Apple Is the One Bright Spot on a ‘Dismal’ Day. This Is Why.
Here’s what bothers me most about this market and four names I’m eyeing on pullbacks.
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It is dismal out there Monday. Semiconductors are breaking down further, SpaceX (SPCX) is at a new post-IPO low, biotechnology is under pressure and the only index in the green is the DJIA. Breadth is flat, volume light, and there are no pockets of speculative energy.
The one bright spot is Apple (AAPL), which is breaking out to a new all-time high. The primary catalyst is its lawsuit against OpenAI for trade-secret theft. This lawsuit, whether it has merit or not, could tie up OpenAI’s emerging hardware ambitions for years and protect Apple’s device franchise from a new competitor.
What is most interesting about Apple is that it doesn’t trade on valuation like other stocks. Semiconductors have spectacular growth and low P/Es while Apple has mediocre growth and a high P/E. It is a good illustration of how stocks are driven more by emotion than by math.
The math on Apple is problematic. Its trailing P/E is around 38 and its forward P/E, depending on which quarters you use, is around 32 to 35. Those are not crazy P/Es for growth stocks but Apple is not much of a growth stock. It is looking at EPS growth of 10 to 14%. Some analysts are hoping for more but that is where the numbers currently sit.
The most favorable set of numbers is a forward P/E of 32 and EPS growth of 15%. That is a PEG of a little over 2, which isn’t insane but doesn’t suggest that there will be significant upside.
The issue with Apple, however, has always been that it is relatively “safe.” It has massive cash for buybacks to provide support and it is not going to crash like some other tech names. It is going to continue to produce steady, but not spectacular, revenue and EPS growth. In an uncertain market like we have right now that is good enough to attract buyers especially when most of the technology and AI sectors are struggling. What better place to park some money especially when the technical action is positive?
What I’m Doing
I don’t like this market action right now and I’m doing little. I’m still heavy in biotechnology and the group is seeing severe pressure for a second day. I’m eyeing a few pullbacks that I want to buy like Precigen (PGEN), Xeris Biopharma (XERS), Definium Therapeutics (DFTX), and Harrow (HROW) but I’m not doing any major buying yet. I believe all four names will have strong earnings reports and I’ll be positioning for that but it’s a few weeks away.
What bothers me most about the market is the feeling that there is a high level of disinterest. Speculative energy is way down. There is only a handful of names up more than 10% and the strength in Apple is a function of a lack of any other decent alternatives.
It is a good time for patience and some summertime entertainment.
At the time of publication, Rev Shark was long PGEN, XERS, DFTX and HROW.
