Apple Inc. (NASDAQ:AAPL) stock pulled back a bit on Wednesday after climbing on Monday and most of Tuesday following the news last week that Warren Buffett had added to his stake in the iPhone maker. It seems the stock has found support above $100 per share after hovering in the $95 to $100 since late April. But when does Apple stock become overbought? Some bears say it already is, while one bull says $125 would be his sell level for the shares.
More than 14% upside possible in AAPL Stock
Cowen & Co. equity sales trading head David Seaburg told CNBC‘s Power Lunch that he would buy Apple Inc. (NASDAQ:AAPL) stock when it’s lower than $100 and then potentially trade it up to $125 and within that range. He believes billionaire investor Warren Buffett picked up some shares of the iPhone maker at “the sweet spot,” but he warns that the shares could become too rich. Buffett’s firm Berkshire Hathaway reported on Friday in a regulatory filing that it had hiked its stake in the company by 55% or about $500 million.
So far this year, Apple’s closing price has peaked at $112.10, and its year to date closing low is $90.32, which occurred in May following a sell-off as investors worried that the iPhone 7 would not be a strong cycle. The company needs a rebound after an exceptionally weak iPhone 6s cycle which brought the first year over year unit decline.
Biggest concern for AAPL stock?
Bernstein analyst Toni Sacconaghi thinks Apple Inc. (NASDAQ:AAPL) stock could even pass $125 per share, even after outperforming the S&P 500 by 1,230 basis points over the last 14 trading days. He believes the iPhone maker is undervalued in comparison with the majority of other stocks in the technology sector. In a report dated August 16, he outlined some possible roadblocks for the company.
He does think Apple Inc. (NASDAQ:AAPL) can achieve estimates for the September quarter and notes that the company will benefit from the extra week in the December quarter, which means it will have 14 weeks in its first fiscal quarter. He believes the extra week will enable the iPhone maker to reach estimates for the December quarter as well, even if the iPhone 7 cycle ends up being another weak one.
He adds that estimates for the March quarter and for fiscal 2017 appear to be more aggressive, but he thinks investors will be willing to look past downward revisions after the December quarter and instead focus on next year’s iPhone, the iPhone 7s or iPhone 8, as many expect it to be called. Next year’s iPhone may be released as early as the middle of next year, if some rumors are correct, and it is expected to be a much larger upgrade cycle than this year’s iPhone 7.
Sacconaghi believes the biggest risk to the near-term momentum for Apple Inc. (NASDAQ:AAPL) stock is “very weak December guidance,” which he defines as an implied iPhone unit growth of 70 million or less. If this occurs, he said it would imply only 200 million iPhone units for fiscal 2017 and earnings of about $8 per share, both of which are probably below the buy-side consensus, he believes. Such numbers would also raise even bigger concerns of a more structural nature about Apple rather than just being a concern about one weak iPhone cycle.
Is Apple stock overbought?
Moving to the far bearish end of the spectrum, ACG Analytics macro strategy head Larry McDonald told CNBC’s Power Lunch that right now Apple stock is “extremely over-bought.” He noted that over the last nine months, “central banks and sovereign wealth funds reaching for yield” have snapped up approximately 52 million shares of the iPhone maker’s stock. He believes Apple stock is at a premium right now because the company pays a dividend. He’s concerned about this because it’s a trend that reminds him about what was common in the 1990s.
He added that investors or asset managers that produce dividends “are the heroes today” and that this is a sign that a trade is “extremely crowded” He believes that this is something that investors should want to fade.
Shares of Apple Inc. (NASDAQ:AAPL) declined by as much as 0.21% to $109.15 during regular trading hours on Wednesday.
