- Selling Apple stock on September 9th due to anticipated volatility is a bad investment strategy.
- Investors may be subjected to a higher capital gains rate for closing their positions in Apple too early.
- Apple has reasonable growth potential in relation to peers and its earnings multiple.
- Shareholder friendly policies like a large share buyback program, plus a dividend, should keep investors seated for the long haul.
I don't think it's a really good idea to sell Apple (NASDAQ:AAPL) stock on September 9th. The idea of locking in quick capital gains from a tax standpoint isn't a good idea. Secondly, investors should own Apple with the anticipation of earning respectable investment yields over a longer timeframe.
Here's what Jason Russ states:
Taking out the very first launch - I think it is reasonable to postulate that the first iPhone data tells us little about what to expect going forward - and averaging the last six years results in a post-launch loss of 1.3%. Using data from the last four years results in an average loss of 4.4% in the month following a new phone release. Nonetheless, any investor who is on the fence about selling some Apple shares or is considering selling covered calls might want to think long and hard about September 9th, or whatever date turns out to be the iPhone 6 release date.
Trying to sell stock in anticipation of a 4.4 percent loss, means that the investor owning the stock can't stomach the occasional volatility that goes with being an actual investor. Again, some of the investments that an investor will own will be subject to higher levels of volatility, and trying to time these kinds of movements doesn't yield much success over the long haul.
Day trading may be profitable for some, but day trading is reserved for those who have access to brokers that offer extremely low rates and great execution. The same day trader also pays for cutting edge news terminals from Bloomberg, paired with strategies for mitigating capital gains tax (like being domiciled in a different country). If these kinds of benefits aren't made available to you, then you shouldn't be timing the equity market, unless if you're rebalancing your portfolio to meet your risk profile/investment objective.
However, in this specific case, an investor that attempts to close their position in under a year will have to pay a 10 to 39.6 percent capital gains rate. However, investors who have the patience to have a longer holding period will pay a capital gains rate of 0 to 20 percent, depending on the amount of income that was generated. So if you're dumping Apple stock, think about how you're going to offset the differential between your short-term and long-term capital gains.
Also, I don't think there are a whole lot of investments that offer as compelling of a mix of value, earnings growth, and income. At a price-to-earnings ratio of 16.4, Apple is cheaper than the cyclically adjusted price to earnings multiple of the Standard & Poor 500. However, sales growth may also surprise to the upside due to new products (iWatch), refresh from pre-existing categories (iPads), plus organic growth in the smartphone/MacBook/iMac segment driven by market share gains and emerging market expansion. However, beyond the growth story, the company also pays a respectable dividend yield at 1.86%, and authorized a share buyback program that will return $90 billion through calendar year 2015.
After a 58.93% move from its 52-week low, it may sound prudent to start cutting back your position. But if you really think about it, the growth story, paired with the present valuation is still appealing. At present, I have a $120 price target for fiscal year 2015, and I plan to raise my forecast following the September 9th event. Further visibility on the iPhone 6 and iWatch will help me with modeling earnings growth.
However, other analysts will most likely raise price targets following September 9th, as the iWatch hasn't been baked into financial models, and delays in the supply chain make it difficult to determine sales recognition of the iPhone between FY 2014 and FY 2015.