Let's face it, I have been all over the board when it comes to owning shares of Apple (NASDAQ:AAPL). I held it in the Young and Restless Portfolio, then sold it when I felt the company stopped innovating and was considering more product cannibalization as a way to get back its "mojo" at the expense of margins and profits. That being said, the price is at a point now that it makes sense to add more shares by selling a different stock to finance the purchase.
I own shares in our Team Alpha Retirement Portfolio, and by selling an underperformer, I can pay for the purchase of additional shares of Apple, today. General Dynamics (NYSE:GD) is a great company but has been hit with budget cuts for military spending, and the stock becomes expendable.
Forget innovation for a moment. Forget the next great toy for a nano second. Forget the annoyed shareholders who are looking for Apple to give them some of its cash stockpile. Apple is too cheap to ignore, and Team Alpha needs more shares of this amazing value stock (yes, I still consider it a value stock now).
Our Team Alpha portfolio now consists of Chevron (NYSE:CVX), Apple, McDonald's (NYSE:MCD), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), BlackRock Kelso Capital (NASDAQ:BKCC), KKR Financial (KFN), Procter & Gamble (NYSE:PG), CSX Corp. (NYSE:CSX), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Annaly Capital (NYSE:NLY), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), General Dynamics, and iShares S&P U.S. Preferred Stock Index Fund (NYSEARCA:PFF).
The Situation Has Become Ridiculous
The markets move on fear and greed. The psychology of the market has spawned millions of books on the subject, but to me, it is a basic human instinct for far too many investors -- jump on the bandwagon when everyone is piling in, then run for the hills when everyone is storming the exits. The situation has become ridiculous at this point.
As far as I am concerned, that is what we are witnessing with Apple stock right now.
The fundamentals of Apple are better than any public company on the planet. There is simply no reason for the shares to continue to get pummeled to the extent that the share price is knocking on the door of sub-$400/share.
Yes, the company is facing issues of product development and margin erosion, but it still sells more of its products than any single company in its business sector. Apple makes more money than any other company in just about ANY business sector as well.
Then of course, it now has a dividend, which is at 2.53%. And the following:
- 17.70% YOY revenue growth as of the last earnings report, plus a tiny increase in YOY earnings growth
- Zero debt
- $56 billion in operating cash (are you kidding me???)
- 33% operating margins (even though this did take a hit)
- A ludicrous forward PE ratio of 8.43
- A tiny dividend payout ratio of 12%
Does this mean the company and the stock will have another ridiculous parabolic increase in its share price anytime soon? I doubt it. That being said, I cannot see the share price tanking to much lower levels, either.
Can the share price dip some more? Absolutely! Remember, the negative sentiment (remember that psychology thing?) is every bit as rampant as was the Apple fan club, who had visions of $1,000/share when they first bought in at $650.
For an income seeking investor looking for a mega cap, blue chip, dividend paying behemoth, Apple fits every criteria.
So How Do We Get There?
Last month, we sold some shares of Johnson & Johnson, as well as our Wal-Mart (NYSE:WMT) position, to purchase our first 10 shares of Apple, plus have some cash left over. This month, the stock to sell will be General Dynamics.
With the forced budget cuts in force, military spending is going to be one of the harder hit areas. As much as I like GD, facing the facts of recent events must lead to taking action. By selling our position in GD, we will have an additional $6,700 to add to our existing cash position to use to double down on shares of Apple (purchasing 10 more shares). We will also have a cash balance of over $5,800 to use if Apple falls to an even further ridiculously low price.
While General Dynamics is a stellar, world class company, the share price could be negatively impacted simply by the fact that the government has, and more than likely, will cut more funds in military spending. This will directly impact GD's business, and I believe we could see deterioration in the share price. If that scenario plays out, the total return of GD would become negative. There is no need for us to let this happen to our portfolio.
As I have mentioned on numerous occasions, it is more difficult to sell a stock than it is to buy one. In this case, selling GD makes much more sense than waiting for Congress to shift gears for the umpteenth time, if they actually do. Since we have an opportunity to redeploy the cash immediately, it makes even more sense to make these trades right now.
The Bottom Line
Our goal with the Team Alpha portfolio is to maximize our income with the right stocks at the right time. I believe it is now the right time to "double down" on shares of Apple.
I realize that to many, it seems like I shift gears too quickly. The fact is that in this crazy world, when an opportunity presents itself, we need to be as creative as possible to take advantage of it. At the same time, when events decidedly change the basic fundamentals of a stock we hold, we need to cut it loose.
I never said this would be a walk in the park folks, but it can be exciting!
Disclaimer: This article is the opinion of the author, and is not a recommendation to either buy or sell any security. Please do your own research and due diligence prior to making any financial decision for yourself.
Disclosure: I am long AAPL, BKCC, BMY, CSCO, CSX, GE, JNJ, KO, MCD, NLY, O, PFF, T, XLV, XOM, CVX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.