Apple Pullback Warrants Upgrade

Shares of Apple (AAPL) are being pressured again today as investors are concerned about what the demand will be for the products from their most recent launch. The iPhone 8 hit stores today, and the initial consumer demand for the product remains muted. In our view, we believe that the demand for the 8 is not strong because customers are patiently waiting for the iPhone X to be released in November. In fact, it is even more encouraging that the iPhone 8 sales are not as strong as typical launches because we would prefer the iPhone 8 not take share away from the iPhone X which has a higher price point.

We have very little concern that iPhone X sales will not be strong given the added features and capabilities, and we view this selloff as an overreaction from the people who view Apple as a trade. Remember what we have always said, Apple is an investment, not a trade. The edge to edge screen, improved camera, augmented reality capabilities, facial recognition, and wireless charging ability are just a couple of things that justify a consumer upgrade from previous models, and let's not forget how much Apple's incredible customer brand loyalty will drive sales. That being said, since shares of Apple have now pulled back, we are upgrading the stock from a TWO to ONE. We think that this level represents a great starting point for those who have been patient in waiting to initiate a starting position in Apple, and shares are attractive at this price all around.

Along with this, we believe the same thing resonates for Broadcom (AVGO) . The stock is being pulled down alongside Apple, and we believe that the Broadcom's overreaction is congruent to Apple's. We see value here as well in starting a position, and if the shares move closer to our initial purchase level of $232, we will happily pick up shares of a company whose sales should greatly increase with the expected ramp up production of Apple's smartphones.

In other news, Allergan (AGN) announced its top-line results from its CENTAUR Phase 2b study for its CVC product to treat liver fibrosis in adults with NASH, a severe type of non-alcoholic fatty liver disease. Investors had previously anticipated this announcement would come at a much earlier date, despite management guiding that the results would be complex, and we believe that a portion of the stock's recent selling (with a larger part being the upcoming IPR review) was based on a complete negative perception of the trial and extended delays. With Allergan making their announcement this morning, they have equivocally put to rest those who assumed the extended delays. While the results were roughly in line with what the market was expecting, we are encouraged the safety of its results will improve Allergan's portfolio of drug's that can be combined treat liver fibrosis.

In addition, we continue to believe that the stock's selloff has been completely overdone. We came across a note from Cowen this morning that really makes a compelling point to where this Allergan selloff has gone, and what it means going forward. The piece said that "...there is no more Restasis risk, it could only accrete back to investors, not harm them." Stated another way, this selloff has gone so far largely based off pessimism that the IPR review will not favor Allergan, and that a ruling against Allergan should not create any additional downside risk. On the other hand, any rule in their favor would cause a positive reaction as the market is not factoring any potential upside. We believe this really resonates, and the weakness in shares creates a positive risk/reward skew based on the potential outcomes of the unprecedented patent transfer. That being said, had we not been restricted today, we would be purchasing 25 shares of Allergan in the portfolio.

To read why we become restricted from trading, please read the Forum post here, but as a reminder, we always like to tell members what we would do and what we are thinking, in light of our restrictions.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AVGO, AGN and AAPL.