shares from growth investors to value investors, which we have mentioned on many prior occasions.

More importantly, the technical picture is much healthier than it was 6 months ago.  After such a steep downtrend, it usually takes many months to build a base.  Such a base is now in place.  But I’m not a buyer just yet, and that’s because the stock has made a new momentum low on the selling in the past week.  Here’s the chart in 2013 with the RSI momentum reading on the bottom panel:

You can see the new momentum low.  I want to see momentum improve before I step in on the long side.

However, the fundamental valuation case for AAPL is appealing.  Here is a question:  Which of these stocks would you rather own in this market:

1. A safe 20 P/E name growing earnings 5% per year with a 3% dividend
2. A risky 20 P/E name growing earnings 10% per year with a 3% dividend
3. A risky 10 P/E name with no earnings growth with a 3% dividend

So the first option describes the consumer staples and utilities sectors as a whole quite well.  The second option describes the REITs quite well.  The third option is AAPL.  It’s not a no brainer by any means, but it is likely a better fundamental value than most of the high yielding stocks in this market.  And the second half product cycle might offer some mild excitement to boot (?)

In the meantime, we think part of the weakness in the past week is due to quarter end, as fund managers don’t want to be seen long AAPL ahead of their statements.

If the technical picture gets a bit healthier, we’re looking to buy the dip in AAPL.  As Dan stated this morning, just a question of when and from where.